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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Capital Spending Report Projects for 2009

Animal protein companies appear to be particularly hard hit. Most saw margins fall last year as increasing supply met with weakening demand, all of which collided with soaring feed costs – the last of which was exacerbated by loss-making hedges when corn prices started to decline.

The worst victim is Pilgrim’s Pride (www.pilgrimspride.com), which declared bankruptcy in December 2008 because of market conditions and debt incurred in its 2007 acquisition of Gold Kist. While normally a key component of our capital spending index, the company has suspended its duty to file reports.

Smithfield Foods forecasts its second annual double-digit decline in capital spending (although it overspent last year). The company also plans to close six plants and shed 1,800 jobs in 2009, according to a recent report in The Wall Street Journal. The world’s largest pork processor (by revenue), Smithfield is planning to cut production by 10 percent in 2009.

While the percentage change is small, PepsiCo (www.pepsico.com) budgeted a large capital expenditure cut in dollar terms ($170 million) from its previous year’s capital spending, reversing its trend toward higher capital expenditure forecasts. Interestingly, the company spent $300 million dollars less on capital expenditures in 2008 than it had originally forecasted.

Projects in focus
The shift in consumer spending has a silver lining for some food companies, as consumers opt for home cooking. This trend might explain the optimism among the few companies that are moving forward with new plants and expansions.

Baby food apparently is a hot category. Beech-Nut Nutrition Corp. (www.beechnut.com), subsidiary of Switzerland’s Hero AG, is nearing completion of a $124 million, 635,000-sq.-ft. headquarters and manufacturing plant near Florida, N.Y. The combined buildings, which should be operational later this year, should maintain 356 jobs from other Beech-Nut facilities plants in the area and create another 135 jobs. The company’s headquarters was in St. Louis. Beech-Nut is applying for Leadership in Energy and Environmental Design (LEED) certification for the new buildings.

Gerber Products (www.gerber.com), now a unit of Nestle SA, plans to expand its baby food production facility in Freemont, Mich.

Auto plant to make cheese

A Delphi Corp. automotive parts plant in Coopersville, Mich., once valued at nearly $33 million apparently has been bought for $4.4 million and will be converted to a cheese plant.
Arizona Maricopa Associates LLC, a dairy conglomerate with milk and cheese operations in the Southwest, successfully bid on the 300,0000-sq.-ft. former factory, according to the Grand Rapids (Mich.) Press. The factory was built by General Motors Corp. in 1980 and became part of GM-affiliate Delphi Corp., which closed the building nearly two years ago. The plant once employed 680. Delphi is now under bankruptcy protection.

Nestle (www.nestleusa.com), meanwhile, just this March started up its largest ready-to-drink aseptic products (Nesquik and Coffee Mate) plant in the world. When fully operational in 2011, Nestle will have spent $529 million on the 880,000-sq.-ft. facility (it’s also a distribution center) in Anderson, Ind., the largest single capital investment in the Swiss company’s history. It, too, is seeking LEED certification. 

Heinz (www.heinz.com) is building a new manufacturing facility in Florence, S.C., to support its “high-growth frozen meals business” in North America (Weight Watchers, Smart Ones and Boston Market frozen entrées). According to county documents the initial investment in the plant will be $105 million. The new 225,000-sq.-ft. factory that will create 350 new jobs and should open in the third quarter of this year.

General Mills (www.generalmills.com) will expand its breakfast cereal plant in Albuquerque, N.M., at a cost of $100 million. It employs 190, but should add another 60 workers and 160,000 sq. ft. by the first quarter of 2010.

Flowers Foods (www.flowersfoods.com) is spending $6.1 million to continue building a 200,000-sq.-ft. bakery in Bardstown, Ky. 

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