Challenging operating environment
Packaged food manufacturer stocks have disappointed investors so far this year. The recovery in prices remains distant, and challenging market conditions are likely to restrict the upside to these stocks.
Weak consumption trends in the US (SPY) due to the consumer shift towards healthy foods, low prices of fresh foods, the rise of private label players, and stores’ reduction of shelf space are adversely impacting the top-line performance of these companies. Besides, higher commodity costs, currency headwinds, and increased competition are likely to affect margins and in turn EPS.
These industry-wide challenges aren’t likely to subside in the near term and will continue to dent the financials of the companies operating in this space.
YTD stock price performance
The graph above suggests that food stocks have largely underperformed the benchmark index on a YTD (year-to-date) basis. The S&P 500 Index (SPX-INDEX) has risen 11.5% since the beginning of the year. Meanwhile, our select group of food stocks (except Hershey) saw their share price fall during the same period.
Stock prices of Campbell Soup (CPB), J.M. Smucker (SJM), General Mills (GIS), Conagra Brands (CAG), Kellogg (K), Kraft Heinz (KHC), Hormel Foods (HRL), and Mondelēz (MDLZ), have fallen 22.8%, 17.2%, 15.9%, 15.7%, 14.0%, 10.0%, 8.9%, and 8.3%, respectively. Meanwhile, Hershey (HSY) stock has performed better with returns of 3.4%.