The leading 250 - top food and beverage companies of 1995

Prepared Foods, Dec, 1995

The typical year-end merger and acquisition activity will do little to rearrange next year's ranking of the Prepared Foods Leading 250 food and beverage companies.

It may seem to some that 1995 is ending with a flurry of corporate takeovers and asset-swapping. But compared to previous years, 1995 appears destined to end quietly -- unless some blockbuster comes out of nowhere in December (this report was prepared in late November).

The two biggest transactions were in the bakery category. In early November, United Biscuits PLC announced it will sell its Keebler cookie and cracker business, Elmhurst, Ill., to a joint venture of Flowers Industries Inc., Thomasville, Ga., and Invus Group Ltd., the U.S. investment arm of Artal Luxembourg S.A. Later in November, United Biscuits sold Keebler's salty snacks brands, one plant (out of three) and 200 delivery routes to an unnamed group of Chicago investors, and also sold the small Keebler frozen foods business to Windsor Food Co.

The other big bakery transaction of 1995 occurred early in the year when Interstate Bakeries Corp. bought larger Continental Baking from Ralston Purina.

Also in the bakery category, Campbell-Taggart, the country's second largest baker, is being spun off to shareholders by Anheuser-Busch Cos., which also wants to sell its Eagle Snacks business. Also rumored for sale is the Salerno div. of Sunshine Biscuit Inc.

Keebler's cookie and cracker lines accounted for more than $1 billion in sales, according to reports, and were sold to the Flowers joint venture for $500 million. But the transaction will not affect the standing of Flowers, which was No. 39 on our U.S./Canadian chart with 1994 sales of $990 million, because Keebler will be operated as a separate company.

In other 1995 acquisition activity, ConAgra acquired Knott's Berry Farm Foods Inc. and Quaker Oats' Van Camp's canned beans business. The year started with the closing of a number of acquisitions that began in late 1994, including the purchase of Dr Pepper/Seven-Up Cos. by Cadbury Schweppes PLC, Pace Foods by Campbell Soup, and Pet Inc. by Pillsbury.

There has been some significant asset-swapping of late. Kraft sold its baked goods business, including Entenmann's, to CPC International and its margarine lines, including Parkay, to Nabisco. Nabisco sold its Ortega Mexican foods unit to Nestle. And Nabisco ended the year in the financial pages, as investors Carl Icahn and Bennett LeBow were pushing RJR Nabisco to spin off the food company.

BETTER THAN '93

In assessing the performance of the world's food processors for the Leading 250 report in July, it became apparent that U.S. firms had put a painful period of reorganization behind them. Whereas last year's report noted the imperialistic designs of European food companies and the growing prosperity in Latin America, this year's assessment found weakness in those two regions and a growing head of steam in the U.S.

From interviews with officials at food processing companies, the following picture emerges of 1994:

* Overall sales growth in the industry was minimal, increasing 2.7% before inflation, according to the Commerce Dept. But profitability generally was up, aided by a stable economy, low inflation, a weak dollar and more purchasing power in the hands of American consumers.

* Some categories were better than others. International growth was key to improvements at Coca-Cola, Anheuser-Busch and Kellogg, among others. Ample supplies of hogs and cattle and stable prices meant good business at IBP and ConAgra. Poultry remained a steady gainer. Soft drink manufacturers posted healthy gains. Beer sales were flat, with the only gains driven by new products, but brewers managed to remain profitable because of earlier cost-reduction programs.

* Recent efficiency improvements at all levels are beginning to pay off. From downsizing to more prudent use of discounting and promotions to efficient consumer response, food companies are beginning to realize savings from these efforts at lowering the cost of doing business.

So while no one was doing handstands over 1994's performance, it wasn't that bad a year. One quick gauge of how the year went: There were only two firms on this year's Public 65 chart that reported operating losses in '94, and the first was down at No. 51 on the list. Last year's list had six companies with negative profits and 1993's had five.

"1994 was a difficult year; the third in a row," says Caroline Levy, senior vice president and food & beverage analyst at Lehman Brothers Inc. "There was no pricing flexibility, private label was still growing, and ECR was just being tapped into.

"I definitely see improvement in 1995," she continued. "Selectively, companies are raising prices. Costs should look better because of all the restructuring that went on the past two years. And the cost savings of ECR are beginning to show up."

SOME SURPRISE ACQUISITIONS

While 1995 closed quietly, 1994 may be remembered as the year of the medium-sized acquisitions, many of which altered companies' standing on our charts.