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Here’s Why Food Stocks Slumped on February 2

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Persistent challenges

The Dow Jones Industrial Average marked one of its worst declines in the last several years and fell 666 points on Friday, February 2, 2018. Investors shunned stocks as rising interest rates and mixed earnings reports led to the selling frenzy. 

However, there wasn’t any tectonic shift in the fundamentals of these US corporations. The earnings of these companies could benefit from the lower effective tax rates resulting from the recently enacted tax reform bill.

Packaged food manufacturers have their own challenges that affect their stock performance. Food manufacturers have long grappled with tepid demand for their traditional products amid consumer shift toward healthy foods.

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Competitive pricing, a higher promotional environment, a tough retail landscape, and business reinvestment needs have pressured the margins of these companies. Increased cost pressures from higher manufacturing and transportation expenses, which were exacerbated by the recent hurricanes, subdued growth.

Credit Suisse (CS) expects the stocks of packaged food manufacturers to mark low-single-digit growth in 2018 and modestly underperform the broader market. In light of recent events and persisting industry-wide challenges, stocks of most food companies are trading in the red. This trend includes the decline witnessed on February 2, and they have underperformed the benchmark index (SPX-INDEX), which is up 3.3% on a year-to-date basis.

Stock prices decline

The stock prices of food manufacturers fell on February 2, 2018. The graph above shows that the stocks of J.M. Smucker (SJM), Campbell Soup (CPB), Kellogg (K), McCormick (MKC), and General Mills (GIS) fell ~3.0%.

Conagra Brands (CAG), Kraft Heinz (KHC), and Tyson Foods (TSN) stock registered declines of 2.4%, 1.8%, and 1.7%, respectively. The stocks of Mondelēz (MDLZ) and Hershey (HSY) fell 0.8% each.

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