Why the Inghams Group Ltd (ASX:ING) share price is down 9% today

Shares in Australia’s leading poultry company Inghams Group Ltd (ASX: ING) were down 9% today after the company announced that its CEO Mick McMahon would step down from the role.

Mr McMahon said that as the company was preparing the next 3-5 year strategy, he had to consider whether he wanted to commit for the years ahead. It appears this was something he did not want to do. He will now leave the company after its annual results are released in August 2018.

What now for Inghams?

The company has appointed its current Chief Commercial Officer Quinton Hildebrand as acting CEO effective August 2018, while a domestic and international search for a new CEO is underway. Internal candidates will also be considered for the role.

Does the price drop make Inghams more attractive?

I think at this point, it wouldn’t be the best decision to jump on board a ship with no captain. Whoever comes in as the next CEO will want to set in place their own strategy for the next few years and investors will need to understand what that vision looks like before jumping in.

My concern with Inghams is that it sells a basic food item and its main customers have so much bargaining power that it’s hard to maintain pricing power.

Inghams main distribution channel is via the supermarkets such as Woolworths Group Ltd (ASX: WOW) and Coles which is owned by Wesfarmers Ltd (ASX: WES) and both companies are facing a tough competitive environment.

Better option

My preference in the food sector at the moment would be Freedom Foods Group Ltd (ASX: FNP). Despite having a higher price to sales ratio of 4 compared to Ingham’s which is around 1, I’m more comfortable with Freedom Foods’ growth prospects. Freedom is benefiting from the long-term trend towards healthy eating.

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Motley Fool contributor Kevin Gandiya has no position in any of the stocks mentioned.

You can follow Kevin on Twitter @KevinGandiya.

The Motley Fool Australia owns shares of and has recommended Wesfarmers Limited. The Motley Fool Australia has recommended Freedom Foods Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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