Cost-cutting initiatives can be effective in improving food companies’ bottom lines, as long as the cutting involves fat and not too much muscle.
For some of the industry’s largest corporations, cost cutting appears to be slicing into muscle and even scraping bone.
In recent years, several big food companies have slashed expenses to offset sales erosion of core brands, often improving profitability despite lower revenues. An analysis of fiscal 2016 financial filings shows sales continued to decline for eight of the 10 largest food and beverage companies. For three of those firms, gross profitability also declined.
The picture isn’t any brighter when the next tier is considered: 13 of the top 25 companies registered revenue declines in 2016, and eight had reduced profits. Nine of the 13 with sales declines also registered lower revenues in 2015.
Kraft Heinz Company was the top performer, registering both revenue and profit growth. Revenue was up $8.1 billion in 2016, producing gross profits of almost $3 billion on sales of $26.5 billion. In its short history, revenues have more than doubled.
Other bright spots were Fresh Del Monte Produce Inc. and Maple Leaf Foods Inc. Both revenues and profitability improved for Maple Leaf, though 2016 revenues still trailed 2014’s results. Revenues were off marginally to $4 billion at Fresh Del Monte, but gross profitability more than tripled to $225.6 million.
Treehouse Foods Inc. and Cott Corp. registered the worst performances. Private label soft drinks account for most of Cott’s sales, and that category is suffering. Cott registered gross losses of $71.5 million, wiping out 2015’s $20.6 million margin. Sales were up slightly but still down $393.1 million since 2014, to $3.2 billion.
Private-label weakness also hurt Treehouse, which spent 2016 integrating its acquisition of Conagra’s private-label business. Revenues almost doubled to $6.2 billion, but the company reported gross losses of $228.6 million, compared to a $114.9 million profit the prior year.
Companies with both lower revenues and gross profits in 2016 included Archer Daniels Midland Co., Coca-Cola Co., Mondelez International Inc., Campbell Soup Co. and Pilgrim’s Pride Corp.