Orville, Ohio-based J.M. Smucker has outlined a three-year plan that includes beefing up its supply chain, as well as investing in its coffee-and-fruit spread businesses in effort to improve overall sales.
Hershey was recently added to Citi's top picks list and Moody's recently upgraded its credit rating one notch. The chocolate maker's revenue growth prospects are broad-based. Classics such as Heath and Mr. Goodbar are posting double-digit sales growth along with its new Brookside product line, which Citi thinks could be its next $500 million brand. International markets, including China, Mexico, and Brazil, have seen strong revenue growth.
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General Mills plans to launch around 200 new food products this year. The packaged food company expects net sales to grow at a low single-digit rate in 2014 to exceed $18 billion.
Losing flavor?
But not all food makers are tasting so good.
Kellogg cut its revenue forecast for the year, citing slower growth in developed markets, including the U.S. Kellogg Vice President Paul Norman blamed sagging cereal sales on too-busy consumers, saying on the company's recent earnings call, "We understand sometimes consumers don't have time for a bowl of cereal."
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General Mills faces a similar cereal dilemma and is using nostalgia to help market some of its classic kids cereals, like its Lucky Charms brand, to adults.
Both General Mills and Kellogg are looking to grow sales by offering healthier products and acquiring brands. Kellogg recently bought Pringles from Procter & Gamble, expanding its reach both in product and geography. Nearly two thirds of Pringles sales come from overseas.
On Monday Jefferies downgraded shares of Kraft Foods Group to "hold" from "buy." In a note to investors, Jefferies analyst Thilo Wrede said that while the food manufacturer is a good operator with a strong strategy, its stock price currently reflects that strength. Additionally, Wrede warned that competition appears to be increasing, pressuring Kraft's fundamental performance.
What's to come?
Higher prices for ingredients in recent years have inflated the prices of packaged food for consumers, likely causing a pull back on pantry stock-ups. S&P's Graves expects that a robust crop harvest in both North and South America will increase the supply of key ingredients like corn and soybeans, which will lower the costs for food manufacturers, and turn into good news ahead in the grocery aisle for both consumers and investors.
"Higher prices have limited volumes over the last couple of years, but with less price increases ahead, we think that in turn with lead to better volumes," Graves said.
