Food Processing - August 2009
Top-Line Growth, Bottom-Line Erosion
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ost food and beverage manufacturers were glad to bid farewell and good riddance to 2008. Increases in fuel and commodity prices wreaked havoc on pro t margins during the year. Because of GumsareGood2.eps 6/22/2009 1:23:37 PM general declines in consumer demand, most
manufacturers were not able to pass these increases on in the form of price increases. While in many cases, top line revenues increased, pro ts as a percent of revenue declined almost across the board. As commodity prices increased during the early part of 2008,
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demand declined, which ultimately brought commodity prices down during the latter part of 2008 giving many manufacturers a needed respite. is decrease in commodity prices has continued in 2009 along with sagging demand. If manufacturers can hang on to top line revenue, 2009 might end up being a good year. Generally, food & beverage companies have beaten the market over the past two years, with food companies down approximately 20 percent compared to the broader market being down 38 percent. Although many of the food companies in the survey experienced declines in their gross pro t margins as a result of higher fuel and commodity prices, they fared much better than other industries, with most of the companies remaining pro table in a very tough economic environment. For example, Kraft’s 2008 gross pro t margin was approximately 33.2 percent compared to its ve-year average gross pro t margin of 34.9 percent. Tyson, which is still struggling with higher interest costs, had a gross pro t margin of 4.6 percent compared to an average of 5.6 percent. PepsiCo’s 2008 margin was 52.9 percent compared to its ve-year average of 54.9 percent. Smith eld Foods, which is struggling to stay in the black, had a gross pro t margin of 5.1 percent compared to a ve-year average of 9.9 percent. All of these companies experienced top-line growth and bottom-line declines. e winners for 2008 were those companies that e ectively addressed their internal cost structures and managed their commodity costs. For the companies that were successful in doing so, 2009 should be a very promising year with higher gross pro t margins due to lower commodity and fuel costs. ey should emerge from this economic downturn much more e cient enterprises. ose companies that are not successful in reducing costs or that entered this economic downturn with too much debt on the books may cease to exist or be taken over by more e cient enterprises. Lean manufacturing principles also received a boost in 2008. More than half of all U.S. manufacturing plants have implemented lean principles, according to a survey of U.S. manufacturers. ere is still room for improvement as many countries are not as far along as the U.S. in adopting lean. Most manufacturers are working hard to increase productivity measured by production per employee or sales per employee. By Dexter Manning, National food & beverage industry leader, Grant ornton LLP
FOODPROCESSING.COM
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FOOD PROCESSING AUGUST 2009
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