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P&M report: Processors see financial pickup

By: Jennifer Kalish

October 25, 2013

INDIANAPOLIS — Sales and profits are on the rise for most North American processors, according to a fall 2013 survey of the plastics processors industry from Plante & Moran PLLC.

"[Press] utilization is inching up and profits are up — that is giving discipline to the industry," said Jeff Mengel, a report author and partner with Plante & Moran in Chicago. "In the 2000s, that first decade, there were a lot of undisciplined quoters out there, and you got some really silly quotes where they would quote things below cost just to keep their machines busy. We're not seeing that anymore."

The report includes 2011-12 data — with some data reaching into 2013 — from 84 companies representing 131 facilities across the U.S., Mexico and Canada. P&M shared the report at this year's MAPP Benchmarking and Best Practices Conference, held Oct. 17-18 in Indianapolis. The Manufacturers Association for Plastics Processors is based in Indianapolis.

An in-depth benchmarking survey, the North American Plastics Industry Study focuses on plastics processors including injection molders, blow molders, thermoformers, compression molders and extrusion companies.

Survey participants were broken into four quartiles by annual sales: Less than $12.8 million in sales, $12.8 million to just under $20 million, $20 million to just under $29.8 million, and $29.8 million and above.

The upper and lower quartiles are expected to grow by 1-15 percent in the next three years, while the second and third quartiles are expected to grow 16-35 percent and 36-50 percent, respectively, according to the summary report.

For most of the participants, the report showed a healthy growth of more than 15 percent in EBITDA, or earnings before interest, taxes, depreciation and amortization, compared to prior years. Still, about 25 percent of participants lost ground, the report said.

When presenting the survey results at this year's conference, Mengel focused largely on how the great recession of 2008 and 2009 forced companies to do more with less, resulting in a more efficient industry.

"We're seeing more discipline in quoting, we're seeing more discipline in customer selection and parts selection, and we're seeing more discipline in which customers and employees to retain," Mengel said.

Part of that discipline means choosing the right level of complexity, defined as resins times molds times presses, he said.

"Complexity is a strategic choice: how complex you want to have your environment, how many customers, what size runs you have," he said at the conference. "If you make it a strategic choice, a high complexity or a low complexity could be used to your advantage. If you make it a default based upon whatever the customers give me, that becomes the default number, that's a problem. I think those companies struggle."

As sales continue to grow steadily for average processors, median complexity levels are decreasing, allowing companies to become more and more discriminatory with customer contracts, the report said.

"The smaller companies are getting a little bit larger and are up to $20 million [in annual sales], vs. the $15 million it was in 2009," Mengel said.

Additionally, personnel turn¬over is hovering at a low level of around 22.8 percent, likely due to the increase in wages and the greater use of automation.

Labor productivity — as measured by value-add, or sales less material and outside processing, divided by total full-time equivalents — also jumped in 2012, according to the report.

In his presentation, Mengel stressed that a highly successful company must be able to define its value to customers and differentiate itself from the competition.

"The successful companies have done a great job of defining who they are and why they should be paid what they're getting paid from their customers," he said in an interview. "So they're not better manufacturers, they just have better businesses, they have better articulation of their value and they are getting the higher contract."

In the report, a highly successful company must have a 10 percent return on operating income, a 15 percent return on assets and 5 percent annual growth. In the past few years, fewer than 8 percent of survey participants have met this threshold, P&M said. For this survey, however, the number of highly successful companies has doubled.

The best way for a company to ensure success, Mengel said, is to keep an eye on its competitors.

"Most of these companies never see anyone else's data — they don't know where they stand," he said. "The industry changes are going on outside our four walls, and we don't really monitor how our competitors are improving. That's why it's necessary to really understand whether you have a differentiation, whether you have a uniqueness; it's important to benchmark that so you can prioritize where you want to improve."

The North American Plastics Industry Study is released on a biannual basis. Processors interested in participating can download the survey online. To buy a copy of the report, see www.mappinc.com.