KANSAS CITY — So far, 2025 looks to be just as tough of a year for the US food sector as 2024 — and perhaps more trying, industry analysts say.

Manufacturers and suppliers of grain-based, baked and other packaged foods this year face an unappetizing mix of business and economic conditions as they work to put a year of underperformance behind them, a group of Wall Street analysts told Milling & Baking News. Besides lingering inflation, price-driven consumers and a new presidential administration, the list of concerns includes increased input costs like energy and labor, commodity market uncertainty, unstable weather patterns, geopolitical tensions, rising penetration of GLP-1 weight-loss drugs, and trends such as shoppers gravitating toward fresh foods.

“The best way to sum it up for Big Food stocks is a challenging 2024, and 2025 shaping up to be just as challenging, if not more challenging,” said Arum Sundaram, an analyst for CFRA Research, Charlottesville, Va.

Potentially adding to the brew of pressures is Donald Trump, returning for his second term as president. While Trump has touted aggressive tariffs to shrink trade deficits, raise federal revenue and bolster US-based manufacturing and jobs, analysts said the strategy — if enacted — could spark a trade war, hoisting inflation for US importers and consumers and squeezing US farmers.

His campaign vow to initiate mass deportations of illegal immigrants, too, could sap labor in food, agriculture and other industries, in turn stoking inflation. Also unclear are the possible effects of GOP plans to cut spending on social safety net programs like the Supplemental Nutrition Assistance Program (SNAP) and reverse climate change policies.

“Those are all headwinds for food companies and food stocks,” Sundaram said. “The goal right now for 2025 is to try to improve volume or unit trends. It’s going to be really hard to do so when all these themes are going on.”

Of more direct concern to packaged food companies, analysts said, is the new administration’s pledge to “Make America Healthy Again” (MAHA) — trumpeted by Department of Health and Human Services nominee Robert F. Kennedy Jr. — that could trigger a public bashing of processed food companies and spur calls for a regulatory crackdown.

“2024 was a disappointing year for processed food companies,” said Robert Moskow, an analyst with New York-based TD Cowen. “I think they were under the impression that organic growth would return to normal after an even tougher 2023, because you were no longer lapping cutbacks in SNAP benefits and consumers would get used to higher prices. Instead, price sensitivity remained really high. They had to increase promotional discounting a little more than they thought, and some had to do it a lot more than they thought. And getting back to stable volumes has taken longer than they expected.

“The reason I’m more gloomy heading into 2025 is that I think the issues go beyond just price sensitivity.”

On the plus side, the packaged food industry can expect a lift from tailwinds such as low unemployment, steady consumer spending and strong food-at-home sales, analysts said. The new administration also plans significant tax cuts for companies, families and individuals as well as less business regulation, likely including more lenient antitrust oversight. Analysts said the latter should create a friendlier environment for mergers and acquisitions that could help food companies drive growth and optimize their brand portfolios.

Wall Street reacted positively to Trump’s election, as stock markets surged over the ensuing weeks. But entering the new year, much of those gains dissipated as investors fretted about the Federal Reserve’s reluctance over further interest rate decreases, fears of a market correction and potentially more economic volatility under Trump.

“It just seems like we’re going to have more of the same in 2025,” Mitchell Pinheiro of Mount Laurel, NJ-based Sturdivant & Co. said of the outlook for packaged food. “What we’ve learned over the last three, four or five years is that growth is hard to come by and that food companies’ margins are pretty stable and resilient.

“The problem, though, is that from an investing point of view, there’s just not a lot of growth. And, with the rising rates, it just makes it a hard group to invest in right now.”

Lackluster growth forecast

CFRA Research estimates low-single-digit organic sales growth for the packaged food industry at large in 2025.

Source: New York Stock Exchange and Sosland Publishing Co.

“It’s likely going to be a below-algorithm type of year for most packaged food companies,” Sundaram said. “I say this because it’s taking longer than expected for volumes or unit sales to recover. At the same time, price-related growth has moderated, and a potential increase in discounts and promotions in 2025 could weigh on pricing even more.

“Many center-store packaged food companies (e.g. J.M. Smucker, General Mills, Kraft Heinz, Campbell’s) could see closer to flattish organic sales growth in 2025, with a key unknown/potential downside risk being the rise in popularity of GLP-1 weight-loss drugs. Companies that should fare better than the overall industry include spice/seasoning manufacturers (e.g. McCormick & Co.) and meat processors (e.g. Tyson Foods).”

In its 2025 preview report, titled Fear Factors in Food and Beverage Continue and co-authored by Moskow, TD Cowen said earnings per share (EPS) for the large-cap food and beverage companies it covers gained just 2% and 5%, respectively, last year versus compound annual growth rates (CAGR) of 4% and 5% over the past five years.

EPS performance for the food companies, based on FactSet and TD Cowen data for 2024, ranged from down 8% for Conagra to up 18% for Kellanova. Those seeing EPS shrinkage included Hershey (down 6%) and General Mills (down 2%), while the gainers were McCormick (up 8%), Mondelez (up 5%), Campbell’s (up 3%) and Kraft Heinz (up 1%), with J.M. Smucker flat.

Of the nine companies, only Kellanova and McCormick as of the end of calendar 2024 were on track to beat Wall Street’s consensus EPS growth estimates from 12 months earlier, with Mondelez and Campbell’s matching analysts’ forecast and the rest below estimates.

Still, the large-cap food stocks outperformed their beverage counterparts in 2024, with returns coming in at down 1% and down 11%, respectively, according to TD Cowen. Only the stock returns of McCormick (up 11%) and Kellanova (up 45%) — the latter largely due to its deal to be acquired by Mars Inc. — finished the year on the upside, while share returns were down by 2% for General Mills, 3% each for Conagra and Campbell’s, 9% for Hershey, 13% for J.M. Smucker, 17% for Kraft Heinz and 18% for Mondelez.

“In 2024, overall grocery store volume was pretty good,” Moskow said. “The problem for processed food is that growth is coming from the produce and meat departments of the store in which they don’t participate.”

Among the packaged food categories posting a negative two-year volume CAGR through mid-December 2024 were sweet snacks (down 5%), soup (down 5%), snack and nutrition bars (down 4%), ready-to-eat cereal (down 4%), frozen dinners and entrees (down 4%), macaroni and cheese (down 3%), cookies and crackers (down 2%), dough and batter products (down 2%), baking mixes (down 1%) and salty snacks (down 1%), TD Cowen reported, citing NielsenIQ data.

Categories with volume growth over that period included baking staples (up 3%), pizza (up 3%), pasta/rice/dry beans/grains (up 3%), wraps and tortilla shells (up 4%) and herbs/spices/seasonings/extracts (up 5%).

Hostess, acquired by J.M. Smucker in late 2023, has been one of the brands caught in the sweet snacks slowdown.

“Hostess is only 15% of Smucker’s sales, but it’s probably 95% of the reason investors have stayed away from the stock,” TD Cowen said. “Management acknowledges that Hostess has failed to meet their short-term expectations and that they have a lot of work to do to stabilize it.”

For the year through mid-December, TD Cowen’s analysis found that Big Food lagged total food in equivalized volume growth by 1.9%, representing 0.4% from market share losses and 1.5% from the companies’ categories growing volume more slowly than the rest of the store.

“What’s causing that, I think, is heightened awareness or discussion about processed food health qualities or lack thereof,” Moskow said. “Another thing is price. If you look over the last four years, processed food companies raised prices a lot more than the perishables did.”

Consumers’ increasing predilection for fresh foods hasn’t been lost on grocery retailers, which are focusing more on perimeter departments to lure shoppers and grow sales.

“So the grocers get it, the consumer gets it, and my feeling is that this puts the processed food companies in a tough situation,” Moskow explained. “They either have to invest a lot in innovation to further improve the value-added convenience factor that differentiates them, which could be an expensive proposition, or they’re going to have to cut price and give the consumers more reason to come back to their categories.”

Analysts who spoke to Milling & Baking News weren’t optimistic that, in 2025, consumers will become more acclimated to the higher post-pandemic price levels.

“It’s going to be tough sledding for the packaged food companies,” Pinheiro said. “Because of the years of inflation, we have high price fatigue. You see consumers shifting to the value channels and private label picking up a bit. And you’re seeing it on the restaurant side. I think 2025 will be the same as we had in 2024, where the price increases are still getting digested.”

Price-margin balancing act

Though consumer spending is expected to remain resilient in 2025, driven by higher wages and a solid job market, analysts agreed that packaged food companies must find ways to provide more price relief and/or value to consumers while minimizing the bite on margins.

Source: New York Stock Exchange and Sosland Publishing Co.

“Inflation has come down, but prices remain elevated,” Sundaram said. “For the everyday consumer, they don’t necessarily care that inflation has come down; they just care about the actual price of everyday goods.”

If volumes stay weak for packaged foods, retailers may push manufacturers harder to extend more value to shoppers, Pinheiro said.

“The retailers want to see some volume growth, and the category leaders are going to have to take pricing or do more promotions,” he said. “I think there’s going to be more of that this year.”

Pinheiro thinks food companies have some margin to give to improve their value propositions, after margin expansion during the pandemic and subsequent cost inflation and resumption of promotions.

“We’re just at the point where you’re seeing all the packaged food and beverage companies recoup their normal margin profile,” he said. “It’s not like they’re all making extraordinary margins because of the pricing. They’re just getting back to it, and now you’re going give back some of it to get the volumes going again.”

Moskow believes large-cap food companies will have to rethink pricing and margin structures to enhance their value perception, on top of investing in innovation and long-term category growth.

“They priced for all that (cost) inflation and then margins started going higher because their productivity projects started to kick in,” he said. “Now most of these companies have margins above pre-pandemic levels, and my feeling is it’s going to be very hard to defend that. We’ve already seen General Mills kind of raise the white flag and surrender, and they’ve guided their fiscal year down quite a lot, including margin compression.”

The food categories most likely to see price rollbacks or increased price promotions in 2025 are those with the largest volume declines over the past few years, TD Cowen said.

For example, promotions are rising in breakfast cereal, while in sweet snacks J.M. Smucker has reduced prices for Hostess products to shore up market share and volume. In frozen dinners and entrees, Conagra has made price investments to draw shoppers back to the category. Also, General Mills acknowledged the need to narrow Pillsbury’s price gaps with private label in refrigerated dough, and in salty snacks PepsiCo’s Frito-Lay unveiled plans to bolster the price-value relationship via the introduction of bonus bags.

“The odds of a material ‘reset’ to earnings to fund reinvestment, either in price or product quality, are rising,” the TD Cowen report said.

Flak for packaged foods

Tariffs could exacerbate inflation by hiking costs for US importers and prices for consumers, but analysts said that picture remains unclear.

Source: New York Stock Exchange and Sosland Publishing Co.

Trump had promised on day one of his administration to execute a 25% across-the-board tariff on goods imported from Mexico and Canada plus an additional 10% tariff on all imports from China. But after his inaugural speech, the administration walked back its imminent tariff threat by ordering a review of trade relationships with Canada, Mexico and China. Likewise, executive orders to start widespread deportations of illegal immigrants — an inflationary move that could raise labor costs, including in the food sector — likely will run into legal and logistical roadblocks.

“Who knows what the new administration is going to do?” Pinheiro said. “These tariffs are just bargaining chips, and who knows the extent of what will ultimately be implemented? It’s hard to make a call on that right now.”

However, the packaged food sector may face a bigger threat in 2025 from Make America Healthy Again, Moskow said. He cited already “substantial negative PR from politicians, regulators, consumer activists about ingredients in processed food” that could mar the industry in the eyes of investors.

“This new administration has made it a pretty big priority, and I don’t think it matters whether RFK Jr. is the one who leads HHS or not,” he said. “The administration recognizes that they are getting political support from unexpected places as a result of these efforts.”

Pressure on the industry mounted recently when, in January, consumers saw the Food and Drug Administration ban Red No. 3 coloring from food and beverages, the US Surgeon General call for a cancer risk warning on alcoholic beverage labels, California order a warning label on foods identified as ultra-processed and the FDA propose front-of-pack nutrition labels for most packaged foods.

“To me, the bigger issue is that the rhetoric vilifying processed foods is just going to keep getting louder,” Moskow said.

Growing use of GLP-1 weight-loss medications also may tarnish prospects for food industry stocks over the longer term, analysts said.

A Cornell-Numerator study revealed that consumers using GLP-1 drugs reduced their grocery spending nearly 6% on average, particularly purchases of sweet and salty foods and snacks.

“It seems like that’s having an impact on food consumption and one of the reasons why a lot of food categories, especially the packaged food categories, have not returned to growth yet,” Sundaram said. “And it sounds like GLP-1 usage is only going to increase going forward.”

A PwC survey on GLP-1 trends found that more than 8% of Americans are taking GLP-1 medications, and nearly 35% are interested in these drugs for weight loss. GLP-1 users polled spent an average of about 11% less on most food categories, with the largest reductions in sweet and salty snacks and baked foods. 

“The GLP-1 pressure is real — it’s a ‘small real’ right now, but it’s going to be a ‘bigger real’ if things continue on this path,” Pinheiro explained. “Second, with RFK Jr. and Make America Healthy Again, a lot of messaging about less sugar, lower carb, etc., will have investors thinking about it. All of this is going to keep pressure on food companies in 2025, from their revenue performance to their stock performance.”

Food companies have begun to anticipate GLP-1 disruption. Hershey chief executive officer Michele Buck has said GLP-1 drugs are having a “mild impact” on the company’s business, Conagra is putting “GLP-1 Friendly” badges on select Healthy Choice frozen meals, and Nestle has rolled out the Vital Pursuit frozen food line for GLP-1 users.

TD Cowen’s pharma team pegged the number of GLP-1 prescriptions in 2024 at 6.4 million, up 1.6 million from the prior year. The investment firm calculated that similar GLP-1 usage growth in 2025 would represent a 20-basis-point headwind to the annual volume consumption of the large-cap food companies it covers, assuming that new users cut their processed food consumption by 30%.

“I’m taking it more seriously as a headwind — as a material headwind rather than just a tiny one,” Moskow said. “We could see more and more people getting interested in it, especially if the cost comes down and if the pill format comes out and it’s proven effective.”

Food-at-home tailwind

Packaged food manufacturers will continue to benefit from strong food-at-home sales driven by value-focused shoppers and high restaurant prices, analysts said.

Source: New York Stock Exchange and Sosland Publishing Co.

“If my view of the consumer being under continued pressure in 2025 pans out, food-at-home will outperform food-away-from-home, and that’s good for the food companies,” Pinheiro said.

In its 2025 outlook, TD Cowen said its tracking data show sequential improvement in grocery store sales trends as consumers try to save money by dining out less and “trading down” to grocery purchases, which “should provide a tailwind to food and beverage companies.”

Any interest rate cuts and/or improvement in consumer confidence, the report said, likely would fuel bigger shopping baskets at the grocery store rather than spending at restaurants.

“To the extent that consumers still feel pressured economically, the tailwind is that people are coming to the grocery store and like the grocery store,” Moskow said.

Consumers, too, continue to buy indulgent snacks despite efforts by some to pursue healthier diets. TD Cowen and NielsenIQ data showed that sales of indulgent snacks (e.g. frozen appetizers and snacks, refrigerated dough products, sweet snacks, potato chips, cookies, chocolate candy, frozen novelties) grew 42% from 2019 to 2023, compared with 27% for healthy snacks (e.g. nutrition bars, popcorn, snack nuts and seeds, trail mixes, meat snacks, yogurt, dried fruit snacks).

TD Cowen noted that growing demand for better-for-you options also offers packaged food manufacturers an opportunity to “margin up” by charging premium prices for products with health-oriented attributes, including for GLP-1 users.

“Food and beverage companies have proven highly resilient to shifts in dietary preferences over time,” the report said. “They are very skilled at developing better-for-you products that emphasize on-trend nutrients (e.g. high protein) and remove the unwanted ones (sugar and carbs). They continue to thrive at engineering products to optimize taste, texture and convenience.”

M&As more welcome

Analysts expect a more pro-business administration under Trump to open up the field for mergers and acquisitions, in contrast to a Federal Trade Commission under Biden that clamped down on industry consolidation, notably large-scale transactions like the ultimately unsuccessful Kroger-Albertsons merger.

Source: New York Stock Exchange and Sosland Publishing Co.

“I felt like after Mars bought Kellanova that it would usher in a broader round of consolidation, the reason being that when growth slows, the big companies need to find other ways to generate value for shareholders,” Moskow said. “It could be through synergies or cost, or it could be through revenue synergies like helping small brands get into new markets.”

Meanwhile, Kellanova’s fellow Kellogg Co. spin-off, WK Kellogg Co, faces challenges beyond slow breakfast cereal sales, Moskow said.

“They haven’t yet demonstrated that operating as a stand-alone company improves their execution,” he said. “Their market share was down this year, and sales weakened dramatically in the fourth quarter. I think that will have an influence on how they guide 2025 that’s not quite fully recognized by the market. And secondly, with this $500 million supply chain investment program, they will have to close plants. This is a company that has a history of challenging labor relations. I think probably people underestimate the execution risk.”

Media reports about two potentially transformative deals surfaced in December: Mondelez in talks to acquire Hershey, and Post Holdings exploring an acquisition of Lamb Weston. But speculation about those transactions has since fizzled out.

“I thought Mondelez-Hershey would be a good combination because Mondelez could take the Hershey brand international in a meaningful way for the first time,” Moskow explained. “But it looks like the two sides are very wide apart in terms of price, so there’s no meaningful negotiations there. But I do think that the potential out there for more M&A in a more profound way is very real.”

Food companies such as General Mills, Mondelez, Flowers Foods, McCormick, TreeHouse Foods and Grupo Bimbo are among the companies that have been active in or have indicated plans for more activity in the M&A arena, including asset divestitures to hone their portfolios.

“Packaged food companies are really struggling to revive their volume growth, and one of the best ways to do so is to get rid of stuff that doesn’t sell well,” Sundaram said. “I would say most of the large packaged food companies have the risk capacity as well as the risk appetite to do either bolt-on acquisitions or large-scale acquisitions.”

Deals include Flowers’ acquisition of Simple Mills, PepsiCo’s purchase of Siete Foods, Campbell’s acquisition of Sovos Brands (and subsequent sale of its noosa yogurt business), J.M. Smucker’s sale of Voortman and General Mills’ sale of its North American yogurt business.

“Flowers just bought Simple Mills, and it’s a nice acquisition,” Pinheiro said, noting that the deal adds “slightly different categories” than fresh packaged bread. “It’s a relatively new company, $240 million in revenue, and so it’s quite small. But Dave’s Killer Bread was bought when they were only doing $100 million in revenue, and now they’re doing eightfold that. That’s what you’re going to see across the board — smaller, faster portfolio additions that give a higher margin and higher revenue growth.”