Sysco Rating Downgraded to Baa2 by Moody's on Debt

Moody's Lowers Sysco's Rating to Baa2

Moody's Ratings has officially downgraded Sysco Corporation's long-term ratings, including its senior unsecured ratings, from Baa1 to Baa2. The ratings agency concurrently shifted the outlook for the food distribution giant from negative to stable, citing specific financial metric concerns.

Analysis of the Rating Action

The downgrade stems from Moody's expectation that Sysco's credit metrics will persist at current levels. The decision was driven by a steady increase in debt since fiscal year 2023, which has outpaced earnings growth. Moody's-adjusted debt/EBITDA ratio increased to 3.7x, up from 3.2x in the prior year.

Financial Health and Peer Comparison

Governance considerations were noted as a factor, with Sysco operating above its stated target leverage range of 2.5x–2.75x. The company is expected to prioritize capital spending, acquisitions, and shareholder returns over debt reduction. Despite improved operating trends, Sysco's volume growth continues to trail behind its large food distribution competitors.

Future Outlook and Projections

The stable outlook reflects Moody's projection of mid-single-digit revenue and operating income growth for Sysco over the next 12-18 months. The rating agency anticipates the company will maintain good liquidity and credit metrics near their current state. An upgrade is possible if debt/EBITDA falls below 3.25x, while a further downgrade could occur if it exceeds 4.0x.

FAQ

Q: Why did Moody's downgrade Sysco's rating?
A: The downgrade was due to Sysco's increased debt levels outpacing its earnings growth, leading to weaker credit metrics, specifically a debt/EBITDA ratio of 3.7x.

Q: What is Sysco's new credit rating?
A: Sysco's senior unsecured rating has been lowered from Baa1 to Baa2, with a stable outlook.

Q: What could lead to another rating change for Sysco?
A: An upgrade could happen if debt/EBITDA is sustained below 3.25x. A downgrade could occur if the ratio exceeds 4.0x or if financial strategy becomes more aggressive.

Source: Investing.com