What’s driving the deals?
Food companies haven’t had much to cheer about in 2017. Moderating demand for their products amid the consumer shift toward on-the-go healthy foods has weighed upon top line growth. The competitive promotional environment, the growing share of private-label brands, the inflation in commodity costs, and the price war among retailers have also squeezed their profit margins.
Packaged food manufacturers in the United States (SPY) have relied upon innovation and cost-cutting measures to boost their financials and remain afloat amid challenges. Meanwhile, food manufacturers have been eyeing fast-growing better-for-you brands and haven’t shied away from making strategic acquisitions to broaden their offerings, increase their market shares, and better align themselves with the changing needs of consumers.
Recent deals update
Recently, The Hershey Company (HSY) announced its acquisition of Amplify Snack Brands (BETR), while Campbell Soup Company (CPB) announced its acquisition of Snyder’s-Lance (LNCE). Earlier, Campbell Soup also acquired Pacific Foods, a maker of organic broth and soups, for $700 million. Both Hershey and Campbell are expected to benefit from portfolio optimization and are projected to generate significant cost synergies following their acquisitions. For more details on these acquisitions, continue to the next part of this series.
Earlier, The Kellogg Company (K) announced its acquisition of Chicago Bar Company, which manufactures the protein-rich RXBAR, for about $600 million. Meanwhile, Conagra Brands (CAG) announced its acquisition of Angie’s Artisan Treats for an undisclosed amount to revamp its portfolio of brands.
Moreover, spices and seasonings leader McCormick (MKC) acquired RB Foods from Reckitt Benckiser Group for $4.2 billion.
The share prices of Hershey and McCormick have risen ~11.6% and 8.8%, respectively, on a YTD (year-to-date) basis, and the stocks have outperformed their peers. Meanwhile, tepid demand has negatively affected the stock prices of Campbell Soup, Kellogg, and other major food manufacturers. The S&P 500 Index (SPX) has marked a rise of 19.8% on a YTD basis.