Players in the Zacks Food-Miscellaneous industry are benefiting from consistent focus on product innovation, efforts to boost online offerings and portfolio refinement to cater to consumers’ altering tastes and preferences. Elevated at-home consumption is proving beneficial for the industry participants.
Robust pricing initiatives have been helping food companies such as Lamb Weston Holdings, Inc. L.W., TreeHouse Foods, Inc. ths, McCormick & Company, Incorporated MKC and Celsius Holdings, Inc. CELH to counter cost inflation.
About the Industry
The Zacks Food-Miscellaneous industry consists of companies that manufacture and sell a wide range of food and packaged food items, such as cereals, flour, sauces, bakery items, spices and condiments, natural and organic food items and frozen products. Some companies also provide comfort food items, such as chocolates and ready-to-serve meals, soups and snacks. A few players are engaged in providing pet food products and supplements. Several food companies also offer organic and natural products. Companies operating in this space sell their products mostly through wholesalers, distributors, large retail organizations, grocery chains, mass merchandisers, drug stores and e-commerce service providers. Some also cater to food service channels, including restaurants, cafes and hotels. Others offer services to schools, hospitals and industrial caterers.
Major Trends Shaping the Future of the Food Industry
Higher At-Home Consumption Drives Demand: The miscellaneous food industry is known for its stability and resilience, as consumer demand for essential food items tends to remain consistent regardless of economic fluctuations. Companies in the industry are gaining from favorable demand stemming from the elevated at-home consumption. With increased work-from-home and dine-at-home trends, the demand for food-related items, especially packaged food and snacks, ready-to-cook meals and confectionery and bakery items, has been high. Also, the demand for organic and fresh food products has increased. At-home demand is likely to remain elevated as several Americans have cultivated cooking and baking at home as a new habit. Also, the increase in popularity of online shopping, particularly after the pandemic, propelled companies to constantly ram up efforts in bolstering online offerings. Online sales have been enhancing revenues of several food companies. To continue building on the sales momentum, industry participants are bolstering operations at fulfillment centers.
Refining Portfolio to Suit Consumer Needs: Players in the food industry frequently upgrade or expand their offerings through innovation in order to keep pace with consumers’ changing tastes and preferences. For example, the industry participants have been enhancing their portfolio with organic and nutrient-rich food options as the importance of health and wellness has peaked after the pandemic. Several miscellaneous food companies are enriching their portfolios by adding more plant-based and natural brands. Also, companies have been investing in capacity expansions and technology upgrades to meet consumers’ demand with improved efficiency in their operations. This apart, companies often engage in portfolio refinement through strategic buyouts and the divestiture of non-core elements.
Favorable Pricing Endeavors: Food companies have been benefiting from effective pricing actions, being undertaken to counter industry-wide cost inflation. Players are raising the prices, which in turn is boosting the margins and profitability of several industry players. Amid cost inflation, companies are expected to continue gaining from pricing actions that are likely to aid sales and overall performance in the quarters ahead.
Rising Costs: Food players have been encountering input cost inflation and other expenses, which have been denting profitability. Apart from this, supply-chain issues have increased warehouse, packaging and other logistics expenses. The rise in expenses, along with a tough labor market poses a threat to margins. That said, companies have been focused on cost management initiatives to mitigate cost-related challenges. These include streamlining operational structures, optimizing supply networks and implementing effective pricing policies.
Zacks Industry Rank Indicates Robust Prospects
The Zacks Food-Miscellaneous industry is housed within the broader Zacks Consumer Staples sector. The industry currently carries a Zacks Industry Rank #74, which places it in the top 29% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gaining confidence in this group’s earnings growth potential. Since the beginning of April 2023, the industry’s earnings estimate for 2023 has increased 1.4%.
Let’s take a look at the industry’s performance and current valuation.
Industry vs. Broader Market
The Zacks Food-Miscellaneous industry has outperformed the broader Zacks Consumer Staples sector, while it lagged the S&P 500 in the past year.
The industry has grown 5.9% over this period compared with the broader sector’s rise of 2.5%. Meanwhile, the S&P 500 has risen 17.8% in the said period.
One-Year Price Performance
Industry’s Current Valuation
On the basis of forward 12-month price-to-earnings (P/E), which is commonly used for valuing consumer staples stocks, the industry is currently trading at 16.95X compared with the S&P 500’s 19.91X and the sector’s 18.29X.
Over the past five years, the industry has traded as high as 20.56X and as low as 15.08X, with the median being at 17.96X, as the chart below shows.
Price-to-Earnings Ratio (Past 5 Years) Versus S&P 500
Price-to-Earnings Ratio (Past 5 Years) Versus Sector
4 Food Stocks to Keep a Close Eye On
Lamb Weston: The manufacturer of value-added frozen potato products has been gaining from broad-based growth, with solid sales and operational performance in every core business segment. Its ability to counter input cost inflation through pricing actions is likely to remain favorable. Lamb Weston’s efforts to increase capacity enable it to meet rising demand conditions for snacks and fries. The consensus mark for current fiscal-year sales and earnings per share (EPS) suggests growth of 29.6% and 117.3%, respectively, from the year-ago period reported figure.
The Zacks Consensus Estimate for Lamb Weston’s current financial-year EPS has increased 0.2% in the past 60 days. LW has a long-term earnings growth rate of 42.7%. Shares of this Zacks Rank #1 (Strong Buy) company have rallied 51.3% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: LW
TreeHouse Foods: The Zacks Rank #1 company manufactures and distributes packaged foods and beverages. Favorable pricing actions and improved services in most categories have enabled the company to cater to the high demand. Despite a dynamic macro landscape, TreeHouse Foods’ supply-chain initiatives are aiding it to enhance services and cater to market demand. The consensus mark for the current fiscal-year EPS suggests growth of 123.1% on a year-over-year basis.
The Zacks Consensus Estimate for THS’ current financial-year EPS has increased 2.8% in the past 60 days. Shares of the company have gained 12.4% in the past year.
Price and Consensus: THS
McCormick: The company is a leading manufacturer and distributor of spices, seasonings, and specialty foods. It has been benefiting from strong demand, efficient pricing and cost-saving measures. Robust acquisitions and gains from the Global Operating Effectiveness and Comprehensive Continuous Improvement programs have also been working for MKC. The consensus mark for the current fiscal-year sales and EPS suggests growth of 6.4% and 5.1%, respectively from the year-ago period reported figure.
The Zacks Consensus Estimate for McCormick’s current financial-year EPS has increased 1.9% over the past 60 days. MKC has a long-term earnings growth rate of 7.5%. Shares of this Zacks Rank #2 (Buy) company have gained 4.6% in the past year.
Price and Consensus: MKC
Celsius Holdings: The company specializes in commercializing healthier, nutritional functional foods, beverages and dietary supplements. The company has been gaining from solid demand for its products, flavor innovations, growth initiatives and cost-saving measures. The consensus mark for the current fiscal-year sales and EPS suggests growth of 69.6% and 154.4%, respectively, from the year-ago period reported figures.
The Zacks Consensus Estimate for CELH’s current financial-year EPS has increased 2.9% over the past 60 days. Shares of this Zacks Rank #2 company have surged 101.5% in the past year.
Price and Consensus: CELH
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