Annual Capital Spending Report: Economic Upheaval Weighs on Capital Spending Forecast

For the first time, we forecast a 2.9 percent drop in capital investment this year.

By Marty Weil, Contributing Editor

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Fusaro 2009 Capital Spending Report Video
Click the image to watch a short video of Dave Fusaro explain the results of the survey.

The general economic weakness present at the beginning of 2008 blossomed into a full-blown, worldwide financial crisis by the end of last year. Ongoing uncertainty over when the U.S. will emerge from recession makes it difficult to forecast capital spending for 2009. Further, the caustic financial environment has dampened the appetite among many U.S. food and beverage processors for new plants and facilities and the debt those projects often require.

The numbers in our annual capital spending survey are a mixed bag. Eleven of the 20 largest publicly held food & beverage companies are budgeting more in capital expenditures this year. Only seven anticipate a decline. But the size of the minuses far outweighs the sum of the pluses.

Among those 20 companies, we’ve identified $9.560 billion in new spending, down 2.9 percent from the $9.845 billion those same companies actually spent last year. Those seven companies that are budgeting less capital spending are cutting it an average of more than 28 percentage points. As a means of comparison, last year 15 of the largest food companies expected to increase capital spending.

It’s a case of acquisitive companies versus those in tough market segments. For instance, the companies budgeting the biggest increases are doing so largely because they made blockbuster acquisitions last year that greatly increased the size of their companies. That was the case with Ralcorp ( (capital expenditure budget up 130 percent), which increased sales by about 50 percent by acquiring the Post cereals business from Kraft. Ralcorp, previously only a private-label cereal producer, also is benefiting from some consumer downshifting to less costly store brands.


Capital Spending Big Spenders for 2009

 ( plans to increase its capital spending by 55 percent, largely to maintain the huge Folgers coffee business it acquired last year from Procter & Gamble.J.M. Smucker Co.

While Tyson ( first budgeted a 47 percent increase (to $600-650 million) for this year (its fiscal 2009 started back on Sept. 28, 2008), recent public statements are ratcheting that figure down to below $500 million. In addition to its core businesses, Tyson’s spending on recent acquisitions in Brazil and China and its alternative fuels joint venture plant.

Not all increased spending was due to acquisitions. Campbell Soup Co. ( plans a 34 percent increase in capital expenditures in 2009, even though it sold off Godiva chocolate last year. However, it underspent its budget by 25 percent last year. 

Those hearty increases in capital spending could not offset budget cuts of 57 percent at Smithfield Foods (, 52 percent at DelMonte (, 39 percent at Molson Coors ( and 32 percent at Hershey Co. ( Actually, all four of those companies budgeted capital investment decreases last year, but then greatly overspent.

“While many larger companies are forging ahead with modest capital expenditure plans – due in large part to growth associated with more consumers cooking at home and ongoing initiatives aimed at increasing operating efficiencies – companies operating in more discretionary product categories have been hit hard by the deepening recession,” says Tony Perazzo, audit partner in Grant Thornton’s Greater Bay Area offices. “This, coupled with difficulty accessing credit in the current economic environment, is causing many companies to be cautious in 2009 capital spending. Many companies are postponing capital projects to 2010, in anticipation of a slow economic recovery.” 

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