Conagra Brands' just cut its dividend in half. A terrible environment for consumer staples is putting pressure on plenty of other food stock payouts too, especially candy and meat companies.
Conagra's shares have tumbled 18% this year, which pushed the company's dividend yield north of 10% before Wednesday's reset. The maker of Slim Jims and Reddi-wip named a new CEO in June.
The dividend cut dovetails with the company's fiscal fourth-quarter earnings report: a net loss of $3.37 a share, but a 3.6% increase in sales.
The problems for the sector just seem to keep coming, and could threaten dividends beyond just Conagra's payouts. The GLP-1 weight-loss craze has reduced the amount Americans snack. One recent McKinsey study found consumer spending on chips and other savory snacks fell more than 12% six months after patients went on GLP-1s, while spending on bakery sweets fell 9%.
The war in Iran has pushed up prices for gas, making it more expensive for these companies to ship goods. At the same time, consumers, weary after years of inflation, are looking to pinch pennies themselves, particularly as more of their wallet goes to the gas pump.
Last week, that frustration led Walmart to cut prices on thousands of food items. The problem is that fighting in the Middle East keeps reigniting, with oil prices jumping about 13% in the last five days as the conflict flared up again.
The cost for some ingredients, such as beef and cocoa, have also spiked, because of shortages. And Americans' spending habits have changed, too. A fragmented media landscape, dominated by social media rather than a few network TV behemoths, has made it far easier for upstart brands like Tony's Chocolonely candy and Tillamook dairy goods to gain a foothold.
That backdrop has pushed down many food and snack companies' stocks, and lowered expectations for their second-quarter results. Shares of McCormick, the maker of spices and seasoning mixes, are down 22% this year. General Mills stock is down 18%, while shares of Molson Coors Beverage, Hershey, PepsiCo, and Constellation Brands are all underwater.
Shares of cereal maker General Mills and condiment favorite Kraft Heinz both yield more than 6%. Snack and candy companies Mondelez and Hershey are in the 3%-range.
Overall, Wall Street is expecting staples stocks to deliver 5.2% profit growth for the second quarter, according to FactSet -- far behind the overall market's average of nearly 24%. Meanwhile, analysts have trimmed their second-quarter earnings estimates for staples by about 2.5% since this spring -- the biggest cuts for any sector other than healthcare.
PepsiCo is case in point. The beverage and snack giant delivered a slightly better-than-expected earnings report last week. Still, the company saw shares tumble nearly 5% after it said high gas prices had deterred consumers from picking up bags of chips and other snacks at gas stations.
Conagra isn't the only food company whose dividend looks stretched compared with profits. The sector includes a number of S&P 500 companies with elevated dividend payout ratios, some above 100%, according to FactSet. The dividend payout ratio measures the cost of a company's dividend against the past year's earnings.
While a company can pay out more than its quarterly profits for a short time, that likely isn't sustainable in the long run. An higher payout ratio by no means indicates a dividend cut, but it's worth watching.
Tyson Foods, Hormel Foods, Hershey, and Mondelez International all boast 100%-plus payout ratios based on recent earnings, according to FactSet. General Mills and Kraft Heinz's ratios are similarly stretched, thanks to large reported losses in recent quarters.
Barron's requested comment from the six companies. A Kraft Heinz spokesperson said the company's strong balance sheet and cash flows allow it to return capital to shareholders "without making trade-offs." A General Mills spokesperson said "strong cash flow performance continues to support our dividend." Others didn't respond.
General Mills is the highest-yielding staples stock in the S&P 500, with its payout north of 6%. (Conagra recently left the index.) Shares have rallied about 5% in the past two weeks after the company reported better-than-expected fourth-quarter earnings on July 1, thanks to price cuts that helped boost sales volumes. But the General Mills still has some work to do. Analysts expect profits to decline about 13% for fiscal 2027.
Snack companies Hershey and Mondelez, which sells Oreos and Chips Ahoy!, among other sweets, have both seen their earnings hit by a big surge in cocoa prices. The good news is that while cocoa prices have climbed somewhat in recent weeks, they are far below their peaks in 2024 and 2025.
Analysts expect both companies' profits to snap back in 2026 after some dismal recent quarters, with growth accelerating through the end of the year. For 2027, Wall Street predicts Mondelez profits can grow about 10% and Hershey's around 18%. If that growth materializes, it should give their dividends extra breathing room.
For Tyson and Hormel, soaring prices for meat are the issue -- with the U.S. beef cattle herd recently hitting a 75-year low. Investors may have to wait a bit longer for a rebound. Wall Street analysts expect Tyson's earnings to decline 3% in 2026, before returning to growth in 2027. While Hormel should deliver solid 9% growth in 2026, that has / that is expected to slow to 5% next year.
Write to Ian Salisbury at ian.salisbury@barrons.com
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(END) Dow Jones Newswires
July 15, 2026 09:13 ET (13:13 GMT)
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