Moody’s changes Sysco’s outlook to negative amid weakened credit metrics

Investing.com -- Moody’s Ratings changed the outlook of Sysco Corporation to negative from stable on Wednesday, while affirming all of the company’s ratings.

The change reflects Sysco’s weakened credit metrics, with Moody’s-adjusted debt/EBITDA increasing to 3.6x from 3.2x and EBITA/interest expense declining to 4.6x from 5x for the fiscal year ending June 28, 2025, compared to fiscal 2024.

Moody’s noted that Sysco’s financial performance has lagged behind its large peers in the food distribution industry for the past six quarters. The company has experienced low-single-digit decreases in organic local case counts, leading to declines in non-GAAP operating income in its key US Foodservice segment.

Governance considerations were also cited as a key factor in the outlook change. In 2025, Sysco increased its debt levels while continuing share repurchases despite roughly flat earnings.

The rating agency affirmed Sysco’s Baa1 senior unsecured ratings, (P)Baa1 senior unsecured shelf ratings, (P)Baa2 subordinate shelf ratings, and Prime-2 short-term commercial paper program ratings. The outlook of Sysco Global Holdings, B.V. was changed to no outlook from stable.

Moody’s expects Sysco’s credit metrics to remain near current levels over the next 12-18 months, with adjusted debt/EBITDA in the mid-3x range and EBITA/interest expense in the low- to mid-4x range. The agency projects modest revenue and operating income growth in fiscal 2026, reflecting improved salesforce retention and productivity, supply chain initiatives, and continued solid execution in the international segment.

According to Moody’s, the ratings could be upgraded if the company maintains lower leverage while growing revenue and earnings. Specifically, this would require Moody’s-adjusted debt/EBITDA sustained below 2.5x and EBITA/interest expense above 7.5x, along with continued very good liquidity.

Conversely, the ratings could be downgraded if Sysco adopts a more aggressive financial strategy, including debt-funded share repurchases. A downgrade could occur if debt/EBITDA is sustained above the high end of the company’s target 2.75x leverage or above 3.25x on a Moody’s-adjusted basis, or if Moody’s-adjusted EBITA/interest expense falls below 5.0x.

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