By Evie Liu

Food stamp benefits are at risk, and many companies -- from meat producers to candy makers -- could be impacted. But investors shouldn't panic, as the actual harm to the bottom lines could be much smaller than the headline numbers suggest.

Last Thursday, House Republicans passed a sweeping bill that covers a range of new tax breaks, spending cuts, plus more border and military funding -- and a higher national debt limit.

The bill introduced a series of changes to the Supplemental Nutrition Assistance Program, commonly known as food stamps, that many low-income Americans rely on as extra income to feed their families.

The proposed changes include stricter age and working hour requirements for beneficiaries, a shift of funding responsibility from federal to state budgets, and a freeze of benefit hikes beyond normal inflation adjustments.

These changes could lead to about $300 billion in federal budget savings from 2025 to 2034, according to preliminary estimates from the Congressional Budget Office. The final number might be lower than that, however, as the package still needs to go through the Senate, where compromises might be made.

A group of Morgan Stanley analysts wrote in a note that final cuts could come down to as low as $150 billion, and only $90 billion to $100 billion would be direct reductions in SNAP benefits since the federal cuts would be offset by greater contributions from states.

For fiscal 2026, the analysts expect to see about a $10 billion benefit reduction. That's about 10% of SNAP's size: In fiscal 2024, the program paid out $100 billion in food assistance to 40 million low-income Americans, or 12% of the total population.

Shrinking SNAP spending would have a relatively small negative impact on the U.S. economy. The impact would be more pronounced for the food and beverage sector, especially companies that rely on revenue from low-income consumers.

For households in the bottom 10% income cohort, public assistance programs like SNAP made up about one-fifth of their pretax income, the analysts said.

Meat, frozen foods, and snacks are some of the food categories with outsized exposure to SNAP dollars. According to a 2016 USDA study, households on food stamps spent 19% of their budget on meat, poultry and seafood, three percentage points higher than those not on SNAP.

Likewise, households receiving SNAP benefits spent roughly 9% and 7% of their budget on sweetened beverages and frozen food, respectively, about two percentage points more than those not on SNAP, according to the report.

SNAP cuts would bring more headwinds for packaged food companies when they are already struggling with weak demand amid inflation pressure as well as consumer trends to eat healthier and cut calories.

Among packaged-food companies, Conagra Brands, WK Kellogg, and J.M. Smucker have relatively high exposure to low-income households, with more than 22% of their sales from consumers in the cohort, the Morgan Stanley analysts wrote, citing Numerator data.

On shopping trips where SNAP benefits are used, products from Conagra, Kellogg, and Kraft Heinz are purchased more often compared with Mondelez International, Campbell's, and Hershey, according to the analysts. Mondelez, particularly, has a lower risk since only a quarter of its sales are generated in the U.S.

Since low-income consumers are already pressured by inflation, they might also lean more toward the cheaper private-label products. Kraft Heinz, Conagra, and Campbell's could be more vulnerable as they face stronger competition from private labels.

But the analysts believe much of the SNAP-related risks have already been priced into the stocks of packaged-food companies. So far in 2025, Conagra and Kraft Heinz shares have tumbled 19% and 15%, respectively. Campbell's lost 20.3%. Kellogg is down 3.4%, and J.M. Smucker stock edged up 1.1%.

When it comes to beverages, soda giants like Coca-Cola and PepsiCo are relatively insulated thanks to their large international sales. Keurig Dr Pepper and energy drink firm Celsius Holdings, on the other hand, have a much higher share of their sales coming from the U.S.

But the analysts are not so concerned about Celsius, which has a relatively small exposure to low-income households as it mostly caters to health-conscious young professionals.

Coca-Cola stock has gained 15.6% so far this year. Pepsi is down 13.9%. Dr Pepper shares are up 3.7%, while Celsius increased 32.7%.

Write to Evie Liu at evie.liu@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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May 26, 2025 01:00 ET (05:00 GMT)

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