Usually, our Top 100© table shows a healthy food and beverage industry with sales and profits on the rise – as should be expected in a year in which the country’s overall economy is plugging along, albeit without setting records.
Look a little closer at the figures and the underlying situations, and we see an industry struggling to achieve growth. Especially among the bigger firms. Only one of the 16 largest companies saw sales grow appreciably in 2015, and that company, Tyson, did so mostly through a huge acquisition. All the others undoubtedly made some acquisitions in the past year, which didn’t do enough to prop up sales.
Tyson, by the way, is the new No. 1 company atop the U.S. and Canadian food and beverage industry, thanks to the $4 billion bump by former No. 32 company Hillshire Brands. Tyson was No. 1 back in 2006, having ended about a 30-year run by Kraft Foods as the largest food & beverage processor in the U.S. and Canada. This time, it ended PepsiCo’s five-year turn atop our list.
“We have an incredible team at Tyson Foods and our focus on consumer-relevant categories is what got us here,” CEO Donnie Smith told us when he learned of the No. 1 ranking. “We’ve invested in our prepared foods brands, chicken and the insights that drive innovation for a better consumer experience.”
For the overall food and beverage industry, profits are a slightly better picture … maybe. Net income was up at five of the top 16 … which means the bottom line worsened for eight. (No. 11 Mars is a private company and doesn’t tell us profits and for No. 5 Kraft Heinz we had no 2014 figure to compare its profit to.)
Mondelez is a great case in point. While the North American-only figures show a tiny improvement, worldwide sales were down nearly $5 billion; but net income nearly tripled from 2014 to a sensational $7.3 billion.
The view is only a little better at the bottom third of our table, where 12 of the 33 smaller companies gained sales ground and seven improved profits.
The figures punctuate the stories told at the Consumer Analysts Group of New York conference, where the top food and beverage companies annually make presentations to financial analysts. At that February meeting, the CEOs and CFOs of Campbell Soup, General Mills, Hormel and Mondelez all said recent years of cost-cutting are paying off in increased profits but decreased sales. Even at that meeting, Tyson happily bucked the trend, predicting both sales and profits would turn higher this year.
“The food processing industry tends to track the U.S. economy and therefore continues to grow at a steady pace,” says Casey Garten, managing director of food and agribusiness at Bank of the West Commercial Banking Group. “The industry is well capitalized with interest rates at historic lows, which provides opportunities for growth to meet growing demand.”
Moving in opposite directions
There are three big gainers on the table, all the result of full-year effects of major acquisitions. As previously stated, Tyson added $4 billion in sales largely because of its late-2014 purchase of Hillshire Brands. J.M. Smucker (whose 2016 fiscal year ended this April 30) grew 37 percent and moved from No. 23 last year to No. 17 this year thanks to the early-2015 acquisition of Big Heart Pet Brands – the former Del Monte unit that includes Gravy Train and Meow Mix – and its $2.3 billion in sales.
And Post Holdings leaped from No. 49 to No. 25 by buying MOM Brands (formerly Malt-O-Meal) in 2015 and Michael Foods in late 2014. Post was way down at No. 85 in our 2014 chart. However, with heavy debt payments, Post continued to post a net loss (-$115 million) for its fiscal 2015, although that was quite an improvement over 2014’s loss of $359 million.
Hain Celestial (No. 74) had a healthy (25 percent) increase due partly to acquisitions but mostly to the creation of a poultry business. At the start of the fiscal year, the company acquired the 51 percent of Hain Pure Protein Corp. that it did not already own, including the FreeBird chicken and Plainville Farms turkey brands in the U.S. Then it expanded its presence in this growing category with the purchase of the remaining 80 percent of Empire Kosher Poultry Inc. that it did not already own. That makes poultry a $359 million business for the natural foods company.
TreeHouse Foods (No. 37) already enjoyed a nice 9 percent bump in 2014 sales thanks to both organic growth of its private label business and some small acquisitions. But the company will double in size (to an estimated $7 billion) on next year’s table with its acquisition of the private label businesses of ConAgra Foods. That deal didn’t close till early this year.
Nor does Snyder’s-Lance Inc.’s (No. 66) figure include its recent acquisition of Diamond Foods. Nor will Boulder Brands’ estimated $500 million in sales show up in Pinnacle Foods’ (No. 46) revenues till the latter’s 2016 annual report.
Moving in the opposite direction is ConAgra Foods (No. 10), soon to be called Conagra Brands. The sale of its private label business, largely the former Ralcorp Holdings, to TreeHouse Foods impacted ConAgra’s fiscal year in this report. Further divestitures – including the spinoff of the $2.9 billion Lamb Weston business – next year may halve the $11.6 billion you see here for Conagra Brands.
And a new name that’s actually two hundred-year-old names is Kraft Heinz. The mid-2015 merger of the two companies required some accounting rework, but the newly public company debuts at No. 5 with our estimate of $21.7 billion in qualified sales (out of total, global sales of $27.4 billion).
Which makes this a good time to explain the figures in this table and report. We rank companies based on value-added/consumer-ready (but not necessarily branded or in final form) foods and beverages that were manufactured in U.S. and Canadian plants. That’s tough enough to figure out for the public companies; for the private companies, we rely on their voluntary statements to us and other public reports about their financial figures or the general health of their business.
That’s why PepsiCo’s figure is $38 billion, not the $63 billion in global sales in its annual report and 10-K. And Cargill appears as an $8.7 billion meat packer, not a $120 billion owner of ships and trains around the globe. ADM is not on the list at all. Unilever is portrayed as an American food processor, not an Anglo-Dutch maker of shampoos and deodorants. And Monster Beverage Corp., even at nearly $3 billion in sales, is not on this list (the company admits it manufactures none of its own beverages, all are done by copackers).
We use the most recent fiscal year available; in most cases that’s calendar 2015, but we note the exceptions.
Unless the companies do the math for us, we convert euros, reals, pesos and Canadian dollars to U.S. dollars at the end of each company’s fiscal year or the rate on Dec. 31. Several Canadian firms may be hurt in the chart because of weakness of the Canadian dollar versus the American dollar. The Canadian dollar was worth 86 American cents on Dec. 31, 2014 but only 72 cents on Dec. 31, 2015. Premium Brands, for example, had a nearly 22 percent increase in sales in Canadian dollars, its home currency, but only a 2 percent bump shows up on our chart. The company’s earnings actually increased slightly in 2015, but show up as a decline when converted to U.S. dollars.