In Episode 146, Magic Markets digs into the food producer industry. This hasn’t been a great place to put your money during this period of heightened inflation, as consumer pressures tend to flow up through the value chain.

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As usual, we lean on our research in Magic Markets Premium for the global choice in this show, with Moe covering McCormick (20% market share in the spices and seasoning market in North America). The Finance Ghost chose a selection of South African food producers to talk about, indicating the pressures in the industry.

Specifically, the hosts talked about:

  • The severe inflationary pressures in food (including in staples) and the impact this has on consumers.
  • The double top in McCormick that seems to be coming into play, with deteriorating fundamentals (specifically in margins and resultant pressure on profits) adding to the bear case.
  • A look at whether our original pick of PepsiCo vs. McCormick was the right call on a relative and absolute basis.
  • The substantial drop in sales in Asia Pacific at McCormick, a good example of how geographical diversification doesn’t always work out well.
  • The usefulness of blue Dorito’s as an index for all bad calorie decisions (!)
  • The reason why none of the South African listed food producers have “chicken” or “poultry” in their names, with a discussion on how the law of small numbers can explain significant volatility in profits and why this industry is facing such headwinds.
  • AVI has a great example of how a good company doesn’t always translate to an enjoyable share price performance, particularly where valuation multiples unwind.
  • Overall bearishness on the sector in South Africa, specifically with reference to trends in private label products at retailers and on-demand shopping.

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