In this report, an examination was conducted in relation to two companies, Sysco and the Bidvest Group. Both companies actually have a lot in common when it comes to their food services operations in relation to utilising their large supply chains and distribution networks to sell their products to hundreds of thousands of consumers which consist of either other food processing companies or large establishments such as schools, hotels, etc. One of the differences between the two is the fact that Sysco has a vast majority of its operations and sales (more than 80%) occurring in the U.S. with only minor expansion attempts into Canada and Ireland. The Bidvest Group on the other hand has multiple operations in various countries in Europe, Africa, and the Asia Pacific region. As a result, the latter company has enjoyed access to a much broader consumer base for its products and services. It is based on these differences that this report will examine whether Sysco or Bedivest would be a good investment. This examination will thus give a background of both companies, examine their strengths and weaknesses, determine their current financial and stock performance and give an overview regarding the findings. It is expected that by the end of this examination, it will be determined which business model would be the most effective in the food supply business environment that both companies find themselves in.
Background of the Study
The Sysco Corporation can be considered as one of the largest food and related product distributors in North America with a growing market share in Canada and Ireland. As of 2014, nearly 87.3 percent of the company’s revenue has originated from the U.S. through its comprehensive list of products which include, but are not limited to, frozen foods, meats, vegetables and deserts as well as a wide array of prepared products (Strengths Section – Annual Reports, Sysco). Aside from this, its various specialty divisions provide fresh meats, seafood and poultry to various butcher shops, grocery stores and large food retailers such as Wendy’s. When examining the company’s primary consumer segment, it can be seen that they consist of schools, industrial food processing centres as well as other food service organisations that require supply chains that can provide large quantities of food stuffs based on the requirements of the company. Through its business segments such as Broadline and Sygma that company has been able to produce and distribute both food and nonfood items such as cookware, restaurant and kitchen equipment as well as other supplies that a large commissary or food services company may need. Its Broadline segment alone earned over US$37,709,000 which accounted for nearly 80.5 percent of the company’s 2014 revenue (Business Description Section – Annual Reports, Sysco). Overall, it can be see that the Sysco Corporation is primed for success with 94 Broadline companies providing a variety of food and non-food products and services to multiple locations in the U.S. However, it should be noted that with 80% of the company’s consumer segment concentrating primarily in the U.S. market, this leaves the company vulnerable when it comes to sudden shifts in localised demand. While the U.S. market for food services is quite robust, instances such as the 2007 financial crisis has shown that diversification into multiple regional markets is essential given the state of the U.S. economy from 2007 to 2010 wherein localised demand for various products and services were at an all time low (food services included). This shows an inherent weakness in the current strategy that Sysco is implementing which it is currently addressing by expanding into markets such as Canada and other locations. It is still unknown though whether such a strategy will pay off in the future or if it is too late given the level of market saturation in other international markets that have their own food services companies that are far more established.
The other company that will be examined in this report is the Bidvest Group which is specialises in an assortment of services ranging from automotive and electrical to financial services, consumer products, travel and aviation as well as freight and industrial office products (Business Description – Annual Reports, Sysco). While the majority of Sysco’s corporate market share is located in the U.S. with some minor shares in Canada and other locations, the Bidvest Group operates in areas such as Europe, Asia Pacific and Southern Africa through its various services (Strengths Section – Annual Reports, Bedivest). This exposes the company to considerable competitive forces in its multiple markets but also creates more opportunities for it when it comes to market penetration resulting in more consumers for its products as compared to “putting all your eggs in one basket” so to speak which is noted in the case of Sysco due to its large dependence on a single market for its products. On the surface both companies may seem to have little in common with Sysco focusing primarily on food products and non-food items that support the catering and hospitality industry; however, the Bidvest Group also happens to have a food services division that focuses on supplying ingredients, finished products and a variety of different types of equipment to catering companies and food service providers.
Strength of the Bidvest Group
As a corporation, one of the strengths of the Bidvest Group lies in its strong market position in multiple business sectors. With interests in banking, transport, vehicle retail, terminal operations and the supply of office equipment and food services, the Bidvest group has a sufficiently extensive network of operations that this ensures that it is not totally committed to a single venture (Strengths Section – Annual Reports, Bedivest). In cases where consumer demand would adversely impact one aspect of its operations, the entirety of the company’s operational structure is not put in danger due to its other ventures which allows it to “pick up the slack” so to speak through its other businesses until such a point that it is able to return to normal operations. Aside from this, the Bidvest group also happens to have a wide geographic presence in Asia, Europe and the Middle East which allows it to mobilise its extensive supply chain and manufacturing capacity into multiple markets. This is done through the creation of multiple private label brands under its product portfolio which range from food and kitchen equipment to office supplies and delivery services. The effectiveness of such an approach is proven through its annual growth rate which is at a respectable 5.4 percent (Company Information Section – Annual Reports, Bedivest). When examining the performance of the company, it can be seen that it does multiple things right in relation to proper product diversification, market expansion and the penetration of multiple consumer markets which allows the company to leverage it supply chain and production capacity to compete with regional rivals in the same market.
Strength of the Sysco Corporation
The strength of the Sysco Corporation can be traced to its broad product portfolio, its effective supply chain management as well as properly leveraging its established distribution network in order to properly attend to its diverse consumer base. One of the similarities between Sysco and the Bidvest group lie in their utilisation of their respective supply chains in order to expand their network and gain more consumers. While the Bidvest Group operates in multiple international markets, the Sysco Corporation works primarily within the U.S. yet has over 400,000 customers ranging from schools to hotels and nursing homes (Company Information Section – Annual Reports, Bedivest). With its focus on its mix of high-margin and low volume business as well as low-margin and high-volume business, the company is able to address multiple consumer demands based on the needs of their individual consumers (Company Strength Section – Annual Reports, Sysco). This creates a competitive advantage for the company since it allows it to utilise its expansive distribution network and supply chain regardless of the product type needed by a particular consumer.
Comparison and Vulnerabilities
After going over both companies, it can be seen that both have a considerable level of similarity when it comes to their means of operation. While Sysco does not have the same level of product and service diversification that the Bidvest Group has, it does share the same trait involving the use of extensive supply chains, manufacturing facilities and an established distribution network in order to operate. However, what differentiates the two is the fact that Sysco has a far weaker geographic coverage with only three locations (the U.S., Canada and Ireland) as its primary markets while the Bidvest group has literally dozens of locations where it is in operation (Weakness Section – Annual Reports, Sysco). This highlights the problem mentioned earlier on in this paper that Sysco is far more vulnerable to internal shifts in consumer behaviour brought by outside factors (ex: the 2007 financial crisis) as compared to the Bidvest Group. On the other end of the spectrum though, the Bidvest Group does have a limited financial position due to significant debt funding than equity with a recorded debt-to-equity ratio of 0.59 at the end of FY2014 against its previous year’s debt-to-equity ratio of 0.57. Aside from that, the company also issues when it comes to its liquidity with well over ZAR 39.0 billion in recorded liabilities with current assets worth ZAR43.6 billion and cash equivalents of over ZAR8.8 billion (Weakness Section – Annual Reports, Bedivest). What this shows is that the company has a limited cash and liquidity position which prevents it from taking advantage of potential opportunities that arise from its various markets. One of the possible reasons behind this could be connected to the fact that with the presence of the company in multiple markets and through a large selection of brands and services, this resulted in the company committing large amounts of resources to support them all. It is due to this that the company finds itself mired in increasing amounts of debt. One possible way out of this would be to divest itself of nonperforming assets and focus on its segments that show potential for considerable profit in the future.
Data Collection and Research Methodology
The research methodology that will be utilised in this paper will focus on a quantitative analysis of the annual statement and annual ratios of both the Bidvest group and Sysco in order to compare the two companies. This analysis will focus on the progress of both companies total revenue, gross profit, earnings per share and book value per share over the course of four years. The reason behind this form of analysis is that it enables readers to determine whether the company is able to have a sufficient level of growth with its current business model. Positive growth in this instance comes in the form of high growth rates over the course of five years. Through this analysis, this report will be able to determine what company has a better business strategy that results in sustainable long term growth.
Data collection for this report will consist of examining the financial statements and annual ratios. This will be obtained via intelligence reports that have already been provided beforehand that have detailed the various aspects of the companies that are being examined.
Analysis and Discussion
Sysco – Annual Statement (Annual Statements – Annual Reports, Sysco)
|Cost of Revenue, Total||USD||30,055.2||31,928.8||34,601.7||36,414.6||38,335.7|
Bidvest Group – Annual Statement (Annual Statements – Annual Reports, Bidvest)
|Cost of Revenue, Total||ZAR||86,778.4||93,930.8||106,241.7||123,040.0||124,247.8|
Bidvest Group – Annual Ratios
|EPS (Earnings per Share)||ZAR||10.571||11.072||14.284||15.181||14.528|
|Dividend per Share||ZAR||4.32||4.8||6.22||7.2|
|Book Value per Share||ZAR||52.464||57.178||69.338||84.111||99.653|
Sysco – Annual Ratios
|EPS (Earnings per Share)||USD||1.988||1.957||1.904||1.674||1.578|
|Dividend per Share||USD||0.99||1.03||1.07||1.11||1.15|
|Book Value per Share||USD||6.505||7.954||7.996||8.858||8.986|
|Cash Value per Share||USD||0.995||1.081||1.176||0.703||0.705|
The annual statement from Sysco shows the revenue of the company starting at $37,243,000 in 2010 and rising to 46,516,000 in 2014 (Annual Statements – Annual Reports, Sysco). The period in between showed that on average the rate of revenue growth was 2 to 3 million per year which is equivalent to roughly 5 percent. This shows a relatively healthy growth rate in relation to revenue yet it is important to note that there has been little progression when it comes to the gross profit of the company. In 2010 the total amount of profit was $7,183,000; however, by 2014 the total profit per year was $8,181,000 (Annual Statements – Annual Reports, Sysco). Thus, within the span of 5 years, the increase in the company’s yearly profit only increased by roughly $1,000,000. There may be a wide assortment of contributing factors behind this such as debt obligations as well as issues with local competitors; however, based on these results it shows that Sysco needs considerable work when it comes to increasing the profitability of the company. When it comes to the annual statement of the Bidvest Group, it was shown that in 2010 its total revenue was ZAR 109,789,200. This amount increased to ZAR 161,612,400 which is equivalent to a 55 percent increase in total revenue within a period of 5 years (Annual Statements – Annual Reports, Bidvest). This is far better as compared to the 5 percent increase that was noted in the case of Sysco. Aside from this, in 2010 the total gross profit for the Bidvest group was ZAR 23,010,000 and rose to ZAR 37,364,000 which is indicative of a more than 35 percent increase in profit within the same five year period. What this data shows is that in terms of revenue growth, the Bidvest Group is actually superior to the Sysco Company (Annual Statements – Annual Reports, Bidvest). Though, it should be noted that in terms of size Bidvest is larger and is in more markets which enables it to sell more products and access more consumers as compared to Sysco. This may play a factor in the higher rate of revenue and profit increase when taking into consideration the potential for growing consumer patronage. Aside from this, it is also necessary to examine the equity ratio of the company in order to determine its overall value as a viable investment vehicle. In 2010 the earnings per share for the Bidvest group was ZAR 10.571 which rose to ZAR 14.528 by 2014 (Annual Statements – Annual Reports, Bidvest). This was a 25 percent increase in value for the EPS and is indicative of growing value for shares of the company. Such a statement is backed up the increase in book value for the company as well wherein in 2010 the book value per share was ZAR 52.464 which grew to ZAR 99.653 by 2014 (Annual Statements – Annual Reports, Bidvest). The increase in this case was close to 100% in relation to the original price. When taking into consideration the increase in the book value of the shares along with the EPS value, it can be seen that as an investment, the Bidvest Group is actually quite viable given the rate of growth that has been shown. Combined with the increase in profitability and revenue over the years (which was mentioned earlier), it is clear that the company would be a good investment vehicle. On the other end of the spectrum, when examining the EPS of Sysco, it can be seen that there has actually been a decline in the EPS of the shares. In 2010 the EPS per share was $1.988; however, by 2014 it was $1.578 (Annual Statements – Annual Reports, Bidvest). While not a considerable loss, it is still a decline and is indicative of a lack of performance on the part of the company. It should be noted though that the book value per share did increase by 20% from $6.505 in 2010 to 8.986 by 2014 (Annual Statements – Annual Reports, Bidvest). The combined financial results from Sysco shows that while the company is growing, its rate of growth is slower as compared to the Bidvest group when it comes to revenue, profit and the increase in the EPS and book value of its stocks.
Overall, when examining the data that was presented, it becomes immediately obvious that the Bidvest Group is far more viable as an investment as compared to Sysco based on its financial and stock performance. One of the potential reasons behind Sysco’s lower rate of revenue and profit growth could be connected to the fact that it is concentrating too much on the U.S. market and, as such, needs to expand into different regions in order to increase its access to new consumer segments and increase its overall level of profitability.