We came away from this year’s CAGNY conference incrementally more positive about the outlook for U.S. packaged foods. Management teams are gaining confidence that sales trends will remain strong in year three of the pandemic with consumers maintaining their at-home food consumption habits and largely absorbing the impact of higher prices so far. Just about all of them have become better operators during the pandemic by making investments to increase their agility, optimize their portfolios, improve ROI, and bolster their balance sheets. We view expectations for 6% EPS growth in 2022 in the group as reasonable and see Conagra as the only stock with material earnings risk.

Why not increase exposure to the food stocks now? We would normally view these factors as a strong harbinger for positive earnings revisions. However, rising input costs and continued supply chain disruption create too much uncertainty for us to make this call, especially now that geopolitical factors have caused oil prices to move higher. Management teams who expect their pricing to catch up to rising costs in 2H22 may need to push out those expectations even further. These stocks may provide a decent place to hide in a bear market, but the potential for positive returns is limited, in our view.

Hershey: Still our top pick. Investments into manufacturing capacity, labor, packaging flexibility, and marketing ROI tools have widened Hershey’s competitive advantages. Consumer demand for the chocolate category remains strong despite higher pricing. 1Q is on track and back half will likely accelerate when new capacity comes on line.