Players in the Zacks Food – Meat Products industry have been battling increased manufacturing costs, such as commodities, packaging and logistics. Several companies expect the inflationary environment to linger. A disrupted supply-chain network is also weighing on companies' production capacity.
However, capacity expansion endeavors to cater to the rising demand for protein-rich items and efficient pricing actions are likely to work well for industry participants like Hormel Foods Corporation HRL, Industrias Bachoco, S.A.B. de C.V. IBA and Beyond Meat, Inc. BYND.
About the Industry
The Zacks Food – Meat Products industry comprises companies that manufacture, process market, distribute and sell a wide range of meat products like chicken, pork, beef, prepared food and plant-based meats. Some companies also offer poultry and turkey products alongside providing nutritional food products and supplements, desserts and drink mixes and industrial gelatin products. Most of these companies offer their products to retail and foodservice customers, while some also cater to deli and commercial operators, including grocery retailers, grocery wholesalers, meat distributors, warehouse club stores, industrial food processing companies, chain restaurants, international export companies, school cafeterias and hospitals, among others. Some of the products offered include frozen whole chicken, primary pork cuts, salads, sandwiches and meatballs.
Major Trends Shaping the Future of the Meat Food Industry
Cost Woes Linger: The increased cost of inputs remains a concern for many players in the meat food industry. Companies are witnessing a spike in the prices of raw materials, packaging and supplies, freight and logistics and labor. They have been incurring the increased costs of corn, soybean meal, feed ingredients and live animals, which have been plaguing margins. Several companies expect inflationary pressure to persist, as evident by their last earnings call. This is likely to keep margins under pressure.
Supply-Chain & Other Headwinds: Some industry players are bearing the brunt of supply-chain disruptions, which is weighing on their production capacity. Per Tyson Foods' last earnings call, the USDA projects fiscal 2023 domestic production to fall roughly 5% year over year for the Beef segment. Industry experts expect global beef production to witness a marginal dip in 2023. Apart from this, experts anticipate a decline in global exports of beef and pork (in 2023), mainly due to reduced demand from China.
Demand for Protein, Plant-Based Meat Gains Popularity: Rising health awareness among consumers has been driving the demand for protein-packed food. Consumers, especially fitness enthusiasts, have been adopting protein-rich, ketogenic diets. These factors have been working well for meat product companies, which have been focused on strengthening their portfolio through constant innovation. In the meat food space, innovation is a thriving concept. Meatless meat or plant-based meat products have been gaining popularity over the past few years. Consumers' growing inclination toward trying new products and their rising health consciousness, especially due to COVID-19, have been driving the demand for substitutes for traditional meat products. Most plant-based food alternatives are touted to contain fewer artificial ingredients and preservatives, thus making them quite healthy. These food options are also considered a useful source of protein by people who practice vegan dining. Industry experts believe that plant-based protein may emerge as a major disruptor in the conventional meat market. The growing demand for plant-based food, especially meat alternatives, has led many companies to invest significantly in this arena.
Zacks Industry Rank Indicates Dim Prospects
The Zacks Food – Meat Products industry is housed within the broader Zacks Consumer Staples sector. The industry currently carries a Zacks Industry Rank #243, which places it in the bottom 3% 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 dull 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.
The industry's positioning in the bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually losing confidence in this group's earnings growth potential. Since the beginning of September 2022, the industry's earnings estimate for 2023 has tumbled 30.9%.
Despite the industry's drab prospects, we present a few stocks that you may want to consider for your portfolio. However, before that, it's worth taking a look at the industry's performance and current valuation.
Industry vs. Broader Market
The Zacks Food – Meat Products industry has underperformed the broader Zacks Consumer Staples sector and the S&P 500 over the past year.
The industry has declined 24.5% over this period compared with the broader sector's drop of 3.2%. Meanwhile, the S&P 500 saw a decline of 9.6%.
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 Staple stocks, the industry is currently trading at 16.02X compared with the S&P 500's 17.86X and the sector's 18.32X.
Over the past five years, the industry has traded as high as 18.5X and as low as 11.41X, with the median being 15.01X as the chart below shows.
Price-to-Earnings Ratio (Past 5 Years)
3 Meat Food Stocks to Keep a Close Eye on
Hormel Foods: This Zacks Rank #3 (Hold) company has been benefiting from its efforts to boost capacity. Additionally, a focus on prudent buyouts has been working well for the company. Hormel Foods recently unveiled the Go Forward initiative, which also bodes well. The move is aimed at elevating the company's strategic growth priorities and better aligning the business to the needs of customers, consumers and operators while deepening sales capabilities.
The Zacks Consensus Estimate for Hormel Foods' sales and earnings per share for the current fiscal year suggests growth of 2.4% and 3.9%, respectively, from the figure reported in the year-ago period. The consensus mark for earnings has remained stable over the past 30 days. Shares of HRL have decreased 9.6% in a year.
You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: HRL
Industrias Bachoco: The poultry producer has been benefiting from its robust brand recognition and strong distribution network. Industrias Bachoco is also gaining from its national coverage in Mexico and diversified product portfolio. Apart from these, a focus on productivity and expense control has been working well for this Zacks Rank #3 company.
The Zacks Consensus Estimate for IBA's current fiscal-year sales indicates a rise of 5.6% from the prior-year reported figure. The consensus mark for Industrias Bachoco's earnings has risen by 1.5% over the past seven days. Shares of IBA have rallied 35.5% in the past year.
Price and Consensus: IBA
Beyond Meat: This manufacturer, marketer and seller of plant-based meat products has been gaining from its strong product portfolio, especially due to its focus on innovation. Apart from expanding its portfolio, Beyond Meat is benefiting from efforts to strengthen its distribution network and e-commerce capabilities. A strong base of retail and foodservice customers, along with the rising popularity of plant-based meats, has been working well for this Zacks Rank #3 company.
The Zacks Consensus Estimate for Beyond Meat's bottom line for the current fiscal year suggests growth of 37.2% from the figure reported in the year-ago period. The consensus mark for the bottom line has improved from a loss of $3.65 per share to a loss of $3.61 over the past 30 days. Shares of BYND have declined 60.4% over the past year.
Price and Consensus: BYND
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