Oil Prices, Weight Loss Drugs, and Policies: Triple Pressure Leads US Snack Giants to Face Bearish Outlook from Investment Banks

Due to the combined impact of multiple adverse factors such as the rise in crude oil prices and the rapid adoption of GLP-1 weight-loss drugs, Bernstein analyst Alexia Howard has turned noticeably bearish on major U.S. packaged food companies, sharply downgrading her ratings for General Mills (GIS.US), Conagra (CAG.US), Campbell Soup (CPB.US), and Kraft Heinz (KHC.US) from “Market Perform” to “Underperform.”

Alexia points out that rising oil prices are driving up the costs of transportation, packaging, and agricultural products raw materials, while cuts to federal food assistance programs, increasing penetration of GLP-1 weight loss drugs, and the advancement of the Trump administration's “Make America Healthy Again (MAHA)” policy agenda may continue to suppress demand for junk food and sugary beverages.

The pandemic-era benefits from increased at-home consumption have clearly faded. At that time, lockdowns drove surging demand for snacks like Conagra’s Slim Jim meat snacks and Kraft Heinz macaroni products, while companies offset raw material cost rises by raising prices, thereby maintaining profits. Now, under ongoing high inflation and consumer confidence at a cyclical low, the industry once again faces downward pressure on profit margins.

In her latest research report, Howard notes that a new wave of imported cost inflation is gradually approaching, and food companies primarily focused on the U.S. domestic market may lack sufficient ability to pass cost pressures smoothly on to downstream retailers—especially as retail channels are unwilling to accept further price increases for brands whose growth lags behind in-store comparable sales.

Wall Street’s overall attitude toward this sector is tilted bearish: Campbell Soup currently has no “Buy” ratings, while more than 80% of covering analysts rate General Mills, Conagra, and Kraft Heinz as “Hold” or “Sell.” The S&P Packaged Foods Industry Index has fallen 15% from its February high and closed Thursday at its lowest level since March 2020.

Howard also points out that while the sector generally offers high dividend yields and valuations are at cyclical lows, if payout ratios continue to rise, the market may begin to worry about the potential risk of future dividend cuts. Additionally, reductions in federal nutrition assistance programs (SNAP) are expected to exert an extra drag of roughly 1 percentage point on industry sales.

She says: “No single factor would pose a major challenge on its own, but on top of ongoing pressures from GLP-1 penetration and the MAHA policy, these additional variables make this year’s operating environment even more complex.”