Cap Spending looks good for 2013

by Dan Malovany
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While capital spending strengthened during the past three years, the industry as a whole is still looking for that big breakout year, according to Marjorie Troxel Hellmer, president of Kansas City, MO-based Cypress Research Associates, which conducted Baking & Snack’s 20th Annual Capital Spending Survey.

In many ways, baking and snack companies are like sprinters stuck in the starting block waiting for the gun to fire. Or, as Ms. Troxel Hellmer described, they’re like a predator perched and eyeing its prey. They’re primed and ready, but in the end, signs always seem to pop up that keep them from making the ultimate leap.

“They’re like the animal that is crouched down, ready to pounce but hasn’t leaped yet,” she said. “We’ve been in that posture as an industry for years. We keep thinking [the economy] is going to break out six months from now, but it remains stalled. These companies are ready to get out of that crouching position, but they keep on waiting for external signs of safety.”

From a macro perspective, those conditions include high unemployment rates, slow economic recovery, political uncertainty and, most recently, the dreaded fiscal cliff. Uncertainly in tax rates, tax incentives, the overall outlook for the country and even the prospects for the global economy, Ms. Troxel Hellmer noted, make it difficult for cautious executives to take a long-term approach to their businesses and capital spending practices.

Closer to home, food companies continue to face higher commodity costs and pricing pressures. As a result, it’s not surprising that 70% of those surveyed reported their businesses as “financially sound, but profits have taken a hit” during the past year. Only 20% stated they were “firmly in the black and seeing no ill effects” from the economy, while 10% cited “unstable conditions and turbulent profits.”

Although many executives expressed concern about economy, they’re much more bullish about the baking industry. For the third year in a row, nearly 90% of the survey’s respondents described the outlook for the industry as positive, but there was an undercurrent to their responses. “Everyone knows they’d rather be in the baking industry than the banking industry,” Ms. Troxel Hellmer explained. “There is a lot of caution under this positive outlook, but it is positive. No doubt about that.”

The survey’s results also signaled a growing confidence in 2013, especially in companies’ abilities to manage their businesses and futures, even though there are many factors they cannot control.

“Successful companies have already made the necessary adjustments to weather the difficult economy and to absorb the commodity pressures,” she said. “Once these executives talk about their company’s standing, they indicate they’re doing pretty well, even if the economy may not be doing well.” 

For more on our exclusive survey, check out the February issue of Baking & Snack magazine.

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