Big food companies are facing big questions about their futures.
Between a potential breakup at Kraft Heinz (KHC), a multibillion-dollar deal between Ferrero and WK Kellogg (KLG), and PepsiCo’s (PEP) acquisition of soda brand Poppi, big food brands are taking a hard look at their US portfolios as consumer tastes shift, growth stalls, and regulatory pressure over products continues.
“The self-reflection is building,” Mizuho analyst John Baumgartner told Yahoo Finance last week, “there’s a lot of flux in the industry right now.”
“This has typically been a pretty sleepy sector, and to be hit with all of these headwinds or uncertainties and have it happen all at the same time… does really cause reason for pause and reflection on the business … [and] what the trends are going forward,” Baumgartner added.
Just this week, PepsiCo posted a 2% volume decline in its North America beverage business in the second quarter, a drop that follows 1% and 3% declines in the prior two quarters, respectively.
The same day, Coca-Cola (KO) faced a new political hurdle when President Trump posted to social media that the company would begin using real cane sugar in its US sodas. In a statement, the company said it appreciated Trump’s enthusiasm for the brand. Coca-Cola will report quarterly earnings on Tuesday morning.
‘Their core businesses are not performing’
In many industries facing uncertain growth trajectories, the options for executives can become simple: buy or sell.
This year, PepsiCo announced a $1.95 billion deal for soda brand Poppi and a $1.2 billion deal for Siete Foods. Hershey (HSY) acquired popcorn brand Lesser Evil.
“It’s a bit reactive,” Bank of America analyst Peter Galbo said. “These companies are observing that their core businesses are not performing the way that they thought they would.”
And in Galbo’s view, this year’s actions show companies saying to themselves that if the core business won’t work, “I have to buy something that is going to augment the core.”
Connor Rattigan, an analyst at Consumer Edge Research, said most of these deals are for “higher growth smaller brands that tend to be indexed to … thematic trends in the industry,” whether that’s health, flavor, or packaging.
On the flip side, other big companies have seen this environment as offering an opportunity to break up a large enterprise.
Nearly two years after Kellogg split into two companies, WK Kellogg and Kellanova (K), both have been scooped up by private players.
Kellanova, which houses snack brands like Pop-Tarts and Cheez-Its, is set to be acquired by Mars Candy for close to $36 billion, pending European Union regulatory approval. Last week, Ferrero said it would buy WK Kellogg, the company behind Frosted Flakes and Froot Loops, for $3.1 billion.
“There has been pressure from activist investors, or just larger investors, that are maybe growing tired of a stagnant share price and are looking for opportunities to drum up appreciation in that regard,” Morningstar analyst Erin Lash said.
TD Cowen analyst Robert Moskow wrote in a recent note that investors have realized a roughly 40% gain since Kellogg broke up. Consumer Staples (XLP) stocks have dropped about 6% over that same period.
And Kraft Heinz could reportedly be next in line for a breakup.
Bank of America’s Galbo sees the split putting Kraft Heinz’s Taste Elevation platform, mostly condiments like Heinz ketchup and Philadelphia cream cheese, in one company, with its grocery brands like Kraft, Oscar Mayer, Lunchables, and Capri-Sun in another business.
Since H.J. Heinz Company and Kraft merged 10 years ago, shares of the combined company have gone down more than 65%.
Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on X at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.
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