Players in the Zacks
Food-Miscellaneous industry are witnessing moderation of at-home consumption trends while away-from-home food demand is picking up with opening up of outdoor dining. Rising input costs and expenses related to COVID-19 pandemic have also been acting as headwinds for some of the players in this space. Nevertheless, food companies have been focusing on innovation, product upgrades and portfolio refinement to cater to consumers altering tastes and preferences. Companies are also engaged in rationalizing operational structures in an effort to curb costs. Such upsides are benefiting companies like Mondelez International, Inc. ( MDLZ Quick Quote MDLZ - Free Report) , The J.M. Smucker Company ( SJM Quick Quote SJM - Free Report) , Lamb Weston Holdings Inc. ( LW Quick Quote LW - Free Report) and Darling Ingredients Inc. ( DAR Quick Quote DAR - Free Report) . About the Industry
The Zacks Food-Miscellaneous industry consists of companies that manufacture and sell a wide range of food and packaged food items such as cereals, flour, sauces, bakery items, spices and condiments, natural and organic food items as well as frozen products. Some of the companies also provide comfort food items such as chocolates and ready-to-serve meals, soups and snacks. A few of the players are engaged in providing pet food products and supplements. Several food companies also offer organic and natural products. The companies operating in this space sell their products mostly through wholesalers, distributors, large retail organizations, grocery chains, mass merchandisers, drug stores as well as e-commerce service providers. Some also cater to foodservice channels including restaurants, cafes and hotels. Others also offer services to schools, hospitals and industry caterers.
Major Trends Shaping the Future of the Food Industry
: The elevated demand triggered by high at-home food consumption witnessed amid the pandemic is gradually flattening. With outdoor movement picking up pace and society getting accustomed with the old normal, thanks to mass vaccinations, consumer pantry loading and at-home dining practices have moderated from last-year’s levels. The scenario has led to unfavorable year-over-year sales comparisons for several food companies such as Impact of COVID-19 on Demand Campbell Soup Company ( CPB Quick Quote CPB - Free Report) . Although at-home demand has declined from the year-ago period, industry experts expect at-home dining to stay, or at least improve from the pre-pandemic levels as a number of Americans have cultivated cooking and baking at home as a new habit. Also, away-from-home food demand is gradually recovering, with restaurants, cafes, offices and other social institutions opening up. Companies such as Sysco Corporation ( SYY Quick Quote SYY - Free Report) and McCormick & Company, Inc. ( MKC Quick Quote MKC - Free Report) are optimistic regarding the rebound in their foodservice channels. Players in the miscellaneous food space are grappling with rising input costs. Prices of commodities like soybean, flour, cooking oil, vegetables, dairy items, egg and animal feed have been rising. Additionally, companies have been witnessing high costs associated with operating amid the pandemic like increased pay to employees to support healthcare needs, as well as costs related to sanitization and safety measures. Supply chain hurdles due to port congestion have increased warehouse, packaging and other logistics expenses. Such rise in expenses is putting pressure on margins of companies such as Rising Costs a Hurdle: General Mills Inc. ( GIS Quick Quote GIS - Free Report) and The Kraft Heinz Company ( KHC Quick Quote KHC - Free Report) . Nevertheless, food companies have been focused on undertaking initiatives to mitigate cost-related challenges. These include streamlining of operational structures, optimizing manufacturing capacity and supply networks as well as adopting effective pricing policies. Consumers’ high dependency on digital transactions has pushed several food companies to bolster online offerings. Online sales have been boosting revenues of several food companies. To continue building on the sales momentum, companies in the food space are striving to bolster operations at fulfillment centers. E-commerce Investments Gain Predominance: Refining Portfolio to Suit Consumer Needs Food companies resort to product upgrades and innovation on a regular basis to suit consumers’ changing tastes and preferences. Moreover, with health and well being gaining importance amid the pandemic, there has been growth in the demand for organic and natural food offerings. A number of miscellaneous food companies are enriching their portfolio by adding more plant-based and natural brands. Additionally, companies often engage in portfolio refinement through strategic buyouts and divestiture of non-core elements. : Conagra Brands, Inc. ( CAG Quick Quote CAG - Free Report) and Kellogg Company ( K Quick Quote K - Free Report) and are a few popular players who have bolstered their product portfolio with prudent acquisitions. Zacks Industry Rank Indicates Gloomy Prospects
The Zacks Food-Miscellaneous industry is housed within the broader Zacks
Consumer Staples sector. The industry currently carries a Zacks Industry Rank #197, which places it in the bottom 22% of more than 250 Zacks industries. The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bleak near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1. The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are losing confidence in this group’s earnings growth potential. Since the beginning of June 2021, the industry’s earnings estimate for 2021 has declined 1.2%. Despite the murky scenario, we will present a few stocks that one can buy, given their solid growth endeavors. But before that, it’s worth taking a look at the industry’s performance and current valuation. Industry Vs. Broader Market
The Zacks Food-Miscellaneous industry has underperformed the S&P 500 and the broader Zacks Consumer Staples sector over the past year.
The industry has gained 14% over this period compared with the S&P 500’s growth of 37.8%. Meanwhile, the broader sector has gained 18% in the said time frame. One-Year Price Performance
Industry's Current Valuation
On the basis of forward 12-month price-to-earnings (P/E), which is commonly used for valuing consumer staples stocks, the industry is currently trading at 18.63X compared with the S&P 500’s 22.16X and the sector’s 20.35X.
Over the past five years, the industry has traded as high as 22.57X and as low as 14.67X, with the median being at 18.34X as the chart below shows. Price-to-Earnings Ratio (Past 5 Years)
4 Food Stocks to Keep a Close Eye on
Darling Ingredients: This global provider of natural ingredients is benefiting from its focus on boosting portfolio through innovation. The company’s capacity expansion investments also bode well. Darling Ingredients’ feed segment is benefiting from a favorable commodity price environment for proteins and animal fats, among others. The Zacks Consensus Estimate for 2021 earnings has increased 15.4% over the past 30 days. Shares of this Zacks Rank #1 (Strong Buy) company have gained 141.7% in the past year. Price and Consensus: DAR Mondelez International: This well-known chocolate products, candy and snacks manufacturer has been gaining from elevated demand. The company is witnessing robust demand in developed markets, while performance in the emerging markets continues to improve. Efficient pricing strategies and higher volumes have been favoring the company’s organic revenues. Apart from this, Mondelez’s focus on brand building through innovation and lucrative acquisitions along with cost savings bodes well. The Zacks Consensus Estimate for 2021 earnings has remained stable over the past 30 days. It has a long-term earnings growth rate of 8.6%. Shares of this Zacks Rank #2 (Buy) company have gained 18.5% in the past year. Price and Consensus: MDLZ The J.M. Smucker Company: The company has been gaining from rebound in its away-from-home channels and continued sales growth in Smucker's Uncrustables brand. The company remains committed to its core strategies, which include driving commercial excellence, simplifying cost structure and reshaping portfolio. Smucker has been strengthening its portfolio through prudent partnerships and acquisitions. Moreover, management is focusing on boosting e-commerce capabilities. The Zacks Consensus Estimate for fiscal 2021 earnings has remained stable over the past 30 days. The company has a long-term earnings growth rate of 1.2%. Shares of this Zacks Rank #2 company have gained 23.7% in the past year. Price and Consensus: SJM Lamb Weston Holdings: The company prides on being a leading global manufacturer, marketer and distributor of value-added frozen potato products, particularly French fries. It has been gaining from favorable demand conditions in its retail business. Additionally, Lamb Weston has been benefiting from robust price/mix across its segments. The company is on track with initiatives to boost offerings and operating capacity. This Zacks Rank #2 stock has risen 18.4% in the past year. The company has a long-term earnings growth rate of 10.8%. The Zacks Consensus Estimate for earnings for fiscal 2021 has gone down nearly 1% over the past 30 days. Price and Consensus: LW