Food and Beverage Manufacturers: Stuck in Neutral

by:  Rob Veidenheimer | Bob Goldin  

November 13, 2018 

Major food & beverage (F & B) manufacturers have been actively pursuing a number of strategic initiatives to accelerate sales and profit growth.  These initiatives have included portfolio diversification (largely through acquisitions), product and package improvements, geographic and segment expansion, and cost cutting.  Based on a thorough analysis of the year-to-date financial reports of 20 publicly traded F & B manufacturers, it appears their initiatives are not yet achieving their full potential as improved top-line performance is not leading to gross and operating profit growth despite highly favorable input costs.  This is largely due to fairly limited volume gains and rising operating expenses. 

The average F & B manufacturer grew sales by 5.5% vs. a year ago; gross and operating profits were +1.0% and -0.5%, respectively.  90% of the studied companies had sales growth, 55% had gross profit and volume growth, 30% had operating profit growth and only 25% had growth in all four metrics.

As shown in Exhibit 2, acquisitions were responsible for 64% of the sales growth, amounting to 3.5 points*.  Organic volume growth, excluding the impact of acquisitions, accounted for only 9% of the sales increase and grew at a relatively anemic +0.5 points. The balance of the growth was due to price/mix improvements (1.5 points, or 27% of the growth).  The larger public food and beverage companies clearly continue to struggle as smaller competitors, often with more consumer-relevant offerings, gain share.

In light of rising labor and transportation costs and trade wars, we expect cost pressures on F & B manufacturers to intensify.  This indicates that even greater focus on demand creation and volume growth are imperative as these are the keys to sustainable profit improvement.

*Major acquisitions completed in the studied period include Campbell Soup’s purchases of Snyder Lance and Pacific, Post’s purchase of Bob Evans Foods, Smucker’s purchase of Ainsworth, General Mills’ purchase of Blue Buffalo, Hershey’s purchase of Amplify Snack Brands, and McCormick’s purchase of French’s.

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