We recently compiled a list of the 7 Best Organic Food and Farming Stocks to Buy. In this article, we are going to take a look at where Performance Food Group Company (NYSE:PFGC) stands against the other organic food and farming stocks.
The farming and organic food industry is essential in meeting global food demand while catering to the growing preference for healthier and sustainable options. Despite challenges like fluctuating costs and climate change, the sector benefits from trends such as increased organic food consumption and alternative proteins.
Sector Performance
The broader market had a strong performance in 2024, largely driven by technology stocks in the first half, resulting in a roughly 16% (year-to-date) YTD increase. However, future performance remains uncertain due to ongoing market volatility.
In 2022, inflationary pressures in the U.S. reached a peak, fueled by rising input costs for commodities, transportation, and labor. Since then, inflation has gradually decreased, providing relief for businesses across sectors. Inflation continues to ease as the annual inflation rate slowed for a fifth consecutive month to 2.5% in August 2024, the lowest since February 2021. This has led to lower feed costs, improving margins in the agriculture industry. The sector is also experiencing stable poultry production, slight gains in pork, and challenges in herd recovery due to constraints in the beef industry, resulting in higher retail beef prices.
While alternative proteins remain an essential, yet small component in meeting global demand, their sales have recently contracted. Despite this setback, reduced access to capital infusions has benefited the sector by filtering out weaker products, resulting in stronger business plans with a clear focus on profitability.
Overall, food and farming companies are still grappling with the lingering effects of high inflation, particularly elevated commodity prices, as the ‘Farm Products’ sector has underperformed with a 7.80% YTD decline. Although consumer spending has remained stable, households have shifted toward a “value-driven” mindset, prioritizing affordability in response to the rising cost of living.
Agriculture Market
According to the Business Research Company Report, the agricultural sector is poised for robust expansion in the coming years. Projections indicate the market will reach $19,286.79 billion by 2028, growing at a compound annual growth rate (CAGR) of 7.7%, according to The Business Research Company.
Even the agricultural sector hasn’t been able to escape the impact of the ongoing AI revolution as farmers in the US are increasingly adopting AI to address key challenges like labor shortages and climate unpredictability. Technologies such as drones, self-driving tractors, and AI-driven crop management tools are helping farmers maintain productivity and profitability in an industry facing workforce declines and increasing costs. These innovations not only improve productivity but also help reduce expenses by optimizing resource use and enhancing efficiency across farming operations. AI is poised to transform agriculture, helping farmers “do more with less” and meeting the world’s growing food needs.
Organic Food Market
Organic food sales in the United States in 2022 broke through the $60 billion mark for the first time, hitting another high-level mark for the resilient organic sector. Total organic sales – including organic non-food products – were a record $67.6 billion, according to the 2023 Survey by the Organic Trade Association.
However, this market is also facing challenges, such as the shorter shelf life of organic products due to the absence of preservatives. According to Lending Tree, inflation last year had a greater impact on organic food prices compared to conventional products. In that period, organic fruit and vegetable prices rose by 13.1%, while conventional counterparts saw a 9.9% increase. Similarly, organic chicken prices surged by 19.5%, compared to a 5.9% rise in conventional chicken prices.
The outlook for the organic food industry remains strong, fueled by rising consumer interest in sustainability and health. Organic sales have more than doubled in the past decade, surpassing $50 billion, with food sales reaching this mark in 2019. Despite challenges like economic fluctuations and supply chain disruptions, the industry’s focus on sustainability positions it for continued growth.
Methodology:
For this list, we scanned Insider Monkey’s database of Q2 2024 and selected companies involved in the organic food and farming industries, covering areas including but not limited to processing and distribution of agricultural, industrial, feed, and organic food products. 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 friendly grocery store team stocking shelves with foodservice products.
Performance Food Group Company (NYSE:PFGC)
Number of Hedge Fund Holders: 42
Performance Food Group Company (NYSE:PFGC) is a major foodservice distributor serving a diverse range of clients across the U.S. It operates through three segments: Foodservice, Vistar, and Convenience. Vistar’s Good To Go Program reflects PFGC’s focus on healthier eating, featuring over 1,800 natural and organic products, including options that are organic, non-GMO, vegan, and gluten-free, catering to growing consumer demand for cleaner, healthier food choices.
In the fourth quarter of 2024, Performance Food Group Company (NYSE:PFGC) saw its net sales increase by 2.2%, reaching $15.2 billion. It was bolstered by independent Foodservice and recent acquisitions, though partly offset by declines in the Convenience and Vistar sectors. Total case volume increased by 1.1% year-over-year (YoY), with a 0.7% rise in organic case volume driven by growth in independent cases and the Foodservice Chain business.
The quarter was marked by significant contributions from the recent acquisitions of Cheney Brothers and José Santiago. Therefore, net income saw a 10.9% increase, reaching $166.5 million, with an improved effective tax rate. Adjusted EBITDA surged 18.4% and adjusted diluted EPS rose 27.2% to $1.45.
Performance Food Group Company (NYSE:PFGC) improved liquidity by generating $1.2 billion in cash flow from operating activities, up from $832.1 million the previous year, thanks to improved working capital and higher operating income. Looking ahead, the company anticipates net sales of approximately $60 billion to $61 billion for the fiscal year 2025, with adjusted EBITDA between $1.6 billion and $1.7 billion. This outlook includes results from José Santiago but does not account for potential benefits from the proposed acquisition of Cheney Bros, Inc.
In May 2024, PFGC introduced direct-emissions-free transportation, advanced refrigeration technologies, and solar power at its Gilroy facility. These initiatives are crucial for achieving their sustainability goals and enhancing their environmental impact.
Notably, although Performance Food Group Company (NYSE:PFGC) posted an increase in revenues for the latest quarter, it missed the analysts’ estimates by 0.25%. Moreover, shares lost about 3% in the first half of the year, while the broader market gained 13.9% in the same period, signaling underperformance relative to the market.
Regarding stock performance, the company saw a 10.17% rise over the past month, largely attributable to synergies achieved from the recent acquisitions. As of Q2 2024, 42 hedge funds, holding a combined investment of $981 million, are bullish on the stock, as per Insider Monkey’s database.
Overall PFGC ranks 5th on our list of the best organic food and farming stocks to buy. While we acknowledge the potential of PFGC as an investment, our conviction lies in the belief that some 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 PFGC 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.
