After two years of dramatic growth, capital spending in the food and beverage industry appears to be leveling toward normal. Thirty-six of the top companies in the food business plan to spend nearly $18.3 billion on plant improvements in 2012, just 4.1 percent more than the checks they wrote in 2011.
We say just a 4.1 percent increase because of the dramatic jumps reported in the two previous years. Spending projections for 2011 and 2010 were 20 percent and 19.5 percent higher respectively than the years that preceded each. But while the companies on our list budgeted an additional 20 percent last year, we now realize they only spent 16 percent more, shaving $600 million, probably because of the year's uncertainty. (Numbers in the table at right won't show so dramatic a drop because three companies were added to this year's list.)
Of course another way to look at it is the 2012 industry budget is more than 30 percent higher than the $13.5 billion spending of 2008, when the economy faltered and the brakes were applied. Maybe now the pendulum has swung both ways.
Consider this year's capital expenditures budget as a whole as being in maintenance mode. That said, some companies are cutting loose the funding for big projects.
"There is definitely an ongoing trend, driven by consumer confidence, toward more spending in food manufacturing," says Brian Kappele, vice president of the food and beverage division at Stellar (www.stellar.net), a Jacksonville, Fla., architecture/engineering/construction (AEC) firm. "In the past year or so we see projects that are starting to be funded. These are projects that have been in the planning stages and are getting cut loose."
Click on the image above to see an enlarged list of the Capital Spending projects for 2012
Some of the key motivators of plant construction include consolidation of older and less-efficient plants, modernization to meet new regulations and growth opportunities, particularly in emerging international markets.
"Expansion and renovation are still the two drivers — not a bunch of greenfield construction," says Forest McNabb, senior vice president at Big-D Construction (www.big-d.com), Salt Lake City, Utah. "Companies are trying to get all they can out of the quarter-horses they have."
There is a small number of giant projects, at least one or two new HQs and plenty of expansion and renovation taking place.
Among the largest companies from our Food Processing Top 100©, some plan to spend significantly more this year. In our top 30, the biggest percentage increases belong to Ralcorp (up 91 percent, the biggest increase anywhere on our list) and Smithfield Foods (up 69 percent to $300 million) But neither would identify any single project worth focusing on. A spokesman for Ralcorp said the additional funds will be put toward an accelerated cost reduction program to increase efficiencies.
Other sizable companies budgeting sizable increases include Tyson Foods (up 28 percent to $825 million), H.J. Heinz (up 29 percent to an estimated $432 million), Dr Pepper Snapple Group (up 30 percent to $280 million) and Dole Food Co. (up 34 percent to $110 million). Despite its impending split, Sara Lee is budgeting $370 million, a 27 percent increase (although its 2012 fiscal year will be over July 1).
Among the companies that are spending less, some, like Hershey (down 11 percent), are coming off the completion of major projects. Others, including Dean Foods (down 19 percent), are tightening their belts on expansions as a way to improve bottom line performance -- although Dean will spend $45 million on a retrofit of a Dallas plant for the bottling of products in the White Wave-Alpro division.
With a 50 percent increase in its CapEx budget, J.M. Smucker might simply have moved some of work from one fiscal year to the next (by the way, it's fiscal 2012 ends around April 30). The company spent considerably less money in FY2011 than it had budgeted for -- $180 million compared to $235 million – but is allocating $270 million for the current fiscal year. The maker of fruit preserves, jams and toppings is in the midst of renovating its headquarters and expanding its flagship plant in Orrville, Ohio.
Click on the image above to see an enlarged list of the top projects for 2012.
Smucker's efforts speak to the ongoing consolidation trend. Its new facility will replace or reduce capacity at as many as six other facilities in an effort toward greater efficiencies.
Great big projects
Five of the projects appearing on the Top Projects graphic are greenfield plants, and one of them, revealed just over a month ago, is the result of a new business venture driven by the most recent consumer trend in food.
PepsiCo and German dairy company Theo Mueller Group have formed a partnership that will make and sell Greek-style yogurt in the U.S. A new yogurt factory in Batavia, N.Y. is expected to come on line next year. It will cost $206 million and will employ 186. The joint venture, dubbed Project Wave, apparently is getting some $11 million in tax abatements. Greek yogurt has been growing at triple digits for the past three years. One media outlet said Greek yogurt now accounts for more than $1 billion in U.S. sales, about a quarter of total yogurt sales. (See our report on the partnership at PepsiCo Partners With Muller Group for a Yogurt Plant)