Top 100 Food and Beverage Companies for 2012: Splitting in Two

When it comes to our annual ranking of the 100 largest food and beverage companies in the U.S. and Canada, 2011 was a tougher year for profitability than 2010 was.

By Dave Fusaro, Editor in Chief

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Two things strike us as we examine this year's list of the 100 largest food & beverage processors in the U.S. and Canada:

  • A couple of companies have become so big and unfocused that they will or already have split into two companies.
  • 2011 was very tough year on some of these companies.

This is our 37th annual Top 100©. It ranks food and beverage processors based on their sales of value-added, consumer-ready goods that were processed in U.S. and Canadian facilities. You won't find a comparable list anywhere else; you won't find many of these figures anywhere else, either.

The first thing we remarked on last year at this time was just one company out of that whole bunch reported a loss in 2010. That dubious distinction belonged to Dole, which got squeezed by both lower banana production worldwide and weaker pricing – how does that happen?

(You'll notice one additional 2010 loss in this year's chart. Michael Foods was a private company in 2010 and did not report earnings, but in its pro forma computations, it acknowledged a loss in 2010).

We can't say the same this year. Dole recovered, to a $38 million profit, but six others swung into the red. At the top of that list is Dean Foods, which swung from an $83 million profit in 2010 to a $1.6 billion loss in 2011.

Dean's sales were up 7.7 percent, but the cost of raw milk jumped 24 percent. Homogenize in "industry-wide volume softness across dairy product categories," as Dean Foods' annual report explains, and the result is painfully low margins. In 2009 just the opposite happened: sales were down but net income went way up.

But the price of raw milk abated at the end of 2011. "In 2012, we expect difficult conditions to continue for the broader fluid milk industry, but we are cautiously optimistic about our business," Chairman/CEO Gregg Engles wrote in the annual report. "We expect raw milk costs to remain relatively flat throughout 2012."

Also reporting losses in 2011 were Pilgrim's Pride (-$497 million), Ralcorp Holdings (-$197 million), Pinnacle Foods (-$47 million), Keystone Foods (its parent firm, Brazil's Marfrig Group, lost $399 million) and Imperial Sugar (-$53 million).

Pilgrim's Pride has had a troubled recent history. It emerged from bankruptcy protection in 2010 with Brazilian beef processor JBS acquiring a 64 percent stake (now 67 percent). In 2011, the culprit was high feed prices. "Market prices for feed ingredients … rose significantly again from the third quarter of 2010 to the second quarter of 2011. These prices remained at historically high levels throughout the third quarter of 2011 before decreasing in the fourth quarter of 2011," the company wrote in its 10-K SEC report.

And even before this summer's drought, Pilgrim's Pride executives warned, "Market prices for feed ingredients remain volatile. Consequently, there can be no assurance that the price of corn or soybean meal will not continue to rise as a result of, among other things, increasing demand for these products around the world and alternative uses of these products, such as ethanol and biodiesel production."

Breaking up (a company) is easy to do

Ralcorp and possibly Dole are examples of another trend we see in this report. 2011 and 2012 may be remembered as the years of the big splits. Fortune Brands, historically a diversified holding company, started the trend late last year when, after selling off its Titleist and FootJoy golf product lines, it split into two publicly traded companies: Fortune Brands Home & Security (with Moen faucets, Aristokraft and Kitchen Craft cabinetry and Master Lock security products, among others) and Beam Inc. (with such intoxicating brands as Jim Beam and Maker's Mark bourbons, Sauza tequila and Canadian Club whiskey).

Ralcorp was forced into it. With ConAgra waging a semi-public campaign through most of 2011 to buy the company, because of ConAgra's burgeoning interest in private label, Ralcorp responded by rewarding shareholders and diluting its own worth. This past February, it spun off to stockholders its Post Cereals business, which it had bought from Kraft in 2008. That makes Ralcorp again an overwhelmingly private label company. (Since the Post spinoff was a 2012 event, Post's sales remain in Ralcorp's figures in this year's table.)

Then came Sara Lee. It too had become a curiously diversified holding company, balancing its namesake and Jimmy Dean brands against Kiwi shoe polish and Hanes underwear. It started its refocusing in 2005, selling off one extraneous product line after another. Billion-dollar divestitures included its global body care and European detergents business to Unilever in 2009 and its North American bakery unit to Grupo Bimbo in late 2010.

But last year company officials announced they were splitting the remainder of the company into two publicly traded companies. North American food operations – primarily Jimmy Dean, Ball Park and Hillshire Farm brands – on June 28 became Hillshire Brands, soon to be headquartered in Chicago. Several European coffee brands (including Douwe Egberts) became D.E Master Blenders 1753, based in Amsterdam.

Next up: Kraft. The company just set Oct. 1 for its split into a $16 billion North American grocery business and a $32 billion global snacks business. The name of the former will be Kraft Foods Group Inc.; Mondelez International Inc. will be the latter. (A company statement said newly coined word combines the Latin word for world (monde) with "a fanciful expression of delicious" ("delez").

And now Dole is hinting that it might sell off its canning and processed food operations and maybe its small vegetables business to become a purely fresh fruit company. As a result of its slumping stock price this year, Dole now has more debt than its current market valuation, reports Bloomberg News. Ironically, the company's packaged foods unit has been growing fastest, while the fresh fruit business has been hampered by low prices.

Only one of those splits shows up on this year's Top 100© table. While all the figures are the most recently available, that still means full-year results from calendar 2011 for most of these companies. Beam Inc. is the exception. Despite a late-2011 split from Fortune Brands, the spirits company published its own 2011 annual report.

Another newbie, debuting at No. 94, is Agro-Farma Inc., better known as Chobani. Everyone knows the meteoric growth of Greek yogurt. Agro-Farma, being a pioneer, saw its sales make it onto our chart for the first time. Our $700 million figure for the company is just an estimate, based on public documents; Agro-Farma officials declined our requests for information.

On the other hand, Hearthside Foods (No. 89) asked us to right a wrong. As a private labeler and contract manufacturer, the Downers Grove, Ill.-based company likes keeping a low profile, but officials volunteered their qualifications for the Top 100©.

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