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What’s Hurting Packaged Food Stocks?

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Food stocks registered a decline

Shares of major packaged food companies fell on May 29. An expected deceleration in the sales growth rate and continued pressure on the margins took a toll on the companies. Most packaged food companies’ top lines registered strong growth in the past several quarters due to their acquisitions. As these companies annualize their recent acquisitions, their top-line growth will likely have a steep deceleration in the coming quarters. Challenges in the base business also remain a drag.

Citing a deceleration in the sales growth rate, Goldman Sachs downgraded General Mills (GIS) stock on May 29. The downgrade had a negative impact on major food companies’ stock prices including Conagra Brands (CAG), Kellogg (K), J.M. Smucker (SJM), and Campbell Soup (CPB).

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Shares of Kellogg, Conagra Brands, J.M. Smucker, and Campbell Soup fell 3.2%, 4.3%, 2.2%, and 1.6%, respectively, on May 29. These companies face tough YoY (year-over-year) comparisons on the sales front, which will likely limit the growth. Cost headwinds and pressure on the earnings also remain a drag.

YTD stock performance

So far, most of these packaged food companies’ shares have registered healthy gains this year. However, the companies’ stock prices registered a decline due to their high valuation and low growth expectations.

General Mills, Conagra Brands, J.M. Smucker, and Campbell Soup have risen 23.9%, 27.6%, 29.4%, and 9.8%, respectively, on a YTD basis. So far, Kellogg stock has fallen 7.4% this year.

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