Food industry is one of the safest options to invest in since food can never be out of vogue. Moreover, even snack making industry is quite a lucrative one with some of the prominent players being Kellogg (NYSE:K), Mondelez International (NASDAQ:MDLZ) and J&J Snack Foods (NASDAQ:JJSF). However, it is important to understand which among these will be the best pick for any investor.
Stock price comparison of industry players
When stock price performance is compared for all the three players, J&J Snack Foods proves to be the best performer, providing the highest return to its investors.
With a stock price appreciation of 28.6%, J&J has outpaced its peers. Mondelez, too, has performed well with a return of 10.2% in the last one year. The company has not been able to live up to investors' expectations in its last quarter, missing on the top line estimates. This is mainly because of decrease in coffee prices, which hampered the retailer's sales. Also, it has been witnessing lower demand for gum in the developing nations. However, coffee prices are expected to increase in the future, which should lead to higher revenue.
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Mondelez has been taking measures to boost its results. For example, its new biscuit facility in Mexico is expected to lower costs and expand margins. Also, it plans to put up new manufacturing lines for its Oreo brand which will cut costs. Additionally, cocoa price is expected to decrease, which should prove to be beneficial.
Kellogg has been the worst performer with almost flat returns in the last one year. This is mainly because of its dependence on sale of cereals. Demand for cereals has been decreasing because of a number of new breakfast options such as Greek yogurts and smoothies.
Nonetheless, Kellogg is taking initiatives to attract customers. It plans to launch a number of new products in order to lure customers. New introductions include Pringles Tortilla chips in various flavours, Cheez it Grooves, and three new varieties of cereals. The retailer is also focused on breakfast items such as SpecialK breakfast sandwich, Kashi and Quinoa burger which are made with organic ingredients. It will be interesting to see how these new products help Kellogg provide stiff competition to other industry players.
Additionally, if we consider profit margin of these companies, on a trailing twelve month basis, Kellogg looks better. It has a profit margin of 12.2% whereas J&J Snack Foods and Mondelez have a profit margin of 7.6% and 11.1%, respectively. However, J&J Snack Foods has been expanding its margins by increasing product prices and keeping its costs under check at the same time. In fact, Kellogg also provides the highest return on equity of 59.4% as against the return of 13.2% and 7.2% of J&J Snack Foods and Mondelez, respectively. Although Kellogg's stock price performance has been dismal, it is providing highest returns to its equity investors.
J&J Snack Foods has been able to put up a great show mainly because of its acquisition strategy. Acquisition of businesses such as New York Pretzel has strengthened J&J Snack’s business, enabling it to outperform its peers. However, Mondelez and Kellogg too are making a number of efforts to perform better. In fact, they look better when profit margins are concerned, with Kellogg providing the highest margin. Therefore, investing in J&J will give better returns whereas Kellogg gives better margins. If returns are what you are looking for, do not look beyond J&J Snack Foods.