Stocks Corner: Inflation nation in August
Leading CPG stocks battle it out in August as inflation headwinds impact Q2 revenues and Covid-19 supply troubles start to turn around
PepsiCo (PEP)
2 August closing: $156.32
31 August closing: $156.39
You can always count on CPG behemoth PepsiCo to satisfy those specific food or drink cravings. Similarly, its share price did not disappoint in August, despite continued pressure on the industry from high inflation rates.
On 2nd August, PepsiCo’s share price was 5.5% higher than a month earlier as the beverage brand’s stock resumed its six-month strong steady upwards trajectory. Since March, the price has increased 20% from $130.62 to $156.32. This trend can certainly be attributed to an increase in CPG demand throughout the Covid-19 pandemic.
PepsiCo presented robust Q2 earnings in July, including a 6% increase in the firm’s 2021 full-year revenue forecast. While many industry peers lamented inflation headwinds in their second quarter financials, PepsiCo’s $6.2 billion revenue proved it was bucking the trend.
Kraft Heinz (KHC)
2 August closing: $38.58
31 August closing: $35.59
In a slightly different turn of events, packaged food and condiments giant Kraft Heinz took a tumble and dropped almost 8% in August. The baked beans brands lost more than half of its market cap between 2017 and 2021 but its debt reduction efforts and a 40% year-over-year increase in its cash reserve in Q2 could suggest the tide is turning for Kraft Heinz’s share price.
However, analysts at independent investment bank Evercore recently highlighted Kraft Heinz among a number of food stocks with near-term consensus marks at risk of downward revisions. Evercore blamed margin concerns for KHC trading lower in the last three months. KHC’s share price has decreased by 20% since hitting a recent high of $44.52 in May.
Campbell Soup (CPB)
2 August closing: $43.31
31 August closing: $41.73
Soup-making stalwart Campbell Soup has faced similar inflationary pressures in recent months, and Piper Sandler expects its share price to lower on the back of its lower-than-sector-average gross profit margin. In its recent Q4 and full-year fiscal 2021 earnings report, the company’s adjusted gross margin slipped almost 4% year-over-year to 31%. Although Campbell’s initiated a number of cost saving efforts during the period to offset losses.
“Inflation and other factors had a negative impact of 640 basis points, with slightly more than half of the decline driven by cost inflation,” Campbell Soup CFO Mick Beekhuizen said of the gross margin losses.
CPB CEO Mark Clouse told analysts during the Q4 financials call he expected the challenging environment brought about by Covid-19, inflation and labour availability to continue into fiscal 2022. Despite the company’s slightly gloomy outlook, shares were up by more than 1% on 1 September, following the release of its earnings. Analysts have since expressed confidence in CPB’s stock as the price action has risen from the lower extreme range.
