Dive Brief:
- Sysco Foods Corp. reported a 71% drop in quarterly profit, mainly attributed to $430 million in costs related to the failed acquisition of rival US Foods Inc., which Sysco called off after a judge granted a preliminary injunction to the Federal Trade Commission to block the merger. Those costs included $313 million in merger-termination fees and $117 million in legal, interest, and other related expenses.
- Sysco's adjusted operating income, after removing merger costs, actually rose 5.8%. Gross margin also increased to 17.9% from 17.5% in the same period last year.
- Since the US Foods deal fell through, Sysco has explored a new growth strategy, which includes pursuing "smaller acquisitions, internal cost-cutting and updating its product assortment and technology to compete with rivals that have more natural and organic items and better online ordering," The Wall Street Journal reported.
Dive Insight:
After spending a year and a half internally preparing for a merger with US Foods, Sysco has been adjusting its expectations and goals for acquisitions. Now these acquisitions are more likely to be "Both within the core [business] and potentially beyond the core, whether it be [adjacent industries] or continuing to build our international platform," said CEO Bill DeLaney on a conference call.
Mergers and acquisitions in the food industry can be tricky, as the Sysco-US Foods merger was in the regulatory spotlight while The Kraft Heinz Co. became the world's fifth-largest food company.