Are capital spending fortunes improving?
Several companies are placing big bets on the recovery by building ‘world’s largest’ processing plants.
Dreyer’s has another plant expansion on the list of the 10 largest capital projects for 2005. The company broke ground mid-year 2004 on a $100 million expansion that also will triple the capacity of the former Nestle Ice Cream Bakersfield, Calif., plant. It will create 250 new jobs and should open before summer.
|A group of pork producers and investors pooled resources to form Triumph Foods and to build a $150 million processing facility in St. Joseph, Mo.
The Bakersfield Operations Center currently makes 90 types of frozen snacks, including Drumstick, Nestle Crunch Bars, Push-Ups, Toll House Cookie Sandwiches and Carnation Ice Cream Sandwiches. The expansion will add 400,000 sq. ft. and five ice cream production lines, enabling the manufacture of packaged products Dreyer's Grand and the new Slow Churned Dreyer's Grand Light. It also includes a new warehouse with a 20-door shipping dock and new research and development facilities including a pilot plant for flavor development, labs and prep kitchens.
The biggest new plant on the list belongs to Triumph Foods, a new company put together by a group of hog producers. The investors reportedly have interests in a number of hog processing facilities across the country, but the biggest will be a $130 million facility scheduled for a fall opening in St. Joseph, Mo. The 630,000-sq.-ft. plant (under construction in photo at right)
will perform slaughtering and processing and will become the company’s headquarters. The building will open with 350 employees but employment could grow to 1,000.
A foreign name on the list is Italy’s Ferrero Group. The food and confectionery manufacturer, with such brands as Ferrero Rocher, Mon Cheri, Nutella and Tic Tac, is building a new production facility in Brantford, Ontario, at a cost of US$122 million. It will comprise 600,000 sq. ft. and employ 600 when it opens in the second half of 2006. The first product to be made there will be Ferrero Rocher candies. It will be designed for expansions that could double its size.Animal protein is hot
A more familiar name on the new projects list is Tyson. It’s in the midst of two big projects that are among reasons its capital spending budget could be up nearly a third this year over last.
Tyson just began a $100 million project to create its third case-ready meats plant out of a once-shuttered Oscar Mayer plant in Sherman, Texas. The plant was only open 1974-1978, but IBP bought it just before the formerly independent company was acquired by Tyson in 2001.
The other big project, about half complete, is a new research and development center at corporate headquarters in Springdale, Ark. The Discovery Center is a $40 million, 184,000-sq.-ft. home to product development kitchens, consumer testing and a pilot plant, which is scheduled to open late this year. A Tyson spokesperson also said the company is spending on miscellaneous projects to increase automation and to “support growth of our value-added products.”
Like Tyson’s projects, a number of the largest plant projects under way involve animal protein. Another big one is Smithfield Foods Inc.’s $85 million ham manufacturing plant, which just broke ground in Kinston, N.C. The 180,000-sq.-ft. building, scheduled for completion in April 2006, will provide 206 new jobs. It will be the most efficient cooked ham plant in the U.S., employing the newest technologies available and meeting the highest food standards in the industry, the company stresses.
Wayne Farms LLC, an Oakwood, Ga., subsidiary of ContiGroup Cos., only has $55 million on the table this year, but that’s just half the planned outlay for a three-phase poultry plant in Decatur, Ala. “The demand for product and the growth of our business partners has increased significantly durving our need for growth and expansion,” says Elton Maddox, president and CEO. The phase one build-out will increase the company’s annual production by more than 40 million lbs. The 100,000-sq.-ft. facility will have two fully cooked production lines and will be built to allow modifications and initiation of phases two and three. If all comes to pass, Wayne Farms will have spent $110 million on the facility.
Northwest Cattlemen’s Alliance, Sanderson Farms, OK Foods and Ridgefield Farms also are constructing animal protein further-processing facilities this year.
How efficient is your capital?
“Capital efficiency analysis” is a key metric tracked by Christopher Growe, analyst with A.G. Edwards, St. Louis. “Companies consistently investing incremental capital drive superior growth and stock price appreciation,” Growe writes in a recent report. “Companies investing in capital and displaying improving capital efficiency and margin expansion display the strongest earnings growth.”
A.G. Edwards defines capital efficiency as “the ratio of fixed assets plus operating working capital to sales, indicating the productivity of the asset base in generating incremental sales. We add a second element in the operating margin to further indicate those companies that are effectively leveraging their asset base to produce higher levels of profitability.”
Companies with the highest capital efficiency: Anheuser-Busch (61.2 percent in 2003), Hershey Foods (58.2 percent) and Kraft (47.9 percent). Those with the highest operating margins: Hershey Foods ConAgra and Anheuser-Busch (Kraft was fifth).