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Could These Food Stocks See a Recovery in 2018?

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Challenges likely to persist

Packaged food manufacturers have had a challenging year in 2017. Low consumption, primarily in the US (SPY), as well as a prolonged price war among retailers, have taken a toll on the stock prices of these companies.

Will this trend continue to affect the financials of food manufacturers in 2018, or is a recovery on the horizon?

Challenges and benefits

During the last reported quarter, packaged food manufacturers showed some signs of recovery in volumes, thanks to their new product launches. The top lines for these companies also benefited from favorable currency rates.

Weak demand due to the consumer shift toward healthy and fresh foods, the growing penetration of private label players, increased promotional spending, and a tough retail environment pressured the sector.

These industry-wide challenges are likely to persist at least in the near term, and they could dent the financials of these companies. Rising costs due to inflation in commodity prices, higher packaging costs, and higher logistics costs could hurt margins and earnings per share.

However, new product launches and a focus on productivity and cost savings measures could supplement the top-line and bottom-line growth for the companies operating in this space. Input costs headwinds are expected to subside in the latter part of the year, which could result in higher margins.

Year-to-date stock performance

The chart above suggests that stock prices of food manufacturers have witnessed a recovery in the past one-month period. However, the majority of these stocks are still trading in the red on a year-to-date basis and have lagged the benchmark index. The S&P 500 (SPX) has marked an increase of 19.0% on a year-to-date basis as of December 12, 2017.

The stock prices of Campbell Soup (CPB), Kellogg (K), General Mills (GIS), Kraft Heinz (KHC), J.M. Smucker (SJM), Conagra Brands (CAG), and Mondelēz (MDLZ) have fallen 17.7%, 10.5%, 9.2%, 9.6%, 7.9%, 5.1%, and 3.3%, respectively.

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