What’s News in Earnings: Tough Times Come for Big Food
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What is the main topic discussed in this episode?
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Hey, listeners, it's Wednesday, August 6th. I am Jessi Newman for The Wall Street Journal, and this is What's News in Earnings, our look at the broad themes that stood out in the latest earnings season. Today, we're digging into what's happening at some of the nation's biggest food companies. Times are tough in food. Consumers are anxious. They're hunting for deals and carefully guarding their wallets. At the same time, food companies are dealing with tariffs and surging costs for raw ingredients like cocoa and coffee, and some are hiking their prices again. They're doing this at a time when consumers are already buying less and profitability in the industry is down. So here with us to discuss all of this is Wall Street Journal's very own Aaron Back.
Aaron is the editor for Wall Street Journal's Heard on the Street column, where he writes from time to time about these big food makers. And he's here to tell us all about what they're doing. Aaron, great to have you with us. Hi. So let's start high level. What do food company earnings reports over the past few weeks tell us about how consumers are faring these days?
The results are pretty poor and the performance of those stocks reflects that. I looked at five of the biggest food companies, Kraft Heinz, General Mills, Campbell, Conagra and J.M. Smucker, and their organic sales, which is an industry measure that looks at basically sales without currency fluctuations or like mergers and divestitures. It's a very standard measure in the industry. It was down at four of the five. in the last quarter, and across all five, it was down an average of 2%. And that's just not very good.
What big-picture challenges are food companies facing right now?
That goes to something that you just mentioned in your intro, which is that consumers are feeling stressed, are feeling like they need to be selective with what they spend money on. And at the same time, these companies are getting squeezed from the cost side of things. But what is maybe the most worrying thing is that these companies have lost pricing power. In other words, Previously, when costs went up, they were largely able to pass those costs on to consumers by raising prices. And now they're finding they can't do that because consumers are just fed up with the cumulative inflation of the last several years. And that means that they're going to take a hit on margins and that's very worrying for the sector.
Let's break down the food, the grocery store a little bit. All food isn't created equal. Are there certain products or grocery categories that you're seeing are really under pressure right now?
Yeah. So snacks is under pressure. And this is ironic because snacks was identified by the industry not too long ago as the biggest growth driver that they were all chasing. And that has now just hit a wall. So if you look at Campbell, for example, is an interesting test case because the company is really half snacks and half groceries. They were talking about snacks being the growth driver, again, not too long ago, maybe two years ago. In the most recent quarter, meals and beverages, so basically groceries, soups, sauces, was up 6% in terms of sales. Snacks was down 5%. And there's a big debate as to what's driving this. Some people say it's because consumers feel tight and so snacks are less essential than meals.
So if you have to cut back somewhere, you're more likely to cut back in snacks. The problem with that is historically that hasn't necessarily been the case. Like this time is different. So what explains this?
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Chapters
4 chapters
1
What is the main topic discussed in this episode?
0:00–2:17
2
What big-picture challenges are food companies facing right now?
2:17–7:33
3
Which companies and earnings metrics reveal the state of the food sector?
7:33–8:14
4
How have organic sales trended for Kraft Heinz, General Mills, Campbell, Conagra and J.M. Smucker?
8:14–8:38
Speakers
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