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Cost cutting at Berry Plastics includes five plant closures

By: Rhoda Miel

November 22, 2013

Berry Plastics Group Inc. is launching a "cost reduction plan" to reduce operating expenses, which will result in five plant closures, but at the same time it is introducing a new product line that is leading to investments at another plant.

The Evansville, Ind.-based packaging company has already announced three sites targeted in the restructuring action: an engineered materials plant in Houston, a flexible packaging operation in Kent, Wash., and a rigid open top plant in Alsip, Ill.

Other locations set to close will be announced in the coming months, said Chairman and CEO Jon Rich during a Nov. 21 conference call.

"Our enhanced focus on driving organic growth and international growth coupled with our progress on operational efficiencies and cost reduction actions pave the way for success for Berry in the future," Rich said.

The company will cut about 200 more jobs as part of the process. The restructuring will align Berry to meet an expected slow economic growth in 2014, he said. It will not affect any deliveries to customers and will not alter the current product offerings.

Altogether, the project will lead to $27 million in annual operating savings when fully implemented. All restructuring is expected to be complete by the end of Berry's 2014 fiscal year.

Berry is committed to investing in growth areas, however, Rich said.

The company is investing $100 million in Madisonville, Ky., to reopen a once-shuttered plastic closures plant to produce the company's new Versalite line of beverage cups.

The cups, made of polypropylene with a proprietary design, are fully recyclable and capable of being used for both hot and cold drinks. One production line – capable of turning out 300 million cups per year – is already in operation producing cups being tested by key customers, including the Subway sandwich chain and a Midwest convenience store.

A second manufacturing line will launch in March while Berry just ordered its third line in September.

"We remain constrained only by our ability to install capacity and ship cups to customers," Rich said.

Berry aims to add one molding line every quarter to ensure it is able to fully meet demand once its customers complete their tests.

"Right now, we are working with as many customers in trials as we have the capacity to do those trials," he said. "There is a queue of people who are waiting for (cups for their own trials). As we expand our capacity, we look forward to expanding our base."

And while Berry is positioning Versalite for cups at this point, it is also seeing the potential to expand its use to other food items.

"We view Versalite as packaging for thermal management, not just a drink cup," Rich said.

Berry has also discussed the potential to bring additional machinery on-line at a faster pace, but Rich declined to discuss any details on those conversations with equipment suppliers.

"I'll let my vendors make a statement on that."

The Madisonville facility is expected to employ more than 400 people at full production, which is three times the number working there when Berry closed it in early 2012.

Berry posted $4.6 billion in total sales for its 2013 fiscal year, which ended in September. That is down 2 percent from $4.7 billion in 2012. All but one of its divisions saw sales drop in 2013. Only the engineered materials group saw a gain, with an additional $35 million – or a 3 percent increase in sales – for its engineered materials group.