After two leveraged buyouts and more than 10 years of sliding profit, Sweetheart Cup Co. is standing steady. Under new management, the plastics and paper packaging giant recorded profit of $9.4 million for fiscal 1994, ended Sept. 30.
Since William F. McLaughlin took over as president and chief executive officer in May, he has reinvented Sweetheart's business units. The makeover included creating six core customer groups, and cutting roughly 10 percent of Sweet-heart's salaried workers, mostly management, said Roger Cregg, vice president and chief financial officer.
Five of the firm's new business units serve the plastics and paper disposable products markets, making thermoformed and injection molded goods such as cups, plates, cutlery and packaging.
Longer term, the company's restructuring may require slimming its 8,600-strong work force to a trimmer 7,000, according to Dan Carson, vice president and general counsel.
``The business as a whole is overstaffed,'' Carson said in a March 13 telephone interview. ``We probably will end up with a company sized more at 7,000, but there's no plan to chop 1,500 people - that will come out of streamlining. What the exact number will be, nobody will know until it happens.''
McLaughlin spent months studying the business, its strengths and weaknesses, Carson said, before he decided to reorganize it along customer lines. A former vice president for Nestle Foods Corp. of Glendale, Calif., McLaughlin now splits his time between Sweetheart's Chicago headquarters and his home outside Owings Mills, Md. - the site of its 2.3 million-square-foot manufacturing complex and corporate hub for both engineering and customer service. Sweetheart employs more than 2,000 at Owings Mills.
Nine U.S. plants and two in Canada manufacture the firm's full line of paper and plastics disposables, using about 200 million pounds of resins per year, Cregg said March 14. The company extrudes all its own sheet.
In plastics, one of its signature products is a thin-wall expanded polystyrene cup made on a mandrel. Another niche area is its injection molded souvenir cups, for customers that include McDonald's Corp.
Sweetheart's six new customer-based units comprise:
Food-service distribution, the broadest-based group, manufacturing a full range of disposable cups, plates, cutlery and straws sold through companies such as Kraft General Foods Inc. to various end users, such as school cafeterias and retail-store restaurants.
McDonald's, Sweetheart's single-biggest customer and a substantial consumer of the firm's plastics products. The Sun of Baltimore reported March 5that McDonald's business makes up 13 percent of Sweetheart's sales, but Carson said he could not confirm that number.
National accounts that include all other fast-food chains, such as Wendy's and Taco Bell, convenience stores and theaters. The firm's fast-food business reflects the tapering growth of quick-serve outlets in recent years, Carson said.
Ice cream cone customers. Sweetheart's Eat-It-All cones are its biggest and best-known brand.
Lily Cups Inc., based in Scarborough, Ontario, which mainly supplies the food-service and fast-food industries with paper and PS foam plates and cups, plastic lids and meat trays, a relatively new item, Carson said.
Packaging. This segment accounts for about 20 percent of Sweetheart's total sales, according to Joe Lucas, vice president and general manager of the unit-and about half the company's packaging sales are plastics.
Dairy containers for ice cream and cultured products make up a large part of the packaging business. But the company also makes EPS foam labels, mostly for glass soft drink bottles, a market that has been ``precipitous in its decline'' during the past few years because of competition from aluminum cans and PET bottles, Lucas said.
Currently in the works is a thermoformed high density polyethylene six-pack carrier for beverage cans, which, unlike traditional carriers, completely capsthe can tops, providing a sanitary cover from distribution to consumers' homes, Lucas said. A Pepsi bottler in Memphis, Tenn., is test-marketing a 6 million-unit run of the product, which eventually will be sold under Sweetheart's Guardian trade name.
Especially significant, Lucas said, is the firm's headway into thin-wall injection molding of HDPE and polypropylene containers for cultured dairy products, packaging that seven or eight years ago was mostly thermoformed.
The firm also manufactures and leases filling equipment for its dairy packaging, with its market reaching from North to South America and the Caribbean, he said.
Sweetheart's forerunner, Maryland Cup Corp. of Owings Mills, was founded in 1911 as a paper food-service products business. Its recent history includes two LBOs, one by Fort Howard Co. of Green Bay, Wis., in 1983 and another in 1989 by Morgan Stanley Group of New York.
In August 1993, American Industrial Partners Capital Fund of San Francisco took the reins of the troubled firm, as majority stockholder in a $441 million deal. Before it did, Sweetheart, laden with debt, had a negative net worth of about $121.9 million, Cregg said. AIP reduced debt by 40 percent and increased equity with a $100 million cash infusion.
``As a stand-alone business, we were in a loss position from day one,'' he said.
With a goal of going public in three to five years, Sweetheart has committed an average of $40 million annually - $55 million this year - to capital improvements, new products and cost reductions to improve operating efficiencies, Cregg said. Those investments had been neglected for nearly a decade because of the firm's leveraged state.
``There are two things necessary to take a company public: a healthy track record over a period of time and a favorable market,'' Carson said. ``We need to build that track record.''
For now the firm is showing signs of financial recovery, reporting its first profit in years. Parent Sweetheart Holdings Inc., which does not break out sales for its paper or plastics operations, reported 1994 sales of $845.5 million, compared with $828.1 million for the year before, Carson said. And sales for the quarter ended Dec. 31 were $204.9 million compared with $191.2 million a year ago, a 7 percent increase, Carson said.
Since 1989, the firm has kept corporate offices at both Chicago and Owings Mills. It will decide by June whether to maintain the status quo or consolidate at Owings Mills, Chicago or another location.
``Economics is going to play a very large part in the ultimate decision,'' he said.
AIP owns 52 percent of the firm. The remainder is owned, through trustees, by the pension funds of General Motors Corp. and AT&T; and a small number of individuals who own nominal amounts of stock, Carson said.
