What’s News in Earnings: Tough Times Come for Big Food

Summary

WSJ What’s News Episode: “What’s News in Earnings: Tough Times Come for Big Food”

Release Date: August 6, 2025
Host: Jesse Newman
Guest: Aaron Back, Editor of the Wall Street Journal's "Heard on the Street" Column

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Introduction

In this episode of WSJ What’s News, host Jesse Newman delves into the recent earnings reports of major food companies, unveiling the multifaceted challenges facing the sector. Joined by Aaron Back, editor of the Wall Street Journal's "Heard on the Street" column, the discussion sheds light on declining sales, shifting consumer behaviors, and the broader economic pressures impacting the food industry.

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Declining Earnings and Consumer Stress

Aaron Back opens the conversation by highlighting the disappointing performance of major food companies. "The results are pretty poor, and the performance of those stocks reflects that," he remarks at [01:42]. Analyzing the organic sales of five leading companies—Kraft, Heinz, General Mills, Campbell, Conagra, and J.M. Smucker—Back notes a downward trend: "It was down at four of the five in the last quarter, and across all five, it was down an average of 2%." This decline underscores significant consumer anxiety and cautious spending habits amidst economic uncertainties.

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Cost Pressures and Loss of Pricing Power

The discussion moves to the financial strains food companies are enduring. Rising tariffs and surging costs for raw ingredients like cocoa and coffee have squeezed profit margins. Back emphasizes a critical issue: "These companies have lost pricing power... they're finding they can't do that because consumers are just fed up with the cumulative inflation of the last several years," at [02:50]. Previously, companies could pass increased costs onto consumers through higher prices, but this strategy is now faltering as consumers become less tolerant of price hikes, leading to decreased profitability in the sector.

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Segment Performance: The Struggle of Snack Foods

When dissecting the food sector, Aaron Back points out that not all categories are equally affected. "Snacks is under pressure... snacks was identified by the industry not too long ago as the biggest growth driver that they were all chasing, and that has now just hit a wall," he states at [03:13]. Using Campbell as a case study, Back illustrates the shift: while grocery-related sales like soups and sauces saw a 6% increase, snack sales declined by 5%. This unexpected downturn raises questions about the current consumer priorities and behaviors.

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Impact of Health Trends and GLP-1 Drugs

A significant factor contributing to the decline in snack sales is the rising popularity of GLP-1 drugs, such as Ozempic, which aid in weight loss. Back speculates, "One definite possibility is GLP drugs... one of the first things that you cut back on when you're on GLP drugs is things like sweet cakes and snacks" at [04:36]. Additionally, the resurgence of health and wellness trends, complemented by political movements like "Make America Healthy Again," is pressuring companies to reduce artificial additives. Back explains, "They have the ability to adapt to that, but when that is happening at the same time as these other pressures... companies may not have the resources to address all those simultaneously" [05:20].

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Outlook: Short-Term Challenges and Long-Term Possibilities

Looking ahead, Aaron Back expresses a pessimistic short-term forecast for the food industry. "For the next couple quarters, I'm quite pessimistic now," he admits at [06:22]. Companies like Kraft Heinz are absorbing increased costs without significantly raising prices to avoid alienating cost-sensitive consumers. However, Back remains cautiously optimistic about the long-term prospects: "Some companies are going to find a way to feed them... there will be some winners that emerge" [06:45]. He anticipates a period of consolidation, with successful companies adapting through strategic adjustments such as shedding underperforming segments or focusing on growth areas.

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Conclusion

The episode concludes with a balanced view of the food industry's current struggles and future potential. While immediate challenges from inflation, tariffs, and changing consumer behaviors pose significant hurdles, the fundamental necessity of food ensures that companies will continue to innovate and adapt. The key will be identifying which companies can effectively navigate these complexities to emerge stronger in the evolving market landscape.

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Notable Quotes:

• "The results are pretty poor, and the performance of those stocks reflects that." — Aaron Back [01:42]
• "These companies have lost pricing power... they're finding they can't do that because consumers are just fed up with the cumulative inflation of the last several years." — Aaron Back [02:50]
• "Snacks is under pressure... snacks was identified by the industry not too long ago as the biggest growth driver that they were all chasing, and that has now just hit a wall." — Aaron Back [03:13]
• "One definite possibility is GLP drugs... one of the first things that you cut back on when you're on GLP drugs is things like sweet cakes and snacks." — Aaron Back [04:36]
• "For the next couple quarters, I'm quite pessimistic now." — Aaron Back [06:22]
• "There will be some winners that emerge… figuring out who's going to figure out that formula for what people want and how to give it to them at an acceptable cost." — Aaron Back [06:45]

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This comprehensive overview captures the essential insights and analyses from the podcast, providing listeners with a clear understanding of the current state and future trajectory of the big food companies amidst economic and social shifts.

Transcript

[A]

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[B]

Hey listeners, it's Wednesday, August 6th. I am Jesse Newman for the Wall Street Journal, and this is what's News in Earnings, our look at the broad themes that stood out in the latest earnings season. Today we're digging into what's happening at some of the nation's biggest food companies. Times are tough in food. Consumers are anxious. They're hunting for deals and carefully guarding their wallets. At the same time, food companies are dealing with tariffs and surging costs for raw ingredients like cocoa and coffee, and some are hiking their prices. Again, they're doing this at a time when consumers are already buying less and profitability in the industry is down. So here with us to discuss all of this is Wall Street Journal's very own Aaron Back. Aaron Aaron is the editor for Wall Street Journal's Heard on the street column, where he writes from time to time about these big food makers, and he's here to tell us all about what they're doing. Aaron, great to have you with us.

[A]

Hi.

[B]

So let's start high level. What do food company earnings reports over the past few weeks tell us about how consumers are faring these days?

[A]

The results are pretty poor, and the performance of those stocks reflects that. I looked at five of the biggest food companies, Kraft, Heinz, General Mills, Campbell, Conagra, and J.M. smucker and their organic sales, which is an industry measure that looks at basically sales without currency fluctuations or like mergers and divestitures. It's a very standard measure in the industry. It was down at four of the five in the last quarter, and across all five, it was down an average of 2%. And that's just not very good. That goes to something that you just mentioned in your intro, which is that consumers are feeling stressed, are feeling like they need to be selective with what they spend money on. And at the same time, these companies are getting squeezed from the cost side of things. But what is maybe the most worrying thing is that these companies have lost pricing power, in other words, pricing. Previously when costs went up, they were largely able to pass those costs on to consumers by raising prices. And now they're finding they can't do that because consumers are just fed up with the cumulative inflation of the last several years. And that means that they're going to take a hit on margins. And that's very worrying for the sector.

[B]

Let's break down the food, the grocery store, a little bit. All food isn't created equal. Are there certain products or grocery categories that you're seeing are really under pressure right now?

[A]

Yeah. So snacks is under pressure. And this is ironic because snacks was identified by the industry not too long ago as the biggest growth driver that they were all chasing, and that has now just hit a wall. So if you look at Campbell, for example, is an interesting test case because the company is really half snacks and half groceries. They were talking about snacks being the growth driver again not too long ago, maybe two years ago. In the most recent quarter, meals and beverages. So basically groceries, soups, sauces was up 6% in terms of sales. Snacks was down 5%. And there's a big debate as to what's driving this. Some people say it's because consumers feel tight. And so snacks are less essential than than meals. So if you have to cut back somewhere, you're more likely to cut back in snacks. The problem with that is historically that hasn't necessarily been the case. Like this time is different. So what explains this? It's not entirely clear, but one definite possibility is GLP drugs. And this is something the industry doesn't like talking about. But we all know that weight loss drugs are taking off. And there have been studies that show that one of the first things that you cut back on when you're on GLP drugs is things like sweet cakes and snacks and things like that. Whatever it is, the trend is very clear that snack sales are really suffering all of a sudden.

[B]

I want to pick up on something you were talking about with weight loss drugs like Ozempic and ask. You didn't hear that many executives talking about it in this latest round, but how much do you think the growing focus on health and wellness from consumers from the Trump administration and things like weight loss drugs are impacting big food companies?

[A]

Yeah, it's interesting because if you go back pre pandemic, I started writing about this industry around 2018, if memory serves, and in that period, the focus was all on health and wellness in the industry. And this set off a scramble among brands. They made a lot of acquisitions to try to get ahead of this trend and get into categories where they thought young consumers were going. That was the storyline pre pandemic, during the pandemic, that all got sidelined because people just had to eat and people were stuck at home and people weren't that fussed about what they were eating. So part of what we're seeing is just a return to normal in the sense that consumers are again thinking, well, what's healthy for me? But you have some new trends layered on top of that. One is GLP drugs. The other is what you just mentioned, which is this sort of Make America healthy again movement, which is putting political pressure on these companies to reduce certain additives like artificial flavors, artificial colors, corn syrup, et cetera. Ultimately they have the ability to adapt to that. But when that is happening at the same time as these other pressures, including tariffs, including inflation, including a generally weak consumer environment, including GLP1 drugs, which you have as just a confluence of challenges on the sector and the companies may not have the resources to address all those simultaneously in this environment.

[B]

Looking ahead, what do you think we will see from these companies or what do you think we'll see them do in coming months?

[A]

I'm not that optimistic in the near term. One example, Kraft Heinz says they're seeing 5 to 7% inflation, but they're only passing along 1% price increases to customers. They're eating the rest. That's because they feel they have no choice, because if they raise prices, consumers will walk away or they'll go to private label brands or what have you. And the tariff impact is only beginning to be felt and is very real. So for the next couple quarters, I'm quite pessimistic now. Long term, it may be possible for some companies to shed underperforming businesses, focus on promising growth areas. There will be some winners that emerge. At the end of the day, people need to eat. And so ultimately, it's not as if these companies are just going to keep shrinking. People need to eat. These companies are going to find a way to feed them. And they do have a track record of adapting to challenging environments. In the past, there's going to be privatization, there's going to be breakups, there's going to be M and A. But all is not lost. The question is figuring out who's going to figure out that formula for what people want and how to give it to them at an acceptable cost. And so we're going to see the winners sorted from the losers in the next couple of years.

[B]

Aaron, thanks so much for joining us.

[A]

Thanks very much.

[B]

And that was what's news in earnings Today's show was produced by Zoe Culkin and Pierre Biennma with supervising producer Michael Kosmides. Later today, we'll have the PM edition of what's News out for you as usual. And we'll be back later this earnings season, diving into another industry. Until then, I'm Jesse Newman. Have a great day.