Mergers and acquisitions activities start to show signs of life for suppliers and chains alike as the economy slowly and steadily heads in the right direction.
According to thedeal.com, Sysco's CEO and CFO stated at a stock analysts' meeting in Florida that the company could set aside $1.5 billion to $4.0 billion in cash for acquisitions over the next 5 years. The Sysco executives indicated that Performance Restaurant Group would be an attractive potential target although there are currently not any negotiations in progress.
Performance Restaurant Group was acquired for $1.3 billion in 2008 by two private equity groups and currently has revenue of more than $10 billion. Berkshire Hathaway's McLane Company might also be of interest to Sysco but purchasing these companies could raise antitrust concerns.
Sysco would seem to be in good financial shape to acquire companies. Thedeal.com says that Sysco could service up to $6 billion in debt and still remain investment grade. Sysco currently has $3 billion in debt and EBITDA of almost $2.3 billion.
Economic News This Week:
- The housing market continues to show improvement. The only negative report this past week was from the National Association of Home Builders — the confidence index of their members fell to 44 from 46 in March. But on a more positive note, the U.S. Department of Commerce said that housing starts rose 0.8 percent in February to an annual rate of 917,000. This is up from the revised annual rate of a 910,000 in January. Housing starts are up 27.7 percent over February 2012. Building permits in February rose 4.6 percent in February to an annual rate of 946,000, which represents a 33.8 percent increase over February 2012. And the National Association of Realtors reported that existing home sales increased 0.8 percent in February to a seasonally adjusted annual rate of 4.98 million. This is the highest sales rate since November 2009 when a federal tax credit was propping up sales. Other housing news this week indicates that rising home prices mean that 1.7 million mortgage holders have regained equity in their homes and no longer owe more than their place is worth. Further, the Wall Street Journal says that the rebounding housing market has returned Fannie Mae to profitability which could result in the mortgage buyer returning billions of dollars in rescue funds to the U.S. Treasury. Finally the WSJ reported that makers of plywood are expanding their production facilities as the home building market grows.
- Initial jobless claims rose for the week ending March 16 but just by 2,000 to reach a total of 336,000. Claims have been at less than 350,000 for 5 of the last 6 weeks. The more reliable 4-week average of claims filed fell by 7,500 for a total of 339,750, which is the best since February 2008. Some observers remain cautious noting that reduction in dismissals does not automatically translate into an increase in hiring.
- Quality jobs are still hard to find with the Gallup Organization saying that 74 percent of Americans thinking it is a bad to time to find good employment.
- The Gallup Organization's U.S. Economic Confidence Index continues to improve last week rising to minus 14 from minus 22 the previous week. The Index remains below the five-year high of minus 8 it recorded last month.
- The Leading Economic Indicators rose 0.5 percent in February following an identical increase in January. The Conference Board said that 8 out of 10 indicators were positive but expressed concern about the impact of federal fund sequestration.
- The Philadelphia Federal Reserve's Survey of Manufacturing Activity rose from minus 12.5 in February into positive territory at +2. New orders and hiring plans both increased.
Foodservice News This Week:
- The Knapp-Track Report of comparable store sales of more than 50 casual-dining chains has been running positive so far in March. The extremely weak minus 5.4 percent same store sales in February were reported in this space two weeks ago and received broad coverage this past week. Now Merrill Lynch says the March same store sales numbers look promising particularly due to minus 0.3 percent in March of last year making for an easier comparison. It appears the major decline in February may have been an anomaly.
- There were 96 restaurant chain mergers and acquisitions last year according to a study by the J.H. Chapman Group. This is down slightly from the 100 transaction in 2011 but up from 89 transactions in 2010. Equity funds accounted for 27 percent of all the transactions in 2012.
- A fast-casual approach may be in Red Lobster's future. The chain is testing a concept called "Seaside Express" in two of their Florida locations where customers will order and pay at the counter then receive a number that will enable servers to bring the food to their table. The service is available from 11:00 a.m. to 3:00 p.m. Darden executives would not discuss if they have any plans to test the idea at their other restaurant brands.
- March Madness is great for the restaurant business as basketball fans flock to their favorite place to watch the tournament on TV. The Dayton Business Journal says restaurant employees share in the traffic boost with both extra hours and more tips.
- Food trucks are not just a way for operators to break into the foodservice business but also a profit generator for existing restaurants as well. The Seattle Times listed 20 new trucks in the Seattle area counting new ventures as well as the return of some concepts that had been on hiatus.
- Steak houses, which usually feature a masculine ambiance, are carefully changing décor, menus and marketing to attract more women patrons, according to the Eater web site.
- Fresh & Easy, the grocery chain that features a wide array of prepared takeout food, appears to be edging closer to being sold or shut down according to the L.A. Times. Fresh & Easy was to be supermarket giant Tesco's entry into the U.S. market but encountered a host of problems both external and self generated resulting in more than $1 billion in losses after an investment of $1 billion.
- Growth chains: Seattle's Best Coffee will open 15 units (14 company locations and 1 franchised) in the Dallas-Ft. Worth area this year. Wendy's has signed a long-term agreement with a franchisee in Ecuador to open 20 restaurants. Noble Roman has opened 12 franchised operations in the first 10 weeks of this year, which puts the chain over the 1,400 store mark. Starbucks plans to increase the number of units in China from 800 to 1500 in the next 2 years.
- Comparable store sales reports: Darden (Bahama Breeze down 0.3 percent, Capital Grill up 4.1 percent, LongHorn down 1.6 percent, Olive Garden down 4.1 percent, Red Lobster down 6.6 percent, and Seasons 52 up 0.4 percent), Granite City Brewery (up 4.5 percent), Logan's Roadhouse (down 2.6 percent) and Luby's (down 0.6 percent).
For details and comparable store sales data on other chains, please click here for the Green Sheet
Foodservice Equipment & Supply Manufacturers Financial Reports includes Cintas. For full report, please click here.