Food Processing - April 2008 - (Page 25)

AccelerAting economic weAkness and general uncertainty about the direction of the U.S. economy make forecasting capital spending particularly daunting in 2008. However, even with the downward economic trend, 22 of the largest publicly held food companies anticipate a collective 7 percent increase in capital expenditures in 2008. while the majority of food companies are forecasting increased spending, the industry’s recent history of underspending, combined with the specter of a looming recession, makes us worry that actual capital expenditures may be less than what planners have budgeted. in 2007, for instance, nine of the 27 food processors we track spent less than they budgeted. Some cuts were dramatic and clearly tied to the difficult year – tyson Foods is a key example, spending 29 percent less than expected. However, the actual capital spending for 26 major food companies in 2007 was $12.565 billion, up $271 million (about 2 percent) beyond what they had budgeted. Four food industry giants have announced plans to scale back their capex budgets by double digits. the funding at Smithfield Foods – which broke ground in January 2007 on a $200 million joint venture beef plant and has been investing heavily the past three years – is down by 40 percent. Del monte is cutting back 44 percent. molson coors, which trimmed its 2008 budget, explained why: “capital expenditures in 2008 are expected to be lower than 2007 primarily due to the completion of the Shenandoah [Va.] brewery in the U.S. in early 2007 and the initial $90 million purchase of kegs in the U.k. in early 2007,” the company said in its annual report. the molson side of the house completed a $35 million brewery in moncton, new Brunswick, in october 2007. even in the face of rising commodity costs and economic challenges for the broader economy, 15 of our 27 reporting companies project increases, five of them upping the ante by 25 percent or more, including three with increases over 50 percent. Hershey co. – which budgeted $275 million last year but only spent $189 million – is catching up by increasing the capex budget by a staggering 66 percent. “we anticipate capital expenditures of $300-325 million in 2008, of which approximately $150-170 million is associated with our global supply chain transformation program,” the company said in its 2007 annual report. A key element of the 2007 budget (and still being paid off) is construction of a joint venture plant in china. Similarly, tyson budgeted $400 million in its 2007 fiscal year but spent only $285 million. optimistically budgeting $450 million this year, tyson officials note the challenges presented by the rise in commodity costs, which if continued at the current pace, could torpedo the company’s relatively bullish spending forecasts. “we currently believe we’ll experience almost $800 million in increased grain and related input costs in fiscal 2008,” says President/ceo richard Bond. in all, we’ve identified $11.067 billion in budgeted new construction or expansion activities for the current year. while that may look like a decline from the $12.565 billion we reported last year, five companies this year declined to give capital spending outlooks. Using just the same 22 companies for which we have numbers for both years, last year’s figure was $10.330 billion. www.foodprocessing.com April 2008 food processing • 25 http://www.foodprocessing.com

Table of Contents Feed for the Digital Edition of Food Processing - April 2008

Food Processing - April 2008 Contents Editor's Plate NewsBites The Trends Rollout Food Biz Kids Consumer Taste Test - Indulgent, Superpremium Chocolate...at 3 Calories a Pop Cover Story - Annual Capital Spending Report - To Build or Not to Build? Ingredients - Trendy Fruits, Nuts and Vegetables Plant Operations - iPlant: Assessing the State of Automation Plant Operations - Your Sanitation Can Be Greener Packaging - For Which Oven? MRO Q&A New Supplier Products Toops Scoops

Food Processing - April 2008

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