By Teresa Rivas
With food prices continuing to rise, every consumer with an appetite can be said to have expensive taste. Yet packaged food companies -- a seemingly obvious winner from that trend -- aren't raking in the dough.
Although the pace of inflation is slowing for food in the U.S., prices are still rising. The Department of Agriculture estimates that food prices as a whole will increase 2.3% this year and 2.4% in 2025. However it's markedly cheaper to cook yourself: The government estimates that food-at-home prices will climb 1.2% for 2024 as a whole, compared with a 4.1% increase in food away from home. That pattern is likely to hold next year too, with prices for food at home rising an estimated 1.6% and food away from home 3.4%.
On paper, that seems like a great setup for packaged food companies, who should benefit from people buying their products to save money by cooking for themselves rather than dining out. And in fact, overall consumption of food at home for the four-week period ending Nov. 3 climbed 2%, and 12-week sales growth was up 3% from the year ago period , according to data from Evercore ISI and consumer analytics firm Circana.
However, as Evercore ISI analyst David Palmer writes in a new note Tuesday, most of the packaged food companies he follows are losing market share, as their sales lag behind overall food sales.
"The companies in our coverage continue to underperform overall measured Food by about five percentage points -- with an average 1% year-over-year sales decline in latest 12-week period," he writes. "The only company in our coverage to outperform the broader food average (in U.S. measured channels) over the last 12-weeks was BellRing," owner of the Premier Protein drink brand and PowerBar.
The reality is that consumers are still very cost-conscious, so while they're shopping at the grocery store to save money, they're also less willing to pay up for name brands. Palmer notes that private label competitors continue to be a headwind, particularly for Kraft Heinz and even Hershey -- despite sweets traditionally being a category that is less susceptible to generic rivals. Both stocks are down double-digits, in percent terms, in the past six months.
More broadly, food stocks have slumped 2% in 2024 so far, compared with the S&P 500's rally of roughly 25%.
Many packaged food stocks didn't participate in the postelection rally, given that Trump ally Robert F. Kennedy has long pledged to shake up the food industry, and now appears to be poised to shape policy in the years ahead. And while some consumers agree with his stances to remove harmful ingredients, Kennedy also has a history of embracing fringe theories that lack scientific backing.
However, these stocks' woes are likely about the longer trend of lagging sales, rather than the election result. For months, Palmer has noted his covered companies' underperformance relative to food-at-home sales.
Not surprisingly then, the only stocks in the sector he recommends are Post Holdings, Mondelez International, and BellRing Brands -- even though the group is a bargain, trading at a 25% discount to the S&P 500.
Each of those has a particular catalyst: Post Holdings produces private label products, BellRing's protein-and performance-focused portfolio is resonating with health-conscious consumers, and Mondelez's broad international footprint and sweets focus means it's less susceptible to domestic trends and generic alternatives.
However until the broader packaged food category can demonstrate volume growth and take back market share, investors may remain skeptical. Little wonder there seems to be little appetite for the group's stocks.
Write to Teresa Rivas at teresa.rivas@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
November 12, 2024 14:49 ET (19:49 GMT)
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