Amid economic headlines of slowing growth and persistent inflationary pressures, navigating the financial markets can feel like steering through turbulent waters. According to Commerce Department estimates, U.S. Gross Domestic Product (GDP) slowed to an annual rate of 1.3% in the first quarter of 2024, decelerating from a brisk 3.4% growth rate observed in late 2023. This underscores a shift from robust expansion to more tempered economic activity.
Despite this slowdown, the Consumer Price Index (CPI) increased 3.3% in May compared to a year ago, slightly lower than April's 3.4%. While this marks a decline from the pandemic-era peak of 9.1% in 2022, it remains above policymakers' target of around 2%.
The investment landscape grows increasingly complex as the Federal Reserve grapples with taming inflation through successive interest rate hikes. In this climate, the quest for recession-proof investments becomes paramount for risk-averse investors to safeguard their portfolios against economic downturns.
Historically known for their resilience during economic downturns, food makers are increasingly sought after. These stocks encompass essential goods such as packaged food products, beverages, and household staples that consumers prioritize consistently, even during lean times.
In this article, I have highlighted three top food maker stocks, General Mills, Inc. (GIS), Tyson Foods, Inc. (TSN), and Campbell Soup Company (CPB), to consider investing if you are looking to recession-proof your portfolios. So, let’s dig deeper into these stocks' fundamentals and growth prospects.
General Mills, Inc. (GIS)
Food maker General Mills, Inc. (GIS) has been a household name for decades, with a lineup of beloved brands that span everything from cereals to snacks, yogurt, baking products, and even pet foods. You must have probably grown up with their iconic brands like Cheerios, Haagen-Dazs, Betty Crocker, and Yoplait.
In the third quarter earnings report, GIS demonstrated growth on both the top and bottom lines, navigating through moderating inflation, stabilized supply chains, and a cautious yet resilient consumer base.
For the fiscal 2024 third quarter that ended February 25, 2024, GIS’ net sales amounted to $5.09 billion, beating the analysts’ expectations of $4.97 billion. Its adjusted gross margin grew 13.2% from the year-ago value to $914.50 million.
Moreover, adjusted net earnings attributable to GIS increased 15.9% year-over-year to $674 million, while adjusted EPS stood at $1.17, up 1.8% from the prior year’s quarter. The company even exceeded the consensus earnings estimate by $0.12.
Looking ahead, Wall Street anticipates GIS to post earnings per share of $1.00 for the fourth quarter (ended May 2024), down 10.8% from last year’s quarter. The company is expected to generate $4.87 billion in revenue for the same period, reflecting a 3.1% year-over-year decline.
However, given General Mills' track record of beating earnings estimates in each of the trailing four quarters, there's a lot of optimism that it might once again exceed expectations in the forthcoming quarterly announcement.
General Mills is preparing for the rest of fiscal 2024 with an eye on the economic health of consumers, the slowing pace of inflation, and the increasing stability of supply chains. The company forecasts organic net sales to be flat or slightly down by 1%. Yet, it remains confident, projecting a 4% to 5% increase in adjusted operating profit and adjusted EPS in constant currency.
Regarding rewarding shareholders, General Mills offers a stable dividend with a four-year average yield of 3.13% and a payout ratio of 49.9%. GIS’ current annual dividend of $2.36 translates to a 3.61% yield at the prevailing share price. Moreover, the company has increased its dividend payouts at a CAGR of 5.3% over the past three years.
Despite the positive earnings report, GIS shares have declined nearly 20% over the past year and more than 7% over the past month. Yet, the stock has managed to eke out marginal gains year-to-date, reflecting a resilient performance amidst broader market challenges.
Tyson Foods, Inc. (TSN)
Tyson Foods, Inc. (TSN) is renowned for its leadership in protein and a lineup of household brands, including Tyson, Jimmy Dean, Hillshire Farm, and Ball Park. The company released its half-yearly results on May 6, exhibiting its resilience and growth in a competitive market.
During the fiscal second quarter (ended March 30, 2024), TSN's sales amounted to $13.07 billion, slightly below the year-ago value of $13.13 billion. However, its attributable non-GAAP net income amounted to $220 million compared to the prior year’s adjusted net loss of $12 million.
Likewise, the company’s adjusted operating income improved substantially from the prior year’s quarter to $406 million. The company's non-GAAP EPS came in at $0.62 (comfortably beating the Street’s estimate of $0.40) versus a loss per share of $0.04 a year ago.
The consensus EPS estimate of $0.62 for its fiscal third quarter (ending June 2024) represents a 315.3% improvement year-over-year. The consensus revenue estimate of $13.17 billion for the current quarter indicates a marginal increase year-over-year. Moreover, Tyson Foods has an excellent earnings surprise history; it surpassed the consensus EPS estimates in three of the trailing four quarters.
Benefiting from robust free cash flows totaling $556 million in the first half of the year, Tyson Foods announced a quarterly dividend of $0.49 per share on Class A common stock and $0.441 per share on Class B common stock, payable on September 13, 2024.
TSN’s four-year average dividend yield is 2.80%, and its forward annual dividend of $1.96 translates to a 3.58% yield. Tyson Foods has increased its dividend for 12 consecutive years, reflecting its commitment to returning value to investors. Additionally, its dividend payouts have grown at a 3.6% CAGR over the past three years and a 6.5% CAGR over the past five years.
Looking ahead to fiscal 2024, Tyson Foods expects total adjusted operating income to range between $1.4 billion and $1.8 billion, with sales projected to remain relatively flat compared to fiscal 2023. Despite market fluctuations, TSN stock has shown resilience, gaining over 8% over the past six months and nearly 2% year-to-date.
Campbell Soup Company (CPB)
Campbell Soup Company (CPB) is a staple in American kitchens, famous for its iconic soups and a wide variety of products, including snacks, beverages, and packaged fresh foods. The company owns popular brands like Pepperidge Farm, V8, and Snyder’s-Lance, which many of us have grown up with. It primarily operates through two segments: Meals & Beverages and Snacks.
In its latest earnings report, the company exceeded analysts' expectations on top and bottom lines. For the fiscal third quarter ending April 28, 2024, CPB’s net sales increased 6.3% year-over-year to $2.37 billion, partly thanks to its acquisition of Sovos Brands.
Furthermore, the company’s adjusted EBIT and non-GAAP attributable net earnings increased 13.1% and 9.8% from the year-ago values to $354 million and $224 million, respectively. Also, its adjusted EPS came in at $0.75, representing a 10.3% increase from the prior year’s quarter.
Analysts expect CPB’s revenue to increase 12.4% year-over-year to $2.32 billion in the fiscal fourth quarter (ending July 2024). In addition, its EPS is projected to register a year-over-year growth of 23.9%, settling at $0.62. Moreover, it surpassed the consensus EPS and revenue estimates in three of the trailing four quarters.
On May 13, Campbell announced a quarterly dividend of $0.37 per share on May 13, payable to its shareholders on July 29, 2024. With a four-year average dividend yield of 3.17%, the current annual dividend of $1.48 translates to a 3.46% yield. Over the past five years, Campbell’s has shown a commitment to returning value to its investors, with dividend payouts growing at a CAGR of 7.1%
Despite an upbeat earnings report, the shares of the food company have tumbled more than 6% over the past month, though it has seen a slight uptick over the past nine months. Further, the company has adjusted its full-year 2024 guidance to reflect the impact of the Sovos acquisition, forecasting net sales growth of 3-4% and organic sales tracking to approximately flat to down 1%. Adjusted EPS is expected to increase by 2-3%, between $3.07 and $3.10.
Overall, Campbell continues to be a resilient player in the food industry, adapting and growing despite market fluctuations and economic challenges.
Bottom Line
Food maker stocks are historically resilient during economic slowdowns due to the inelastic nature of their products. When economic uncertainty rises, consumers prioritize spending on necessities, such as food, over discretionary items.
Packaged foods, beverages, and other household staples become even more crucial as they offer convenience and affordability, making them a go-to choice for families tightening their budgets. So, consistent demand for packaged food companies, irrespective of economic conditions, underscores their defensive nature, providing a safe haven for risk-averse investors looking to safeguard their portfolios against economic downturns.
Given their essential products, strong brand loyalty, and consistent financial performance, packaged food stocks like GIS, TSN, and CPB offer enhanced stability and growth potential, making them attractive buys for investors looking to recession-proof their portfolios.
