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The Zacks Natural Foods Products industry includes companies that manufacture and sell organic and natural fruits, vegetables, dairy products as well as packaged ready to eat meals, snacks and frozen food. Some of these companies also offer delectable products like ice cream, personal care products and health supplements. Firms operating in this space sell their products mostly through wholesalers, distributors, large retail organizations, grocery chains as well as independent stores.
Let’s take a look at the three major themes in the industry.
• Rising awareness regarding health and consumers’ willingness to spend more on healthy items are key growth drivers for the industry. Companies in the space are investing more on research and development to introduce product formulations that are healthy and low on preservatives, without compromising on flavors. Moreover, favorable government regulations in terms of manufacturing and increasing support for organic farming are other advantages for natural food companies.
• Companies in this space are expanding market presence and revenues through strategic partnerships, acquisitions and store expansions. Moreover, companies are investing toward digital transformations in terms of marketing and boosting sales through e-commerce channels.
• Players in the natural foods industry are struggling against persistent rise in commodity costs. Inflationary trends in dairy items, animal feed and edible oils are adding to the cost burden. Additionally, high freight costs stemming from tight trucking capacity is a major concern. Not to forget, cut-throat competition in the natural food space is a drag on margins.
Zacks Industry Rank Indicates Gloomy Prospects
The Zacks Natural Foods Products industry is housed within the broader Zacks Retail and Wholesale sector. The industry currently carries a Zacks Industry Rank #174 which places it at the bottom 33% 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 position 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. In the past year, the industry’s earnings estimate for 2019 has declined nearly 7.3%.
Despite the dull scenario, we will present a few stocks that can be retained, considering their robust growth endeavors. Prior to that, let’s take a look at the industry’s shareholder returns and current valuation.
Industry Lags on Stock Market Performance
The Zacks Natural Foods Products industry has lagged the Zacks S&P 500 composite and the broader Zacks Retail and Wholesale sector in the past year. The industry inched down 0.2%, against the S&P 500’s rise of 3.4%. Meanwhile, the broader sector moved up 0.6%.
One-Year Price Performance