We recently published a list of 7 Best Confectionery, Cookie and Snack Stocks To Buy. In this article, we are going to take a look at where Kellanova (NYSE:K) stands against other confectionery, cookie and snack stocks to buy.
Snacks Market
Just like the rest of the global economy, the snacks market is also undergoing the effects of inflation. The average price of potato chips in June 2024 was $6.56, compared to $5.09 in June 2020, according to Federal Reserve data.
Thus, major players in this sector are reporting revenue drops in their snack segment, due to price increases following years of inflation. Tightened household budgets have made consumers more value-conscious, reducing demand for snacks. This shift has led major players to consider cost-cutting measures and increase promotions for brands like Lay’s and Doritos.
Although inflation has slowed, American customers have yet to recover from higher everyday prices, leading to trends like ‘shrinkflation’ (cutting down products’ sizes for cost-savings) and more consumers opting for private-label brands or buying fewer snacks. In recent months, several major retailers have announced price cuts, a trend that could continue as consumers become more cautious, according to CNN.
Moreover, bigger market players are focusing on offering a broader range of price options, promoting cheaper products through a variety of multipacks, and increasing in-store marketing. Thus, macro factors, such as inflation and consumer restraint, continue to shape the snack industry, pushing companies to offer better value to retain brand loyalty.
Confectionery Sector
In contrast, the confectionery sector saw a modest 2.66% year-to-date (YTD) increase compared to the broader market’s 17.22% rise. Rising input costs, particularly for cocoa, have driven up prices, with cocoa tripling in the past 12 months due to crop diseases in West Africa, according to a report by Food & Drink Digital.
Similar to the snack market, the confectionery sector, which includes chocolates, candied fruits and nuts, sugar candies, and chewing gum, has also experienced a shift toward private-label brands and smaller pack sizes, as price-sensitive consumers, especially in lower-income groups, adjust their buying habits. Broader economic challenges, including persistent inflation, high interest rates, and reduced consumer confidence continue to affect both the snack and confectionery markets.
Market Outlook
Nevertheless, the snack industry is experiencing significant growth, driven by consumer demand for convenience and healthier eating options. According to Information Resources, Inc. (IRI), snacking has increased by 27% over the past five years, contributing $6 billion to the overall food industry.
Moreover, the snack food market is seeing a growing demand for vegan and allergen-free snacks, driven by health-conscious consumers, especially millennials and Gen Z, who are snacking more than three times a day and replacing meals with snacks. Spicy and complex flavors like ghost pepper and sweet flavors are trending, along with global flavors from Latin America, Asia, and the Middle East. In the U.S., popular snack options include Rice Krispies, Doritos, and Fritos.
On the other hand, the U.S. confectionery sector, which remains a global trendsetter, saw its market value rise to $48 billion over the past year, largely due to inflationary pressures, according to a recent report by Confectionery Production.
Manufacturers are using unique ingredients like tropical fruits and organic herbs to stand out, while innovations like Barry Callebaut’s ruby chocolate are gaining traction. Millennials are driving demand for premium and organic confectionery, with products like YumEarth’s Organic Candy Corn. Pistachio-based treats are also gaining popularity, with brands like Lindt and Ritter Sport introducing new products.
Also, the global cookie market stood at $28.36 billion in 2023, and is projected to grow at a CAGR of 6.82% till 2028, according to technavio. Furthermore, the study highlighted that North America is going to account for 34% of this growth. Oreo, which is marketed in more than 100 countries, is the best-seller globally.
Thus, many investors today are looking to cash in on major companies operating within confectionery, cookie, and snack markets. In light of this, we have compiled a list of the best confectionary, cookie, and snack stock to buy today.
Methodology:
For this list, we scanned Insider Monkey’s Q2 2024 database and selected companies involved in the snacking, confectionery, and cookies industry, focusing on areas relevant to snack and confectionery production and distribution. From that group, we picked 7 companies with strong balance sheets and solid financials and ranked them in ascending order of hedge funds having stakes in them.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A stack of grocery bags filled with ready-to-eat cereals, frozen waffles, and savory snacks.
Kellanova (NYSE:K)
Number of Hedge Fund Holders: 45
Kellanova (NYSE:K) is known for its iconic brands such as Pringles, Cheez-It, Pop-Tarts, RXBAR, Kellogg’s (international), Eggo, and MorningStar Farms. It operates in 180 markets, with principal products including crackers, crisps, savory snacks, toaster pastries, cereal bars, ready-to-eat cereals, frozen waffles, veggie foods, and noodles.
In Q2 2024, Kellanova’s (NYSE:K) reported net sales of $3.19 billion, reflecting a 4% organic growth. Adjusted operating profit surged 16%, with gross profit up 9% YoY. In Snacks segment, net sales grew organically by about 13% year-on-year with broad-based growth across the region led by Pringles.
Nigeria, despite volume declines due to price elasticity and currency devaluation, contributed 16% regional organic sales growth. EPS came in at $1.01, surpassing analysts’ expectations, marking a 14% growth from the previous year.
Moreover, Kellanova’s (NYSE:K) cash flow generation remained strong. The company experienced a YoY increase in free cash flow and maintained debt leverage below target. They also raised their free cash flow outlook to over $1 billion, driven by robust operating profit.
On August 14, an announcement was made that Mars would acquire Kellanova for $36 billion. This acquisition is set to transform Mars into a leading player in the global snacking market, expanding its presence in both sweet and savory categories.
Furthermore, Kellanova’s share price surged 8.61% over the past month and 43.30% YTD, driven by strong financial performance and its acquisition by Mars. It could also be partly linked to the use of AI and ML, which are optimizing its operations and driving innovations.
However, declines in revenue, especially in Europe and Asia Pacific, were noted. Overall, it declined 4.7% YoY due to currency fluctuations and the divestiture of its Russia business. Despite these challenges, the company raised its 2024 guidance, signaling a positive outlook.
As of Q2 2024, 45 hedge funds, with a combined investment of $2.1 billion, remained bullish on the stock, as per Insider Monkey’s database. Considering the company’s performance and outlook, Kellanova (NYSE:K) is featured on our list of the best confectionery, cookie, and snack stocks to buy.
Overall, K ranks 3rd on our list of the best confectionery, cookie, and snack stocks to buy based on hedge fund sentiment. While we acknowledge the potential of K as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than K but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.