Dive Brief:
- Investors are beginning to lose interest in food and beverage stocks are pulling their money as these industries face a number of challenges, including changing consumer tastes that have led to slowing sales and potentially rising interest rates in December.
- "The S&P 500’s Food Products Index, which tracks companies including Hershey Co., General Mills Inc. and Kraft Heinz Co., fell 3.1% last week, while the S&P 500 rose 1%," The Wall Street Journal reported. So far this year, the food-products index is up 5.7% and the S&P 500 has increased by 1%.
- Cost-cutting and mergers and acquisitions have made food and beverage companies more attractive recently, despite sales declines, but some analysts and investors feel that companies are hitting a wall with cost-cutting and that mergers and acquisitions are ultimately slowing.
Dive Insight:
"The consumer is still strong, so this area will still perform OK but not excel like others," Tommy Lackey, a portfolio manager at Barber Lackey Financial Group LLC in Greensboro, Ga., which handles approximately $20 million of assets, told The Wall Street Journal.
Companies have experienced difficulties in the past year, including Monsanto, which has cut its earnings guidance for the new fiscal year, with estimated earnings of $4.00 to $4.66 a share, a significant decrease from the $4.44 to $5.01 a share it had reported last month. Adjusted earnings, however, remain the same.
"Investors also say food stocks were becoming expensive compared with the broader market. The S&P 500’s Food Product Index trades at 22.6 times its companies’ past 12 months of earnings, versus the S&P 500’s 18.5 price/earnings ratio, according to FactSet as of Friday," according to The Wall Street Journal.
Plus, with commodity prices stabilizing after a five-year decline, food companies are becoming less attractive to some investors, though not all investors share these concerns. "People have got to eat," Hank Madden, co-founder of Madden Advisory Services Inc. in Jacksonville FL, told The Wall Street Journal. "I don’t care if it’s a good time or a bad time."