Bernstein cuts food giants as GLP-1s, health trends threaten growth outlooks

Investing.com -- Bernstein turned more cautious on the U.S. packaged food sector, downgrading several industry heavyweights as it warned that structural headwinds ranging from rising GLP-1 drug adoption to regulatory scrutiny and shifting consumer preferences are likely to pressure growth and profitability for years to come.

Analyst Alexia Howard downgraded Conagra Brands, Campbell's, General Mills and Kraft Heinz to Underperform, while cutting Simply Good Foods to Market-Perform. The firm said the sector faces a difficult combination of slowing demand, margin pressure and changing consumer behavior.

A key concern is the accelerating adoption of GLP-1 weight-loss drugs. Bernstein estimates that 14% to 15% of U.S. adults may now be using the medications, up sharply from 5.8% in early 2024, with uptake expected to rise further following the launch of oral versions and planned Medicare coverage for seniors. The firm believes GLP-1 use is contributing to lower consumption of carbohydrate-heavy, sugary and salty foods while boosting demand for protein-rich products.

The brokerage also highlighted the growing influence of the “Make America Healthy Again” movement and tougher food regulations. Federal and state policymakers are targeting artificial dyes, additives and ultra-processed foods, while major retailers including Walmart and Target are pushing suppliers to reformulate products and remove certain ingredients.

Consumer demand remains another challenge. Bernstein noted that U.S. consumer sentiment has fallen to a 50-year low amid cost-of-living pressures, prompting shoppers to seek cheaper meal options or cook more meals from scratch.

The firm also warned of increasing legal risks for food manufacturers following a lawsuit filed by the City Attorney of San Francisco against major packaged food and beverage companies over alleged deceptive marketing practices tied to unhealthy products. Bernstein said the case bears watching given parallels to earlier tobacco litigation.

Company-specific concerns varied. Bernstein said Conagra could eventually face pressure to cut its dividend as leverage rises and profitability weakens. Campbell’s is battling competitive pressures in snacks and soup while confronting higher packaging, freight and protein costs. General Mills’ efforts to revive volumes through price reductions have not produced lasting results, while its exposure to cereals and other carb-heavy categories leaves it vulnerable to health-focused consumption trends.

For Kraft Heinz, Bernstein questioned whether a new strategy of investing roughly $600 million in marketing, pricing and product innovation can sustainably restore growth without placing additional strain on margins and leverage. Meanwhile, Simply Good Foods faces ongoing weakness in its Atkins brand and rising dairy-protein and freight costs that could weigh on fiscal 2027 results.

Despite sharp declines in share prices and historically low valuation multiples across much of the sector, Bernstein argued that earnings expectations remain too optimistic and that investors should prepare for a prolonged period of pressure on sales growth and margins.

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