CPB, CAG, GIS, KHC, And SMPL Stocks Slump In Pre-Market: Why Does Bernstein See ‘Troubled’ Times Ahead?

• Sustained oil inflation has led to an increase in freight, agriculture, and packaging costs, Bernstein said.
• The companies are also facing pressure due to health and wellness trends driven by GLP-1 drugs and the ‘Make America Healthy Again’ agenda
• The brokerage added that it does not see things getting easier for the industry anytime soon.

Several packaged food stocks fell on Wednesday after Bernstein struck a cautious tone on the sector, warning that a growing list of headwinds is keeping the industry’s outlook cloudy.

According to the Fly, Bernstein downgraded Campbell Soup (CPB), Conagra Brands (CAG), General Mills (GIS), and Kraft Heinz Co (KHC) to ‘Underperform’ from ‘Market Perform,’ and also lowered Simply Good Foods’ (SMPL) rating to ‘Market Perform’ from ‘Outperform.’

At the time of writing, CPB, GIS, CAG and SMPL shares were trading around 1% lower in pre-market trading, while KHC stock fell around 1.5%.

Oil Inflation, GLP-1 Trend Pressurizing Packaged Food Sector

Bernstein said these companies face growing challenges from persistent oil price increases, which is expected to drive freight, agricultural, and packaging costs higher. Crude prices have surged since the U.S.-Israeli strikes on Iran at the end of February, closing down the Strait of Hormuz.

West Texas Intermediate futures (WTI) have surged more than 43% since then, while Brent crude prices have risen more than 35%.

The brokerage also added that changing consumer preferences tied to GLP-1 weight-loss drugs, and the broader “Make America Healthy Again” movement, have added pressure.

Eli Lilly’s Mounjaro, Zepbound, and newly launched Foundayo, alongside Novo Nordisk’s Wegovy and Ozempic, have transformed the weight-loss market and fueled surging demand for GLP-1 therapies. Access to these treatments has expanded further through telehealth platforms such as Hims & Hers and online marketplaces like Amazon.

Bernstein Says Inflation Is A Risk

The brokerage expects these companies to continue facing a difficult operating environment, adding that rising inflation remains a risk.

“Times remain troubled for the traditional, center-of-store packaged food companies, and we unfortunately don't see it getting easier anytime soon,” Bernstein said in a note.

Earlier this week, UBS lowered the target price of several packaged food companies, including CAG and SMPL, citing broader changes across the food industry to reflect demand trends and inflation.

What Is Retail’s Take?

Retail sentiment for KHC is ‘extremely bearish’ on Stocktwits, ‘bearish’ on GIS and ‘neutral’ on SMPL. However, sentiment surrounding CPB and CAG trended in the ‘bullish’ territory on the platform.  

Packaged Food Stocks Have Struggled Over The Last 12 Months

Source: Stocktwits

The stocks have posted steep losses over the past year. Kraft Heinz shares are down nearly 13%, while Campbell’s, General Mills, and Conagra Brands have tumbled between 38% and 42%. Simply Good Foods has been the worst performer of the group, plunging more than 65% during the period.

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