Pasta perspective

by Meyer Sosland
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Editors note: This article originally appeared in the July 31 issue of World Grain sister publication Milling & Baking News.

Hit hard by the low-carbohydrate diet craze of the early 2000s, the pasta industry continues to claw back to regain its prominent position in grain-based foods. Signs of pasta confidence are evident in various forms, ranging from the expansion at Barilla in the United States to the stepped-up acquisition pace of Ebro Puleva.

In the 52-week period ended June 17, dollar sales of dry spaghetti/macaroni/ pasta (no noodles) topped $1 billion, according to Information Resources, Inc., Chicago. At $1,092,144,000, pasta sales were up 2% on a dollar basis, yearover-year, while unit volume sales, at 1,053,684,000, fell about 2%.

Although category leader New World Pasta experienced a 3% decline in dollar sales during the period, other ranking manufacturers, including Barilla G.R. F.lli, Molino e Pastif/De Cecco and Dakota Growers Pasta Co., showed improvement.

Pasta closing in on rice
Perhaps no pasta maker has been more active in the past year than Ebro Puleva, the Madrid, Spain-based owner of New World Pasta, Harrisburg, Pa.

The world’s largest rice producer and second-largest pasta maker, Ebro in June 2006 acquired New World Pasta in a $362.5 million transaction. A little over a year later, New World has been incorporated into Ebro’s "Strategic Plan 2007-09," an initiative that has seen Ebro boost its global presence in the pasta market even further.

In mid-July, Ebro reached agreement to acquire Birkel Teigwaren Gmbh for €30 million ($41.4 million). Birkel is Germany’s largest pasta manufacturer with approximately 18% market share. In addition, the company has a presence in the sauces sector.

In the year ended September 2006, Birkel had sales of €90 million and EBITDA of €4.3 million.

The purchase of Birkel is the third international transaction made within Ebro Puleva’s "Strategic Plan 2007-09" and the fourth transaction in the pasta segment in less than two years. In addition to New World Pasta’s operations in the United States, Ebro also has acquired New World’s Canadian operations as well as Panzini in France.

The addition of the pasta businesses has been a boon for Ebro. On July 23, Ebro reported that pasta operating profit for the first half of fiscal 2007 totaled €32,370,000, up 14% from €28,367,000 in the first half of fiscal 2006. Net sales in the pasta business for the first half rose 44% to €347,178,000.

"The division achieved considerable growth in sales and contribution, although results were curtailed by the price hike in raw materials and the heavy investment in advertising," Ebro said. New World Pasta contributed €117,300,000 to sales and €18,600,000 to EBITDA during the first half, the company said.

"New World Pasta has embarked on a process of renovation and innovation, with the presentation of SmartTaste," Ebro said. "The second half of the year is going to be very rich in new products."

SmartTaste, set to begin shipping in August, is a white pasta with three times the fiber and the same amount of calcium as a glass of milk.

Barilla makes headway on expansion

A little more than a year after announcing it would build a new pastamaking facility in Avon, N.Y., Barilla America, Inc., Bannockburn, Ill., recently wrapped up first-phase construction on the plant. Barilla, along with Des Moines, Iowa-based Jacobson Warehouse Co., Inc., have invested $75 million in the facility, with plans to spend an additional $28 million in future expansions.

The plant, Barilla’s second in the United States, will serve the northeastern portion of the country, which accounts for nearly 40% of Barilla’s U.S. sales. The company’s other pasta facility is located at Ames, Iowa. The latter site, which opened in 1998 at a cost of $135 million, includes a durum mill with daily milling capacity of 6,800 cwts. With the Avon plant up and running and handling most of the company’s mainstream products for the East, the Ames site is expected to handle all of Barilla’s specialty pasta production, the company said.

Although the Avon facility is equipped to handle four production lines, Barilla has installed only two lines capable of producing as much as 50,000 tons of pasta per year. The plant and its accompanying warehouse will employ close to 120 once the other two processing plants are ready, which is expected to occur by late June 2009, Barilla said.

In addition to its location near the hub of Barilla’s customer base, the pasta maker said it chose the Avon site because of convenient access to railroads and major highways.

In the 52 weeks ended June 17, Barilla branded pasta ranked as the No. 1 brand in the dry spaghetti/macaroni/ pasta (no noodles) category, with sales of $224,798,100. The company’s Barilla Plus product showed exceptional growth in the period, rising 29% on a dollar sales basis to $39,282,640, according to I.R.I.

Financials finally taking shape at AIPC
When Kansas City-based American Italian Pasta Co. agreed to an amendment to its credit facility giving the company until Dec. 31, 2007, to file fiscal 2005 and fiscal 2006 financial statements, chief executive officer Jim Fogarty said it signaled "the strength of our business and our solid relationship with our lenders."

Mr. Fogarty said the company used a portion of its excess liquidity to retire $10 million of debt, reducing gross debt to $244.3 million from $254.3 million. Following the debt retirement, AIPC has liquidity resources of $43 million and outstanding debt net of cash of $229 million.

Some of that strength Mr. Fogarty referred to was reflected in an update on certain financials for the first half of fiscal 2007. Net revenues in the sixmonth period ended March 30 totaled $190.5 million, up 3% from $185.2 million in the first half of fiscal 2006.

Overall volume decreased 0.8% in the first half, compared with the first half of fiscal 2006.

AIPC’s focus on straightening out its financials has not meant neglect of marketing and innovation.

In late May, the company reintroduced its Mueller’s, Heartland and Golden Grain multi grain pasta lines under a whole grain banner, a move the company hopes will help consumers more easily identify better-for-you pasta products.

"While the benefit of including more whole grains into our diets is undisputable, consumers have been bombarded with ‘health’ oriented offerings — creating the potential for some to believe that all better-for-you pastas include whole grains, which is not the case," said Drew Lericos, vice-president of marketing at AIPC. "The bottom line is: not all better-for-you pastas are created equal. Mueller’s, Heartland and Golden Grain Whole Grain Pastas provide 48 grams of whole grains in just one 2-oz serving, providing the exact amount that the U.S.D.A. recommends consumers eat each day."

Earlier, the company attempted to spruce up its dry pasta brands for food service customers by introducing Ravarino & Freschi (R&F), Heartland Pasta, and Montalcino Pasta.

R&F, a St. Louis pasta brand, will serve as AIPC’s marquee line of authentic Italian-style pasta for food service. The R&F brand has more than 40 traditional pasta shapes and sizes, which complement a range of sauces and culinary applications.

Heartland Pasta, already offered at retail, comes in four nutritionally enhanced varieties: Heartland Whole Wheat, Heartland Whole Grain, Heartland Naturals (organic) and Heartland Plus with ALA Omega-3. The Montalcino Pasta is being extended to AIPC’s value-oriented food service customers.

Upward tick at Dakota Growers

Higher pasta per unit selling prices and higher pasta sales volumes continue to buoy financials at Dakota Growers Pasta Co., Inc. The Carrington, N.D.-based company experienced a dollar sales gain of nearly 6% for its dry spaghetti/macaroni/pasta (no noodles) in the 52-week period ended June 17, according to I.R.I.

For the first nine months of fiscal 2007, net income was $4,160,000, or 32c per share, up sharply from $2,053,000, or 16c per share, in the same period a year ago. Revenues for the nine months were $142,190,000, up 11% from $128,530,000.

The company continues to point to rising durum prices as adversely affecting results, but has been able to successfully implement sales price increases to offset the higher durum cost.

"However, the company is uncertain whether it will be able to pass through higher durum or other input costs on a timely basis in the future," Dakota Growers said in a June 15 filing with the Securities and Exchange Commission. "Higher mill byproduct sales prices in fiscal 2007 have helped to offset the negative impact of higher durum costs."

In May, Dakota Growers successfully closed on the sale of shares of its stock and received $20 million in loan proceeds under a term loan agreement. The actions generated $38.8 million for Dakota Growers, which the company said it would use to purchase 3,920,000 shares of its common stock.

Under terms of its tender offer, Dakota Growers Pasta said it will follow a prioritized action list for purchasing shares, beginning with buying all tendered shares from shareholders that own less than 1,000 shares. Second, the company will buy the greater of 1,000 shares of common stock or 29.8% of a tendering shareholders’ total ownership. Finally, the company will purchase shares on a pro rata basis.