Food manufacturers such as JM Smucker and Mondelez International have seen their stock performance decline over the last year. This has raised concerns about their long-term viability.
According to data from Conference Board, inflation remains a major challenge. Rising prices are straining consumer budgets, and causing a sharp decline in consumer confidence.
Wall Street analysts are becoming increasingly concerned about the potential impact of trade wars on global supply chains.
According to a Barron’s report, the rise of weight loss drugs like GLP-1 agonists is a major concern for packaged food manufacturers.
As more people turn to these medications for their health, the traditional “snackification of eating habits” may be threatened.
McCormick, a spice maker, has managed to buck this trend. Its stock is up 20% in the last year.
McCormick CEO stated in a recent report that they do not compete on calories, but rather flavours. He highlighted the power of seasonings and condiments as well as hot sauces.
What analysts learned from CAGNY about trends and buzzwords
Analysts at JPM noted that the snack industry has been in “deep slump” for more than a year.
Conagra, on the other hand, was more vocal in its discussion of the category.
The company reported that snacking is on the rise, especially among children and teens, but that consumers are now more interested in meat snacks and nuts than traditional cookies and chips.
Innovation in a world of changing consumer needs
According to the report innovation is still a key growth driver. However, it was pushed to the side during the pandemic because of supply chain disruptions.
Now, companies are reintroducing products, some of them stretching the boundaries of conventional food categories.
JM Smucker unveiled Milk-Bone Peanut Buttery Bites – a dog treat that is made with real Jif Peanut Butter. They called it the “first dog treats featuring a human food label.”
Conagra, meanwhile, is adapting to the rising popularity of weight-loss medications by labeling some Healthy Choice meals “GLP-1-friendly,” catering to consumers who are looking for portion-controlled options.
But not all innovations are a sure thing. Take the new Vlasic Big Crunch. Crispy Fried Pickles are met with skepticism.
The debate about “peak protein” in food and branding
Bank of America analysts have expressed concern about “peak proteins,” which refers not only to the saturation of the market but also to the marketing of food packaging that emphasizes protein content.
General Mills, as an example, has often emphasized the high protein content of its Progresso soup cans or Strawberry Cheerios Protein box, overshadowing their actual brand names.
WK Kellogg, after its split from Kellanova in 2023, is also looking to diversify beyond the cereal market, and is discussing potential acquisitions as a way to fuel growth.
This raises the question of whether the company is still true to its core identity. The 2023 investor presentation stated that “everything will be in service to cereal.”
Can Big Food regain it’s footing? Analysts weigh in
The financial performance of packaged food companies has been scrutinized more closely due to the challenges they face.
Wall Street has long viewed consumer staples, which offer consistent revenue growth and dividends, as a stable investment.
Analysts warn, however, that companies like General Mills and Kraft Heinz could struggle to meet the growth expectations in near term.
Bank of America warned that General Mills may not meet its “algorithmic growth” targets until 2025, and Kraft Heinz could not see meaningful earnings increases until 2027.
Hershey may not be able to return to growth “on algorithm” until next year, as it struggles with the rising cocoa prices.
Oppenheimer summarized the industry’s outlook citing inflation, price constraints, obesity drugs and tariff risks as significant obstacles.
It says that “a difficult backdrop is likely continue.”
Investors should be aware of the growing speculation about a shift in US markets towards value stocks, such as consumer staples.
The problem is that cheaper options have no growth potential while those with growth potential are more expensive.
General Mills, which trades at 14 times earnings is expected to see a slight decline in earnings for its fiscal year that ends in May. McCormick on the other hand, with a mid-single digit growth, commands an astronomical 25 times earnings.
This post Big Food’s challenge to keep up with changing consumer diets makes Wall Street wary of the industry may be updated as new information becomes available.
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