Sysco targets $400 million in annual operating income growth by 2018

By Anjali Athavaley

NEW YORK (Reuters) - Sysco Corp said on Tuesday it is targeting at least $400 million in annual operating income growth by 2018 as the food distributor aims to increase deliveries to local, independent restaurants amid increased competition.

The company is also aiming for a 15 percent return on invested capital, up from 13.1 percent in fiscal 2015.

“It’s going to come from a very targeted, focused top line growth,” Chief Executive Bill DeLaney told Reuters in an interview prior to an investor conference. In fiscal 2015, the company's operating profit was $1.2 billion. “What we’re looking to do is grow our cases and to accelerate our case growth with the locally managed customers we have.”

Sysco said an estimated 15 percent to 20 percent of the operating income growth will come from reducing administrative costs. Sysco has already eliminated about $700 million in annual costs over the past three years.

“Now what we need to do is go in a little more surgically and kind of look at all of our processes and all of our work streams and identify more,” he said.

In August, Sysco said it added activist investor Nelson Peltz, CEO of Trian Fund Management, and Josh Frank, a Trian partner, to its board. Trian disclosed a 7 percent stake in Sysco earlier in the month, becoming its largest shareholder.

The move represented the latest instance of an activist taking a stake in a U.S. food company. In August, billionaire investor William Ackman's Pershing Square Capital Management hedge fund disclosed that it spent $5.5 billion for a 7.5 percent stake in Mondelez International Inc in what was seen by Wall Street as an attempt to push the company to increase its margins further or potentially sell itself.

In July, ConAgra Foods Inc agreed to add two members to its board as part of an agreement with Jana Partners after the hedge fund disclosed a 7.2 percent stake in the company.

DeLaney said that giving Trian two board seats was "the right decision" given the size of its stake. Industry watchers expect Trian’s presence on the board to increase Sysco’s focus on reducing expenses.

“Obviously, they’re a big shareholder, and they’re on our board, so we’re certainly going to listen to all of that,” DeLaney said. “We need to take costs out, but one of the things we’ve learned over the years is if you do it the wrong way or if you do it before you’re really ready to execute it well, there can be ramifications on the customer side, which you don’t want to have. It just needs to be executed well.”

Sysco's stock fell 42 cents, or 1.05 percent, to $39.46 on the New York Stock Exchange.

(Reporting by Anjali Athavaley; Editing by Dan Grebler)

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