Companies within the Zacks Food-Miscellaneous industry have capitalized on product innovation and portfolio enhancement to align with shifting consumer preferences. Strong pricing strategies have also been instrumental in helping these food companies mitigate the impact of cost inflation.

Although the dynamic consumer landscape has pressured volumes, these companies have implemented strategies to navigate these challenges, such as value-based marketing and promotional campaigns. These strengths position The Kraft Heinz Company (KHC Quick QuoteKHC - Free Report) , McCormick & Company, Incorporated (MKC Quick QuoteMKC - Free Report) , Ingredion Incorporated (INGR Quick QuoteINGR - Free Report) and Flowers Foods, Inc. (FLO Quick QuoteFLO - Free Report) well for growth.

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 mainly through wholesalers, distributors, large retail organizations, grocery chains, mass merchandisers, drug stores and e-commerce service providers. Some also cater to foodservice channels, including restaurants, cafes and hotels. Others offer services to schools, hospitals and industry caterers.

Major Trends Shaping the Future of the Food Industry

Portfolio Refinement & Brand Fortification: The strength of established brands has been a key asset for food companies, promoting consumer loyalty and fueling growth. This loyalty, coupled with a strong emphasis on innovation, has been crucial in maintaining a competitive edge. As demand for healthier and more nutritious food options rises, companies have responded by launching innovative organic products and broadening their health and wellness offerings. Beyond product innovation, efforts to enhance manufacturing capabilities and diversify product portfolios have proven highly effective. These strategies have not only strengthened their current market positions but also laid the groundwork for future growth by ensuring adaptability to changing consumer preferences and market dynamics. The ability to stay in tune with evolving consumer demands has become a winning strategy.

Proactive Pricing Strategies: Effective pricing tactics have provided a vital cushion for food companies facing industry-wide cost inflation. With demand for food products remaining relatively steady, consumers have generally accepted price increases for their preferred brands. This pricing power reflects the strength of these brands and the trust they command. We believe that maintaining a competitive yet strategic pricing approach will continue to benefit food companies, helping them sustain revenues and enhance overall performance.

Challenging Operating Environment: Food companies have been navigating a volatile macroeconomic landscape. Inflation has diminished consumer purchasing power, leading many to opt for budget-friendly alternatives and shift from well-known brands to private-label products. This shift has negatively impacted the sales volumes of several major food companies. In response, companies have adjusted their strategies to meet these challenges by implementing value-based marketing and promotional efforts and expanding lower-priced product lines.

Cost-Related Challenges: The rising cost of key ingredients, coupled with high labor, packaging and logistics expenses, has impacted profit margins. Furthermore, companies are incurring increased operational expenses as they invest in improving performance, enhancing efficiency and expanding capabilities. These investments, while necessary for long-term growth, contribute to the current financial strain. The persistence of these elevated costs poses an ongoing challenge to profitability. To mitigate these impacts, companies have been exploring cost-saving measures, supply-chain optimization and strategic sourcing initiatives.

Zacks Industry Rank Indicates Bright Prospects

The Zacks Food-Miscellaneous industry is housed within the broader Zacks Consumer Staples sector. The industry currently carries a Zacks Industry Rank #94, which places it in the top 37% of more than 250 Zacks industries.

The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates robust 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.

Let’s take 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 as well as the broader Zacks Consumer Staples sector over the past year.

The industry has risen 2.7% over this period compared with the S&P 500’s growth of 25.3%. Meanwhile, the broader sector has gained 6.6% in the said time frame.

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 16.6X compared with the S&P 500’s 21.67X and the sector’s 18.23X.

Over the past five years, the industry has traded as high as 20.92X and as low as 14.39X, with the median being at 18.13X, as the chart below shows.

Price-to-Earnings Ratio (Past 5 Years) 

4 Food Stocks to Keep a Close Eye On

McCormick & Company: This Zacks Rank #2 (Buy) company’s commitment to achieving long-term objectives is evident from its proven track record, wide-reaching and competitive global portfolio, focus on high-growth, profitable areas, alignment with evolving consumer preferences and distinctive heat platform. McCormick’s Comprehensive Continuous Improvement program has been driving growth investments and operating margin expansion.

The Zacks Consensus Estimate for McCormick’s current fiscal-year earnings per share (EPS) has remained unchanged at $2.85 in the past 30 days. This indicates growth of 5.6% from the year-ago period figure. Shares of MKC have risen 18% in the past six months. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Price and Consensus: MKC

Ingredion Incorporated: This Zacks Rank #2 company looks well-positioned due to its market and product diversity and robust business model. An efficient approach to product pricing, a favorable customer mix and a focus on driving operational excellence and productivity have been aiding the company in battling cost inflation. Ingredion Incorporated’s focus on Driving Growth Roadmap also bodes well.

The company, which produces and sells sweeteners, starches, nutrition ingredients and biomaterial solutions, has seen its stock price jump 15.1% in the past six months. The Zacks Consensus Estimate for INGR’s current fiscal-year EPS has increased 2.6% to $9.95 in the past 30 days. The consensus mark suggests 5.6% year-over-year growth.

Price and Consensus: INGR

Flowers Foods: The packaged bakery food product company has been benefiting from its key priorities, which include team development, brand emphasis, margin prioritization and exploring mergers and acquisitions. A focus on shifting a larger part of its sales to higher-margin branded retail products, along with efficient pricing actions, has been working well for Flower Foods, which currently carries a Zacks Rank of 2.

The Zacks Consensus Estimate for Flower Foods’ current financial-year EPS has risen by 2 cents to $1.25 in the past 30 days. This suggests 4.2% growth from the year-ago period figure. Shares of FLO have rallied 3.6% in the past six months.

Price and Consensus: FLO

The Kraft Heinz Company: This consumer-packaged food and beverage company continues to renovate its core brands to stay relevant and tempting to the modern consumer. This involves updating product offerings and enhancing brand value to meet evolving preferences. Kraft Heinz is also focused on introducing innovative food solutions, with a goal to generate additional net sales worth $2 billion from innovation. Kraft Heinz’s determined efforts to enhance performance are also complimented by its Accelerate Platform, which focuses on high-potential categories and brands.
 
This Zacks Rank #3 (Hold) company is also focused on cost management and strategic pricing to offset inflationary pressures. The Zacks Consensus Estimate for KHC’s full-year 2024 EPS has remained unchanged at $3.02 over the past 30 days. The consensus mark suggests 1.3% growth from the year-ago period figure. Shares of Kraft Heinz have climbed 1.3% over the past six months.

Price and Consensus: KHC