For Immediate Release
Chicago, IL – March 12, 2021 – Today, Zacks Equity Research discusses Food - Miscellaneous, including The J.M. Smucker Company SJM, Lamb Weston Holdings Inc. LW, The Hain Celestial Group, Inc. HAIN, Campbell Soup Company CPB and United Natural Foods, Inc. UNFI.
While players in the Zacks Food-Miscellaneous industry are gaining from continuation in at-home consumption, the trend is likely to moderate as outdoor dining picks up pace amid the rollout of vaccinations. Apart from this, rising input costs and expenses related to COVID-19 pandemic have been acting as headwinds for players in this space.
Nevertheless, food companies have been focusing on strengthening their portfolio and rationalizing operational structures. Such upsides are benefiting companies like The J.M. Smucker Co., Lamb Weston Holdings and The Hain Celestial Group. Additionally, some of the industry participants are investing in bolstering e-commerce capabilities, in order to maintain growth in the digital realm.
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, sauces, bakery items, spices and condiments, natural and organic food items as well as frozen products. Some of the companies also provide comfort food items such as chocolates and ready-to-serve meals, soups and snacks. The companies operating in this space sell their products mostly through wholesalers, distributors, large retail organizations and grocery chains.
Major Trends Shaping the Future of the Food Industry
Impact of COVID-19 on Demand: Stay-at-home and work-from-home trends amid the pandemic resulted in an upside for several players in the food space. In fact, companies offering packaged food and snacks greatly benefited from consumers at-home dining and cooking practices.
However, the tides are slowly beginning to change. With COVID-19 vaccines being rolled out, people are gradually returning to the pre-pandemic lifestyle and opening up to outdoor dining. As a result, the burgeoning demand, which several food companies have been witnessing so far, is beginning to slow down as consumers reduce pantry loading and at-home dining practices.
In fact, some food companies, such as Campbell Soup, forecast full-year sales levels to moderate due to the cycling impact of pandemic-related increase in demand witnessed last year. Nevertheless, with outdoor dining slowly coming back into the picture, demand from restaurants and cafes are likely to pick up pace. As a result, food companies are likely to witness a revival in their foodservice businesses.
Rising Costs a Hurdle: Players in the miscellaneous food space are grappling with rising input costs. Prices of commodities like soybean, flour, cooking oil, vegetables, dairy items, egg and animal feed have been rising. Moreover, companies have been witnessing high costs associated with operating amid the pandemic like increased pay to employees, incentives and bonuses, and costs related to sanitization and safety measures. Apart from this, increased warehouse and packaging expenses have raised the cost burden of several industry players. Such a rise in expenses is putting pressure on margins of companies.
Nevertheless, food companies have been focused on undertaking several initiatives to mitigate cost-related challenges. These include streamlining of operational structures, optimizing manufacturing capacity and supply networks as well as adopting effective pricing policies.
E-commerce Investments Gain Predominance: Online sales have been pushing revenues of several food companies amid the pandemic, such as United Natural Foods. To continue building on the sales momentum, companies in the food space are likely to keep investing in their digital capabilities. In this context, companies are striving to bolster operations at fulfillment centers.
Refining Portfolio to Suit Consumer Needs: Food companies resort to product upgrades and innovation on a regular basis to suit consumers’ changing tastes and preferences. Moreover, with health and well being gaining importance in the current challenging times, there has been growth in the demand for organic and natural food offerings.
In fact, a number of miscellaneous food companies are enriching their portfolio by adding more plant-based and natural brands to meet consumers’ growing inclination toward healthy offerings. Additionally, companies often engage in portfolio refinement through strategic buyouts and divestiture of non-core elements.
Zacks Industry Rank Indicates Gloomy Prospects
The Zacks Food-Miscellaneous industry is housed within the broader Zacks Consumer Staples sector. The industry currently carries a Zacks Industry Rank #182, which places it in the bottom 28% 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 bleak near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are losing confidence in this group’s earnings growth potential. Since the beginning of September 2020, the industry’s earnings estimate for 2021 has declined 0.4%.
Despite the murky scenario, we will present a few stocks that one can buy, given their solid growth endeavors. But before that, it’s worth taking a look at the industry’s performance and current valuation.
Industry Vs. Broader Market
The Zacks Food-Miscellaneous industry has underperformed the S&P 500 composite but outpaced the broader Zacks Consumer Staples sector over the past year.
The industry has gained 42.6% over this period against the S&P 500’s growth of 59.8%. Meanwhile, the broader sector gained 29.7% in the said time frame.
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 19.71X compared with the S&P 500’s 22.36X and the sector’s 19.91X.
Over the past five years, the industry has traded as high as 22.91X and as low as 14.75X, with the median being at 18.53X.
3 Food Stocks to Keep a Close Eye on
The J.M. Smucker Company: The company has been gaining from elevated demand in the U.S. Retail Coffee and U.S. Retail Consumer Foods segments owing to higher at-home consumption trends. Moreover, the company remains committed to its core strategies, which include driving commercial excellence, simplifying cost structure and reshaping portfolio. Markedly, it has been strengthening its portfolio through prudent partnerships and acquisitions.
Moreover, management is focusing on boosting e-commerce capabilities. Notably, the Zacks Consensus Estimate for fiscal 2021 earnings has improved 6.9% over the past 30 days. The company has a trailing four-quarter earnings surprise of 17.7%, on average. Shares of this Zacks Rank #2 (Buy) company have gained 21.9% in the past year. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Lamb Weston Holdings: The company prides on being a leading global manufacturer, marketer and distributor of value-added frozen potato products, particularly French fries. It has been gaining from favorable demand conditions in its retail business, backed by high at-home consumption.
Moreover, Lamb Weston has been benefiting from robust price/mix across its segments. The company is also on track with initiatives to boost offerings and operating capacity. Shares of this Zacks Rank #2 company have risen 27.3% in the past year. The Zacks Consensus Estimate for earnings for fiscal 2021 has remained stable over the past 30 days. Moreover, the company has a long-term earnings growth rate of 9.9%.
The Hain Celestial Group: The company has been gaining from sturdy growth in its Get Bigger brands, which in turn has been boosting revenues in the North America segment. Additionally, sound business fundamentals and impressive transformational strategies have been supporting its performance.
Apart from these, the company has been focusing on strengthening its key brands, simplifying portfolio and identifying additional areas of productivity savings. It is also on track with boosting automation capabilities in plants for lowering costs, optimizing infrastructure, redesigning engineered products, and optimizing pricing.
The company has also been executing its simplified pricing model. Impressively, the Zacks Consensus Estimate for fiscal 2021 earnings has improved 7.9% over the past 30 days. The company has a trailing four-quarter earnings surprise of 26.7%, on average. Shares of this Zacks Rank #2 company have gained 116.8% in the past year.
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The Hain Celestial Group, Inc. (HAIN) : Free Stock Analysis Report
The J. M. Smucker Company (SJM) : Free Stock Analysis Report
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