It is a fact that China and India’s appetite for commodities over the last years has pushed up the prices of farm raw materials in a spectacular way. As a consequence, food prices have risen significantly which has benefitted the agrifood industry. As some costs keep on increasing and the American and European economies remain sluggish, agrifood companies will need to find ways to keep increasing sales and maintain their profit margins.
I will take a look at three major food producers in order to evaluate their performance.
Great expectations on emerging markets and new products
Through its most popular brands,General Mills, Inc. (NYSE:GIS) holds a significant market share in different growing food categories.
The company posted good results for its fourth quarter. Net sales reached $4.4 billion, increasing 8% year-over-year boosted by volume growth. However, changes in the business mix made underlying gross margins to decline from 37.2% to 34.8%. Overall, fiscal 2013 has been a good year for General Mills, Inc. (NYSE:GIS), with positive increases in net sales (7%), operating profits (6%) and net earnings (18%).
Management plans to enlarge the company’s position in the U.S. through innovation and diversification. Results support the company’s plans, since an extra $1 billion turnover over the past 20 months is explained by new product launches.
General Mills, Inc. (NYSE:GIS) is aiming to boost its international sales as well, focusing on Brazil, Russia, India and China. The turnover in China for fiscal 2013 will be $600 million, and it is expected to reach $900 million by 2015. Presence in India remains small still, but is growing: sales are forecasted to reach $70 million in fiscal 2013.
The company is poised to establish a stronger presence in international markets, and spent $898 million this fiscal year acquiring Yoki Alimentos (Brazil), Yoplait International, Parampara Foods (India), and Immaculate Baking (U.S.). Latin America is a key region for the company, as it will mean a raise of $1 billion in sales for fiscal 2013 through Yoki and will duplicate the preview year’s turnover.
In order to achieve projected earnings, however, the company must reduce its expenses. An ongoing ten-year program that started in 2010 aims to cut $3 billion in costs.
Buffet’s eye does not miss
The company has recently been acquired byBerkshire Hathaway Inc. (NYSE:BRK.A) (the Warren Buffett-led investment group) and 3G Capital Inc. for $28 billion. This shows that there is substantial value in this business. In fact, H.J. Heinz Company (NYSE:HNZ)’s most iconic product (its ketchup) posted a $5 billion turnover, an 8% year-on-year growth in fiscal 2012.
As we know, growing does not always mean top line growth. In order to gain productivity and reduce costs, H.J. Heinz Company (NYSE:HNZ) had to undertake major reforms. Figures speak for themselves: 11 factories were shut down, the workforce was reduced by 3,300 jobs, and inventory levels were brought down to 11%. These initiatives saved pre-tax costs for $224 million in fiscal 2012.
