Elsewhere, there are two companion charts to this story. The list of all 32 companies and their budgets is here. And a table of the top 53 projects is here.
Last year’s Capital Spending Outlook made 2023 look like the year of big plans for food & beverage capital spending. Perhaps because much of that money was left on the table, 2024 appears to be setting up as the year to address 2023’s unfinished business.
Last year, 33 of the companies we included on our Capital Spending chart collectively planned to spend 21.4% more on capital expenditures in 2023 than they actually spent in 2022 — big dreams and plans for big investment were on the way.
Well, you know what they say about the best-laid plans …
This year, the 32 companies we’ve been able to track for three years now did open their checkbooks to the tune of $21.85 billion in actual capex in 2023, nearly $3 billion more than they had spent in 2022, nearly a 14% increase. But collectively they’re only budgeting 3% more this year.
“If we’re comparing it to historical numbers, there has been a step up,” says Erin Lash, director of consumer equity research for Morningstar Research Services (www.morningstar.com). “Take Hershey, for instance, which spent almost 7% of sales behind capex in 2023, when its average has been closer to 4 or 5% — and this was the fourth year in a row that it was north of 5%.”
Tess Fay, principal and vice president of location intelligence for Global Location Strategies (www.globallocationstrategies.com), says automation has driven much of the rise in capital investments in food & beverage.
“We all anecdotally say things are becoming more automated, and if you look purely at the data, it really does bear out,” she says. “We looked at capital spending and job creation adjusted for inflation in the periods both immediately before and immediately after Covid, and it shows that even adjusted for inflation, capital investment increased pretty significantly for food manufacturers.”
Although spending was healthy last year, the $21.85 billion this group actually spent fell $1 billion (-4.4%) short of budgeted numbers, with plenty of disparity between those that spent big and those whose wallets were cinched up along the way.
Big plans still in the works
Increased investment in operations is one thing, but shooting for the moon is entirely different. Several processors seemed to approach capex budgeting in 2023 like a kid in a candy store, with big eyes and a big stomach tempting them to fill their bags to overflowing — yet ultimately being unable to finish everything they selected. Nearly two-thirds (21) underspent their 2023 capex targets, with more than a quarter of them (nine) falling short by 20% or more.
“Some of the larger corporations may have planned some significant spend of their capital budgets coming out of 2022, and their plans for 2023 got scaled back for myriad reasons,” explained Nathan Arnold, director of client development for Hixson Architecture, Engineering & Process (www.hixson-inc.com). “For some, sales went down; for others, coming out of Covid, there maybe was an over-build to catch up on what they thought was a trajectory on products that didn’t transpire.”
Lash adds that although the industry has seen worse pullbacks for larger issues, the disruption of the global supply chain toward the end of 2023 could have had an impact.
“If you think about what was happening starting in the fall in the Middle East and the Red Sea, time needed to get shipments through increased,” she says. “So some decisions to delay spending could have been reflective of supply chain disruptions, although not to the level that obviously we saw the years prior.”
Fay adds that labor shortages in the construction industry and rising costs of materials also impacted some projects. Yet, it’s possible that 2023’s outcome could also represent an easing into more normal levels of capex, Lash says; and 2024 budgets, which appear a bit more restrained, support that possibility.
“There may be another year or so of slightly elevated spending, … and if they’re not at normalized levels already, the sentiment seems to be that this could be the last year of a bit higher spending,” she explains. “But some are going to be at even more normalized levels this year.”
The group we track expects to spend about 3% more on capital investments in total this year than last year, falling just short of the $22.5 billion mark (which would be a smaller overall budget than last year by about 1.5%), more in line with the typical growth Lash mentions.
On the flip side, 10 processors on the list have 2024 expectations falling below 2023 actuals, and five of those expect to slash capex by more than 10% off what they spent last year. Cal-Maine Foods (-57.7%), WK Kellogg Co (-54.7%) and Tyson Foods (-35.5%) show the biggest cutbacks to capex budgets on the chart.
Tyson’s challenges over the past 18 months should make that no surprise, and Cal-Maine’s percentage drop looks more severe because it spent nearly 70% more than budgeted in 2023. Meanwhile, WK Kellogg Co evolved out of the Kellogg Co. at the end of last year, and although it did provide pro forma capital spending of $71 million in 2022 and $150 million in 2023, there was no 2023 budget number shared for perspective.
A positive outlook
Most processors on our list forecast an increase in capital investments in 2024. Even the 21 companies that didn’t spend all of their 2023 capex allocations are going back to the well, springboarding off their actual outlay. Several companies believe the level of spending in 2023 was just right, like PepsiCo (-1.7%), Treehouse (+2.8%) and Kellanova (+3.4%), among others whose targets are flat to conservative compared to 2023 actual spending.
Fay isn’t particularly surprised that food & beverage companies still plan to spend, even with the challenges ahead. “We’re in an election year, and across many other sectors there’s going to be a bit of a slowdown, but I don’t think that’s going to impact food manufacturers the same way,” she says. “All indications we are getting is that business in general is going to continue to be good, it’s just that companies don’t like making big decisions when there are big unknowns out there.”
A few processors on our list apparently agree that business will be good, having reported capex budgets for 2024 well above last year’s allocations — and some by quite a bit. General Mills, Mondelēz International, Campbell Soup Co. and Post Holdings are just a few of the larger companies ramping up their capex in 2024, budgeting millions of dollars more than they did in 2023. The larger companies, Fay says, can handle some of the headwinds blowing against spending in the current economic climate.
“With interest rates higher, we’re seeing the larger businesses are the ones announcing and moving forward with projects because they can fund them off their balance sheet,” she says. Any slowdown in new projects could be a blessing in disguise for architecture, engineering and construction firms, as it would ease some of the construction backlog due to supply chain and labor issues.
But the smaller chunk projects haven’t disappeared from processors’ plans. “We’ve seen a lot more of the line addition projects,” Arnold explains. “Also, there are companies that rode the wave when the capital was cheap, and now they’re pausing, stepping back and saying, ‘Well, we made a large capital investment, and we may have not done the right planning ahead of time’; so they’re seeking more of a master plan to improve this new facility.”
As a result, the capex outlook for 2024 remains positive, with interest rates likely to come down slightly, making capital a bit less expensive for processors.
“From a macro, corporate finance perspective, processors will likely be more willing to say a project that was on the margins of ROI now does make sense,” Arnold says. “There are also companies that have just not invested in their facilities for a number of years, for myriad reasons, where it’s been more of a maintenance mode.”
Time will tell, of course, if the upcoming year of capital spending sways more toward a normal period of investment or if processors continue to ease off the gas pedal in response to economic and political uncertainties. One thing is for sure, the exuberance of cheap capital in the first part of the decade has certainly worn off and forced processors to take a more realistic look at how they can advance their operations without outrunning their financial capabilities.
