What’s behind the uptrend?
So far, most packaged food companies have performed relatively better than broader markets this year. The accelerated sales growth rate was driven by acquisition-impressed investors. Signs of an improvement in the base business, led by innovation-driven products and brand marketing, also lifted investors’ sentiment.
Some of the companies had impressive margins despite continued cost pressure, which is encouraging. Higher net price realization and cost savings supported the margin expansion.
Improved financial performances drove General Mills (GIS), Conagra Brands (CAG), Mondelēz (MDLZ), J.M. Smucker (SJM), and Campbell Soup (CPB) shares higher. On a YTD basis, General Mills, Conagra Brands, Mondelēz, J.M. Smucker, and Campbell Soup stock have risen 32.2%, 29.9%, 23.3%, 24.1%, and 16.1%, respectively. So far, the S&P 500 Index and the Consumer Staples Select Sector SPDR ETF have risen 11.9% and 9.2% this year.
These companies were trading at a low valuation multiple before the rally, which also supported the uptrend.
What’s in the offing?
While these companies’ recent financial performances are impressive, additional upside might be limited. The recent uptrend indicates that the positives are priced in.
These companies face a tough YoY (year-over-year) comparison as they annualize the benefits from their acquisitions. The base business still isn’t out of the woods. These companies face cost headwinds and lower or no boost from the tax rate.