Food PPI inflation slows in July but remains high, Truist notes

Investing.com - Food Producer Price Index (PPI) inflation decelerated to 4.1% year-over-year in July compared to 4.4% in June, according to a recent Truist analysis.

Despite the slight moderation, food manufacturing inflation remains elevated with a May-July 2025 average of 4.3%, significantly higher than the 2.1% average recorded during the same period in 2024.

Truist analysts suggest this persistent inflation could drive upside to product inflation guidance for several Buy-rated food distribution companies, including Sysco Corporation (NYSE:SYY) with approximately 2% expected inflation in fiscal year 2026, US Foods Holding Corp (NYSE:USFD) with about 3% in 2025 including mix effects, and Performance Food Group (NYSE:PFGC) with low-to-mid-single-digit increases in fiscal year 2026. According to InvestingPro, USFD maintains a "GOOD" overall financial health score, with revenue reaching $38.65 billion in the last twelve months and showing 5.3% growth.

The research firm notes that inflationary pressures are primarily concentrated in protein categories, which are typically priced on a dollar-per-case basis, potentially limiting profit flow-through for these distributors.

Truist also points out that elevated food PPI inflation suggests a narrowing gap between restaurant and grocery Consumer Price Index (CPI), which should provide support for food-away-from-home sales in the coming months.

In other recent news, US Foods reported its second-quarter 2025 earnings, revealing an adjusted earnings per share (EPS) of $1.19, which surpassed the forecasted $1.13. However, the company fell short of revenue expectations, reporting $10.08 billion against a forecast of $10.19 billion. This mixed performance included a 4% sales growth and a 12% increase in EBITDA, which exceeded some analysts’ projections. Following these results, US Foods raised its adjusted EBITDA guidance for the year. In response to the earnings report, several analysts updated their price targets for the company. Guggenheim raised its price target to $88, maintaining a Buy rating, while Wells Fargo increased its target to $87, citing the company’s strategic initiatives. Truist Securities set a new price target of $90, also maintaining a Buy rating, highlighting strong EBITDA growth. These developments reflect the company’s ongoing efforts and market position in a fragmented industry.

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