Chicago, IL – December 6, 2024 – Today, Zacks Equity Research discusses General Mills, Inc. GIS, McCormick & Company, Inc. MKC, Ingredion Inc. INGR and Freshpet, Inc. FRPT.
The Zacks Food-Miscellaneous industry participants are facing headwinds from a challenging macroeconomic environment, where inflation has pressured consumer budgets and shifted preferences toward private-label products. Rising input and operational costs also remain a drag on margins.
However, companies are countering these challenges by emphasizing cost efficiency, investing in innovation, and expanding health-conscious and budget-friendly product lines. These strategies position General Mills, Inc., McCormick & Company, Inc., Ingredion Inc. andFreshpet, Inc. for resilience and long-term growth.
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 mainly 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
Tough Market Conditions: The food industry is grappling with a tough macroeconomic environment. Inflation has eroded consumers’ spending power, prompting many shoppers to favor more affordable choices, including private-label products over established brands. Some companies are experiencing weaker performance in their foodservice divisions, as slower foot traffic in quick-service restaurants hits sales in certain regions.
These dynamics have put pressure on sales volumes for several prominent food companies. To address these challenges, businesses have revolved their strategies, emphasizing value-focused marketing, running promotional campaigns and expanding their range of budget-friendly offerings.
Rising Cost Pressures: Escalating prices for essential ingredients, along with higher labor, packaging and transportation costs, are squeezing profit margins. On top of this, companies are bearing the brunt of increased operational spending as they invest in performance enhancements, efficiency upgrades and capacity expansions.
These investments, while necessary for long-term growth, contribute to the current financial strain. The persistence of these elevated costs poses an ongoing challenge to profitability. To counterbalance these pressures, companies are pursuing various cost-control strategies, including streamlining supply chains, optimizing sourcing practices and implementing efficiency measures.
Strengthening Brands and Revamping Portfolios: Well-established brands remain a critical advantage for food companies, promoting strong customer loyalty and driving growth. This, combined with a focus on innovation, has enabled companies to stay competitive. As the demand for healthier and more nutritious products grows, businesses are introducing creative, organic options and expanding their health-focused offerings.
Beyond product innovation, efforts to upgrade production capabilities and diversify portfolios have yielded substantial results. These strategies have not only strengthened their current market positions but also laid the groundwork for future growth by ensuring adaptability to changing consumer preferences and market dynamics. The ability to stay in tune with evolving consumer demands has become a winning strategy.
Zacks Industry Rank Indicates Dull Prospects
The Zacks Food-Miscellaneous industry is housed within the broader Zacks Consumer Staples sector. The industry currently carries a Zacks Industry Rank #147, which places it in the bottom 41% 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 dreary 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 as well as the broader Zacks Consumer Staples sector over the past year.
The industry has climbed 0.3% over this period compared with the S&P 500’s growth of 33.4%. Meanwhile, the broader sector has risen 7.5% in the said time frame.
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 15.94X compared with the S&P 500’s 22.65X and the sector’s 17.65X.
Over the past five years, the industry has traded as high as 20.92X and as low as 14.38X, with the median being at 18.13X.
4 Food Stocks to Keep a Close Eye On
Ingredion Incorporated: This Zacks Rank #1 (Strong Buy) company appears well-poised for success, thanks to its diverse market presence, broad product portfolio and strong business framework. The company’s strategic approach to product pricing, advantageous customer mix, and emphasis on operational excellence and productivity have helped mitigate the impacts of cost inflation. Ingredion Incorporated’s focus on Driving Growth Roadmap also bodes well. You can see the complete list of today’s Zacks #1 Rank stocks here.
The company, which produces and sells sweeteners, starches, nutrition ingredients and biomaterial solutions, has seen its stock price jump 28.5% in the past six months. The Zacks Consensus Estimate for INGR’s current fiscal-year earnings per share (EPS) has increased 5.5% to $10.60 in the past 30 days. The consensus mark suggests 12.5% year-over-year growth.
Freshpet: The company, which focuses on producing fresh, natural, and preservative-free pet food, currently carries a Zacks Rank of 2 (Buy). The rising trend of humanization of pets is fueling demand for premium, fresh and natural pet food. Freshpet’s emphasis on fresh, preservative-free ingredients aligns with consumer preferences for healthier options for their pets.
The company’s partnerships with major retailers enable it to maintain strong distribution networks and ensure the widespread availability of its products. Freshpet has also been benefiting from its focus on boosting production capabilities, optimizing the supply chain and undertaking cost control. The Zacks Consensus Estimate for Freshpet’s current financial-year EPS has risen by 16% to 87 cents in the past 30 days. This suggests substantial growth from the year-ago period’s loss of 70 cents. Shares of FRPT have rallied 21.7% in the past six months.
General Mills: This branded consumer foods company is leveraging the strength of its diverse brand portfolio and Accelerate strategy, which emphasizes brand-building, innovation and efficiency to enhance market positioning and profitability. Key brands of General Mills hold strong market shares and consumer loyalty across baked goods, pizza and Mexican food categories.
General Mills’ Holistic Margin Management strategy has helped protect margins amid ongoing cost pressures by reducing supply-chain costs and enhancing efficiency. The Zacks Consensus Estimate for GIS’ current fiscal year EPS has remained unchanged at $4.50 over the past 30 days. Shares of this Zacks Rank #3 (Hold) company have dipped 3% over the past six months.
McCormick: This Zacks Rank #3 company’s solid strategic initiatives have fueled its rally of 12% in the past six months. McCormick continues to bolster its position in key markets and core categories by leveraging growth drivers like brand marketing, product and packaging innovation, category management and proprietary technology. MKC’s Comprehensive Continuous Improvement program has been driving growth investments and operating margin expansion.
The Zacks Consensus Estimate for McCormick’s current fiscal-year EPS has remained unchanged at $2.92 in the past 30 days. This indicates growth of 8.2% from the year-ago period figure.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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