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4 Food Stocks Worth a Watch Despite Input Cost Inflation
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Players in the Zacks Food-Miscellaneous industry are encountering an escalated cost of inputs, packaging and logistics, which are likely to linger. A tough labor market has also been making things difficult. Also, moderation in at-home consumption from the year-ago period has been impacting sales growth.
That said, food companies have been undertaking necessary pricing actions and streamlining operational structures to battle inflation. Further, focus on innovation, product upgrades and portfolio refinement to cater to consumers’ altering tastes and preferences has been working well for companies like The Kraft Heinz Company (KHC - Free Report) , Conagra Brands, Inc. (CAG - Free Report) , Campbell Soup Company (CPB - Free Report) and Flowers Foods, Inc. (FLO - 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 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 offer services to schools, hospitals and industry caterers.
Major Trends Shaping the Future of the Food Industry
Rising Costs a Hurdle: Miscellaneous food players have been encountering input cost inflation for a while now. A number of the companies, in their last earnings releases, stated that they expect input costs to remain high in the near term. We note that prices of commodities like soybean, flour, cooking oil, vegetables, dairy items and animal feed, among others, have been rising. 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, also come at the cost of margins. Apart from this, supply-chain hurdles due to port congestion have increased warehouse, packaging and other logistics expenses. Such a rise in expenses and a tough labor market put pressure on margins. Nevertheless, companies have been focused on undertaking initiatives to mitigate cost-related challenges. These include streamlining operational structures, optimizing manufacturing capacity and supply networks as well as adopting effective pricing policies.
Impact of COVID-19 on Demand: The elevated demand triggered by high at-home food consumption witnessed amid the start of the pandemic has been moderating. With outdoor movement picking up pace and people stepping outdoors, consumers’ 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. That being said, at-home demand is likely to remain elevated compared with the pre-pandemic levels as a number of Americans have cultivated cooking and baking at home as a new habit. Also, recovering demand for away-from-home food with restaurants and cafes opening up is an upside. Companies are optimistic regarding the rebound in their foodservice channels.
Refining Portfolio to Suit Consumer Needs: Food companies have been taking to product upgrades and innovations on a regular basis to cater to consumers’ changing tastes and preferences. Moreover, with health and well-being gaining importance amid the pandemic, there has been growth in 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.
Zacks Industry Rank Indicates Bleak Prospects
The Zacks Food-Miscellaneous industry is housed within the broader Zacks Consumer Staples sector. The industry currently carries a Zacks Industry Rank #224, which places it in the bottom 11% 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 drab 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 November 2021, the industry’s earnings estimate for 2022 has declined 9.6%.
Let’s take 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 dipped 0.2% over this period compared with the S&P 500’s growth of 17.3%. Meanwhile, the broader sector has gained 4% 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 18.51X compared with the S&P 500’s 20.38X and the sector’s 19.9X.
Over the past five years, the industry has traded as high as 20.48X and as low as 15X, with the median being at 18.23X as the chart below shows.
Price-to-Earnings Ratio (Past 5 Years)
4 Food Stocks to Keep a Close Eye on
Flowers Foods: The producer and marketer of packaged bakery products has seen its shares rise 6.9% in the past six months. The Zacks Consensus Estimate for Flowers Foods’ current financial-year earnings per share (EPS) has moved up by a penny over the past 30 days. FLO has a trailing four-quarter earnings surprise of around 9%, on average.
Flowers Foods is on track with its core priorities, including developing the team, focusing on brands, prioritizing margins and looking out for prudent mergers and acquisitions. To this end, management has been shifting focus toward becoming a more brand-focused company. Flowers Foods has also been benefiting from its pricing efforts amid cost headwinds. FLO currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: FLO
The Kraft Heinz Company: The Zacks Rank #3 (Hold) stock has jumped 9.8% in the past six months. Solid pricing initiatives have been aiding the company for a while. Further, The Kraft Heinz Company has successfully deployed its Operating Model since 2020, which incorporates five key elements, including People with Purpose, Consumer Platforms, Ops Center, Partner Program and Fuel Our Growth. These aspects bode well amid cost inflation.
The Zacks Consensus Estimate for The Kraft Heinz Company’s current financial-year EPS has remained stable over the past 30 days. KHC has a long-term earnings growth rate of 5%.
Price and Consensus: KHC
Conagra Brands: Constant focus on innovation as well as e-commerce investments are working well for Conagra. Also, the company is on track with robust pricing and saving actions in the face of increasing cost of goods sold inflation. Conagra has a long-term earnings growth rate of 7%.
This Zacks Rank #3 (Hold) stock has risen 1% in the past six months. The Zacks Consensus Estimate for CAG’s current financial-year EPS has gone down by a penny over the past 30 days.
Price and Consensus: CAG
Campbell Soup: This well-known manufacturer and marketer of food and beverage products has been gaining from its pricing actions, supply-chain productivity improvements, and saving initiatives have been aiding amid a rising cost scenario. Apart from this, Campbell Soup is benefiting from strength in its Snacks business as well as focus on core strategies like innovation.
The Zacks Consensus Estimate for Campbell Soup’s current financial-year’s EPS has climbed a penny over the past 30 days. CPB has a long-term earnings growth rate of 1.6%. Shares of this Zacks Rank #3 company have gained 8% in the past six months.
Price and Consensus: CPB
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4 Food Stocks Worth a Watch Despite Input Cost Inflation
Players in the Zacks Food-Miscellaneous industry are encountering an escalated cost of inputs, packaging and logistics, which are likely to linger. A tough labor market has also been making things difficult. Also, moderation in at-home consumption from the year-ago period has been impacting sales growth.
That said, food companies have been undertaking necessary pricing actions and streamlining operational structures to battle inflation. Further, focus on innovation, product upgrades and portfolio refinement to cater to consumers’ altering tastes and preferences has been working well for companies like The Kraft Heinz Company (KHC - Free Report) , Conagra Brands, Inc. (CAG - Free Report) , Campbell Soup Company (CPB - Free Report) and Flowers Foods, Inc. (FLO - 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 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 offer services to schools, hospitals and industry caterers.
Major Trends Shaping the Future of the Food Industry
Rising Costs a Hurdle: Miscellaneous food players have been encountering input cost inflation for a while now. A number of the companies, in their last earnings releases, stated that they expect input costs to remain high in the near term. We note that prices of commodities like soybean, flour, cooking oil, vegetables, dairy items and animal feed, among others, have been rising. 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, also come at the cost of margins. Apart from this, supply-chain hurdles due to port congestion have increased warehouse, packaging and other logistics expenses. Such a rise in expenses and a tough labor market put pressure on margins. Nevertheless, companies have been focused on undertaking initiatives to mitigate cost-related challenges. These include streamlining operational structures, optimizing manufacturing capacity and supply networks as well as adopting effective pricing policies.
Impact of COVID-19 on Demand: The elevated demand triggered by high at-home food consumption witnessed amid the start of the pandemic has been moderating. With outdoor movement picking up pace and people stepping outdoors, consumers’ 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. That being said, at-home demand is likely to remain elevated compared with the pre-pandemic levels as a number of Americans have cultivated cooking and baking at home as a new habit. Also, recovering demand for away-from-home food with restaurants and cafes opening up is an upside. Companies are optimistic regarding the rebound in their foodservice channels.
Refining Portfolio to Suit Consumer Needs: Food companies have been taking to product upgrades and innovations on a regular basis to cater to consumers’ changing tastes and preferences. Moreover, with health and well-being gaining importance amid the pandemic, there has been growth in 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.
Zacks Industry Rank Indicates Bleak Prospects
The Zacks Food-Miscellaneous industry is housed within the broader Zacks Consumer Staples sector. The industry currently carries a Zacks Industry Rank #224, which places it in the bottom 11% 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 drab 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 November 2021, the industry’s earnings estimate for 2022 has declined 9.6%.
Let’s take 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 dipped 0.2% over this period compared with the S&P 500’s growth of 17.3%. Meanwhile, the broader sector has gained 4% in the said time frame.
One-Year Price Performance
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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 18.51X compared with the S&P 500’s 20.38X and the sector’s 19.9X.
Over the past five years, the industry has traded as high as 20.48X and as low as 15X, with the median being at 18.23X as the chart below shows.
Price-to-Earnings Ratio (Past 5 Years)
4 Food Stocks to Keep a Close Eye on
Flowers Foods: The producer and marketer of packaged bakery products has seen its shares rise 6.9% in the past six months. The Zacks Consensus Estimate for Flowers Foods’ current financial-year earnings per share (EPS) has moved up by a penny over the past 30 days. FLO has a trailing four-quarter earnings surprise of around 9%, on average.
Flowers Foods is on track with its core priorities, including developing the team, focusing on brands, prioritizing margins and looking out for prudent mergers and acquisitions. To this end, management has been shifting focus toward becoming a more brand-focused company. Flowers Foods has also been benefiting from its pricing efforts amid cost headwinds. FLO currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: FLO
The Kraft Heinz Company: The Zacks Rank #3 (Hold) stock has jumped 9.8% in the past six months. Solid pricing initiatives have been aiding the company for a while. Further, The Kraft Heinz Company has successfully deployed its Operating Model since 2020, which incorporates five key elements, including People with Purpose, Consumer Platforms, Ops Center, Partner Program and Fuel Our Growth. These aspects bode well amid cost inflation.
The Zacks Consensus Estimate for The Kraft Heinz Company’s current financial-year EPS has remained stable over the past 30 days. KHC has a long-term earnings growth rate of 5%.
Price and Consensus: KHC
Conagra Brands: Constant focus on innovation as well as e-commerce investments are working well for Conagra. Also, the company is on track with robust pricing and saving actions in the face of increasing cost of goods sold inflation. Conagra has a long-term earnings growth rate of 7%.
This Zacks Rank #3 (Hold) stock has risen 1% in the past six months. The Zacks Consensus Estimate for CAG’s current financial-year EPS has gone down by a penny over the past 30 days.
Price and Consensus: CAG
Campbell Soup: This well-known manufacturer and marketer of food and beverage products has been gaining from its pricing actions, supply-chain productivity improvements, and saving initiatives have been aiding amid a rising cost scenario. Apart from this, Campbell Soup is benefiting from strength in its Snacks business as well as focus on core strategies like innovation.
The Zacks Consensus Estimate for Campbell Soup’s current financial-year’s EPS has climbed a penny over the past 30 days. CPB has a long-term earnings growth rate of 1.6%. Shares of this Zacks Rank #3 company have gained 8% in the past six months.
Price and Consensus: CPB
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