A little thing called tax reform is not only upping the game for overall U.S. manufacturing, but it’s also giving bakery and snack manufacturers reason to smile. The 2017 Tax Cuts and Jobs Act garnered huge support from organizations such as the American Bakers Association (A.B.A.). By lowering the corporate tax rate from 35% to 21%, the new law could not only unleash unprecedented industry growth, but it may also incentivize bakers to make investments where they had been previously reluctant to do so, according to the A.B.A.
That said, don’t expect bakers to throw their money around right away, noted Joanie Spencer, Baking & Snack’s editor, in her February Capital Spending report. Bakers traditionally have been a cautious bunch when it comes to investment. This year, that may change.
On average, according to the survey, bakers generally are dedicating 10% of total annual revenue to capital projects. And 29% of bakers reported an investment R.O.I. cycle of more than three years, a marked improvement from five years ago, when that number sat at just 10%. Additionally, while 29% also reported a one-year cycle, that’s a significant drop from 39% during the same period.
“Five years ago, manufacturers were making more short-term investments,” said Marjorie Hellmer, president, Cypress Research Associates, the Kansas City-based research firm that has monitored industry capital spending trends for more than 15 years. “Now, we see more industry confidence with bakers stretching that expected return to make more long-term investments.”
Today, bakers are showing they’re in it for the long run.
