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What's News in Earnings: Tough Times Come for Big Food - What's News
What's News in Earnings: Tough Times Come for Big Food - What's News

Wall Street Journal

time6 days ago

  • Business
  • Wall Street Journal

What's News in Earnings: Tough Times Come for Big Food - What's News

Bonus Episode for Aug. 6. It's tough sledding in the food business as costs rise but consumers aren't having higher prices. How are food companies balancing inflation and tariffs on one hand and the need to appeal to budget-conscious buyers on the other? WSJ Heard on the Street editor Aaron Back discusses the latest earnings reports for Kraft Heinz, General Mills, Conagra, Campbell and J.M. Smucker tell us about the food business and the future of how we eat. Full Transcript This transcript was prepared by a transcription service. This version may not be in its final form and may be updated. Jesse Newman: Hey listeners, it's Wednesday, August 6th. I am Jesse 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. Aaron Back: Hi. Jesse Newman: 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? Aaron Back: 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 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. 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 onto 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. Jesse Newman: Let's break down 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? Aaron Back: 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, 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, this time is different. So what explains this, it's not entirely clear, but one definite possibility is GLP drugs, and this is something the industry doesn't like talking about. But we all know that weight loss drugs are taking off, and there have been studies that show that one of the first things that you cut back on when you're on GLP drugs is things like sweet, cakes and snacks and things like that. Whatever it is, the trend is very clear, that snack sales are really suffering all of a sudden. Jesse Newman: I want to pick up on something you were talking about with weight loss drugs like Ozempic and ask, you didn't hear that many executives talking about it in this latest round, but how much do you think the growing focus on health and wellness from consumers, from the Trump administration and things like weight loss drugs are impacting big food companies, businesses? Aaron Back: Yeah, it's interesting because if you go back pre-pandemic, I started writing about this industry around 2018, if memory serves, and in that period, the focus was all on health and wellness in the industry. And this set off a scramble among brands that made a lot of acquisitions to try to get ahead of this trend and get into categories where they thought young consumers were going. That was the storyline pre-pandemic. During the pandemic that all got sidelined because people just had to eat and people were stuck at home and people weren't that fussed about what they were eating. So part of what we're seeing is just a return to normal in the sense that consumers are again thinking, well, what's healthy for me? But you have some new trends layered on top of that, one is GLP drugs, the other is what you just mentioned. Which is this sort of Make America Healthy Again movement, which is putting political pressure on these companies to reduce certain additives like artificial flavors, artificial colors, corn syrup, et cetera. Ultimately, they have the ability to adapt to that. But when that is happening at the same time as these other pressures, including tariffs, including inflation, including a generally weak consumer environment, including GLP-1 drugs, which you have is just a confluence of challenges on the sector and the companies may not have the resources to address all those simultaneously in this environment. Jesse Newman: Looking ahead, what do you think we will see from these companies or what do you think we'll see them do in coming months? Aaron Back: I'm not that optimistic in the near term. One example, Kraft Heinz says they're seeing 5 to 7% inflation, but they're only passing along 1% price increases to customers. They're eating the rest. That's because they feel they have no choice. Because if they raise prices, consumers will walk away or they'll go to private label brands or what have you. And the tariff impact is only beginning to be felt and is very real. So for the next couple quarters, I'm quite pessimistic. Now long-term it may be possible for some companies to shed underperforming businesses focus on promising growth areas. There will be some winners that emerge. At the end of the day, people need to eat. And so ultimately it's not as if these companies are just going to keep shrinking. People need to eat, these companies are going to find a way to feed them, and they do have a track record of adapting to challenging environments in the past. There's going to be privatizations to be breakups, there's going to be M&A, but all is not lost. The question is figuring out who's going to figure out that formula for what people want and how to give it to them at an acceptable cost. And so we're going to see the winners sorted from the losers in the next couple of years. Jesse Newman: Aaron, thanks so much for joining us. Aaron Back: Thanks very much. Jesse Newman: And that was What's News in Earnings. Today's show was produced by Zoe Kuhlkin and Pierre Bienaimé with supervising producer Michael Kosmides. Later today we'll have the PM edition of What's News out for you as usual, and we'll be back later this earnings season, diving into another industry. Until then, I'm Jesse Newman. Have a great day.

What's News in Earnings: Tough Times Come for Big Food - Your Money Briefing
What's News in Earnings: Tough Times Come for Big Food - Your Money Briefing

Wall Street Journal

time6 days ago

  • Business
  • Wall Street Journal

What's News in Earnings: Tough Times Come for Big Food - Your Money Briefing

Bonus Episode for Aug. 6. It's tough sledding in the food business as costs rise but consumers aren't having higher prices. How are food companies balancing inflation and tariffs on one hand and the need to appeal to budget-conscious buyers on the other? WSJ Heard on the Street editor Aaron Back discusses the latest earnings reports for Kraft Heinz, General Mills, Conagra, Campbell and J.M. Smucker tell us about the food business and the future of how we eat. WSJ food reporter Jesse Newman hosts this special bonus episode of What's News in Earnings, where we dig into companies' earnings reports and analyst calls to find out what's going on under the hood of the American economy. Sign up for the WSJ's free Markets A.M. newsletter.

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