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4 Food Stocks Hogging in the Limelight on Favorable Industry Patterns
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Players in the Zacks Food-Miscellaneous industry have been experiencing gains from their consistent focus on product innovation and portfolio refinement to cater to consumers’ altering tastes and preferences. Although moderating, the overall inflationary landscape has spiked up input costs for manufacturers and also weighed on consumers’ purchasing power, thereby affecting companies’ sales volumes.
That being said, robust pricing initiatives have been helping food companies in countering cost headwinds. This, along with brand-enhancement strategies, has been working well for Mondelez International, Inc. (MDLZ - Free Report) , The Kraft Heinz Company (KHC - Free Report) , Sysco Corporation (SYY - Free Report) and Ingredion Incorporated (INGR - 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 and frozen products. Some 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. Companies operating in this space sell their products mostly through wholesalers, distributors, large retail organizations, grocery chains, mass merchandisers, drug stores and 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
Refining Portfolio & Strengthening Brands: Brand strength has been a major upside for food companies. Consumers’ loyalty to specific brands, combined with companies' unwavering focus on innovation, has been a driving force. For instance, companies have been responding well to the growing consumer preference for healthy and nourishing food by introducing innovations in the organic product sector. Apart from this, endeavors to enhance manufacturing capabilities and strengthen product portfolios have proven successful for numerous food companies, positioning them favorably for future growth. Their ability to adapt to evolving consumer preferences and market dynamics has emerged as a winning formula.
Proactive Pricing Endeavors: Food companies have found relief in their effective pricing measures amid the industry-wide cost inflation. As the demand for food products remains relatively stable, consumers generally absorb the increase in prices for their preferred brands. We believe that the ability to set prices competitively will continue to be advantageous for food companies, contributing to their sales and overall performance.
Elevated Costs: Although showing moderation, input cost inflation has been a drag on companies’ margins. Food companies have been witnessing the increased cost of ingredients, which, along with high labor, packaging and logistic costs, has been weighing on its profits. Apart from this, companies have been facing escalating operational expenses in their efforts to step up performance. The persistence of these aspects remains a concern for food players’ profits.
Volume Concerns: Food companies have been seeing soft volumes for a while due to a volatile macroeconomic landscape. The inflationary landscape pinched consumers’ pockets, leading them to look for budget-friendly alternatives and shift from big brands toward private-label companies. This has been hampering the sales volume of many food giants. However, the trend has been improving now.
Zacks Industry Rank Indicates Solid Prospects
The Zacks Food-Miscellaneous industry is housed within the broader Zacks Consumer Staples sector. The industry currently carries a Zacks Industry Rank #94, which places it in the top 37% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
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 while performing almost in line with the broader Zacks Consumer Staples sector over the past year.
The industry has declined 2.6% over this period compared with the S&P 500’s growth of 27.3%. Meanwhile, the broader sector has dropped 2.5% 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 17.46X compared with the S&P 500’s 20.5X and the sector’s 18.77X.
Over the past five years, the industry has traded as high as 20.9X and as low as 14.41X, with the median being at 18.08X, as the chart below shows.
Price-to-Earnings Ratio (Past 5 Years)
4 Food Stocks to Keep a Close Eye On
Sysco Corporation: This Zacks Rank #2 (Buy) company has been focused on enhancing efficiency through supply-chain productivity and structural cost-containment efforts. Sysco’s Recipe for Growth strategy, which revolves around five strategic pillars, has been yielding favorable results in particular. For fiscal 2024, SYY envisions sales to increase in the mid-single digits to roughly $80 billion. Adjusted earnings per share, or EPS, are expected to grow 5-10% to the $4.20-$4.40 band for this marketer and distributor of various food and related products.
Ingredion Incorporated: This Zacks Rank #2 company looks well-positioned due to its market and product diversity and robust business model. An efficient approach to product pricing, a favorable customer mix and a focus on driving operational excellence and productivity have been aiding the company in battling cost inflation. Ingredion Incorporated’s focus on Driving Growth Roadmap also bodes well.
The company, which produces and sells sweeteners, starches, nutrition ingredients and biomaterial solutions, has climbed 1.7% in the past year. The Zacks Consensus Estimate for INGR’s full-year 2024 EPS has increased by a penny in the past 60 days to $9.74.
Price and Consensus: INGR
Mondelez International: The company, which has been seeing solid organic revenues, has been benefiting from strength in emerging markets and its core chocolate and biscuit categories. This Zacks Rank #3 (Hold) company has also been focused on strengthening areas with higher growth potential via prudent buyouts (like Clif Bar) and divestitures.
Continuous reinvestments in its brands and capabilities (such as digital), along with impressive revenue growth management and portfolio reshaping efforts, place Mondelez well for future growth. The Zacks Consensus Estimate for MDLZ’s full-year 2024 EPS has increased by a penny to $3.47 in the past 30 days. Shares of this snack food and beverage biggie have advanced 1.3% in the past year.
Price and Consensus: MDLZ
The Kraft Heinz Company: This consumer-packaged food and beverage company has experienced positive momentum, particularly in its three crucial pillars — Foodservice, Emerging Markets and U.S. Retail Grow platforms. Additionally, The Kraft Heinz Company has been actively pursuing its transformation plan, with the AGILE@SCALE strategy standing out. This strategic approach involves making partnerships with technology giants and innovative leaders, contributing significantly to enhancing the company's agile expertise and capabilities.
The Kraft Heinz Company’s strategic pricing initiatives have been improving its performance. The Zacks Consensus Estimate for KHC’s full-year 2024 EPS has risen by a penny to $3.01 over the past 60 days. This Zacks Rank #3 stock has jumped 8.7% over the past year.
Price and Consensus: KHC
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4 Food Stocks Hogging in the Limelight on Favorable Industry Patterns
Players in the Zacks Food-Miscellaneous industry have been experiencing gains from their consistent focus on product innovation and portfolio refinement to cater to consumers’ altering tastes and preferences. Although moderating, the overall inflationary landscape has spiked up input costs for manufacturers and also weighed on consumers’ purchasing power, thereby affecting companies’ sales volumes.
That being said, robust pricing initiatives have been helping food companies in countering cost headwinds. This, along with brand-enhancement strategies, has been working well for Mondelez International, Inc. (MDLZ - Free Report) , The Kraft Heinz Company (KHC - Free Report) , Sysco Corporation (SYY - Free Report) and Ingredion Incorporated (INGR - 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 and frozen products. Some 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. Companies operating in this space sell their products mostly through wholesalers, distributors, large retail organizations, grocery chains, mass merchandisers, drug stores and 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
Refining Portfolio & Strengthening Brands: Brand strength has been a major upside for food companies. Consumers’ loyalty to specific brands, combined with companies' unwavering focus on innovation, has been a driving force. For instance, companies have been responding well to the growing consumer preference for healthy and nourishing food by introducing innovations in the organic product sector. Apart from this, endeavors to enhance manufacturing capabilities and strengthen product portfolios have proven successful for numerous food companies, positioning them favorably for future growth. Their ability to adapt to evolving consumer preferences and market dynamics has emerged as a winning formula.
Proactive Pricing Endeavors: Food companies have found relief in their effective pricing measures amid the industry-wide cost inflation. As the demand for food products remains relatively stable, consumers generally absorb the increase in prices for their preferred brands. We believe that the ability to set prices competitively will continue to be advantageous for food companies, contributing to their sales and overall performance.
Elevated Costs: Although showing moderation, input cost inflation has been a drag on companies’ margins. Food companies have been witnessing the increased cost of ingredients, which, along with high labor, packaging and logistic costs, has been weighing on its profits. Apart from this, companies have been facing escalating operational expenses in their efforts to step up performance. The persistence of these aspects remains a concern for food players’ profits.
Volume Concerns: Food companies have been seeing soft volumes for a while due to a volatile macroeconomic landscape. The inflationary landscape pinched consumers’ pockets, leading them to look for budget-friendly alternatives and shift from big brands toward private-label companies. This has been hampering the sales volume of many food giants. However, the trend has been improving now.
Zacks Industry Rank Indicates Solid Prospects
The Zacks Food-Miscellaneous industry is housed within the broader Zacks Consumer Staples sector. The industry currently carries a Zacks Industry Rank #94, which places it in the top 37% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
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 while performing almost in line with the broader Zacks Consumer Staples sector over the past year.
The industry has declined 2.6% over this period compared with the S&P 500’s growth of 27.3%. Meanwhile, the broader sector has dropped 2.5% 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 17.46X compared with the S&P 500’s 20.5X and the sector’s 18.77X.
Over the past five years, the industry has traded as high as 20.9X and as low as 14.41X, with the median being at 18.08X, as the chart below shows.
Price-to-Earnings Ratio (Past 5 Years)
4 Food Stocks to Keep a Close Eye On
Sysco Corporation: This Zacks Rank #2 (Buy) company has been focused on enhancing efficiency through supply-chain productivity and structural cost-containment efforts. Sysco’s Recipe for Growth strategy, which revolves around five strategic pillars, has been yielding favorable results in particular. For fiscal 2024, SYY envisions sales to increase in the mid-single digits to roughly $80 billion. Adjusted earnings per share, or EPS, are expected to grow 5-10% to the $4.20-$4.40 band for this marketer and distributor of various food and related products.
The Zacks Consensus Estimate for Sysco’s fiscal 2024 EPS has increased by a penny to $4.33 in the past 60 days. Shares of SYY have moved up 2.4% in the past six months. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: SYY
Ingredion Incorporated: This Zacks Rank #2 company looks well-positioned due to its market and product diversity and robust business model. An efficient approach to product pricing, a favorable customer mix and a focus on driving operational excellence and productivity have been aiding the company in battling cost inflation. Ingredion Incorporated’s focus on Driving Growth Roadmap also bodes well.
The company, which produces and sells sweeteners, starches, nutrition ingredients and biomaterial solutions, has climbed 1.7% in the past year. The Zacks Consensus Estimate for INGR’s full-year 2024 EPS has increased by a penny in the past 60 days to $9.74.
Price and Consensus: INGR
Mondelez International: The company, which has been seeing solid organic revenues, has been benefiting from strength in emerging markets and its core chocolate and biscuit categories. This Zacks Rank #3 (Hold) company has also been focused on strengthening areas with higher growth potential via prudent buyouts (like Clif Bar) and divestitures.
Continuous reinvestments in its brands and capabilities (such as digital), along with impressive revenue growth management and portfolio reshaping efforts, place Mondelez well for future growth. The Zacks Consensus Estimate for MDLZ’s full-year 2024 EPS has increased by a penny to $3.47 in the past 30 days. Shares of this snack food and beverage biggie have advanced 1.3% in the past year.
Price and Consensus: MDLZ
The Kraft Heinz Company: This consumer-packaged food and beverage company has experienced positive momentum, particularly in its three crucial pillars — Foodservice, Emerging Markets and U.S. Retail Grow platforms. Additionally, The Kraft Heinz Company has been actively pursuing its transformation plan, with the AGILE@SCALE strategy standing out. This strategic approach involves making partnerships with technology giants and innovative leaders, contributing significantly to enhancing the company's agile expertise and capabilities.
The Kraft Heinz Company’s strategic pricing initiatives have been improving its performance. The Zacks Consensus Estimate for KHC’s full-year 2024 EPS has risen by a penny to $3.01 over the past 60 days. This Zacks Rank #3 stock has jumped 8.7% over the past year.
Price and Consensus: KHC
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