Crown Cork & Seal Co. Inc., North America's largest blow molder, is closing six PET beverage container manufacturing plants of its Constar subsidiary.
Philadelphia-based Crown Cork, which expects to save $20 million, or 14 cents per share, when the changes are fully implemented, said it is closing the plants to improve the structure of its U.S. PET business.
``While we are pleased with our performance this year in many parts of our global PET container business, especially in Europe, the actions we are taking are required in order to improve conditions in our most challenging sector,'' William Avery, chairman and chief executive officer, said in a news release.
Crown Cork has not released the locations of the plants affected or its timetable for closing them. As of Aug. 13, not all the employees at those plants had not been notified of the impending shutdown. Crown Cork said it will lay off 430 U.S. workers and 130 employees in Europe, representing 1 percent of its work force.
A company spokesman said the targeted plants are six of the smaller ones in the United States and the equipment will be relocated to remaining larger facilities. No plans have been made regarding the land and buildings.
``Crown Cork is making the right decision,'' said Tim Burns, managing director of research at McDonald & Co. Securities Inc. in Cleveland. ``It's a logical move for Crown. It needs every bit of cost savings just to move ahead.''
``There's overcapacity in the industry, at least that's Tim Burns' theory,'' said Shelley Steele, marketing manager for Schmalbach-Lubeca Plastic Containers USA Inc. in Manchester, Mich. ``When someone takes a step back, that's an opportunity for another company,'' she said.
Burns explained that new players as well as companies that blow mold their own bottles are pinching out the traditional old-line suppliers. Crown Cork and Schmalbach-Lubeca, the leading global manufacturers of PET containers, follow the regional model, placing many plants close to independent bottlers to serve the old bottler network.
``They've thrown money at the business and it has been ill-spent,'' Burns said.
With excessive PET resin capacity and commodity beverage companies thinking that the best thing for business is to be different, having the ability to produce new bottles quickly and more often is necessary. Old-line suppliers do not have the tooling to keep up, Burns added. New entries and in-house manufacturers have state-of-the-art facilities dedicated to one customer with blow molding machines having 48-96 molds.
``This is really going to test the old regional model,'' he said. ``Crown Cork and [Schmalbach-Lubeca] have their work set out for them.
``Schmalbach is working to become a `self-make' arm for some big commodity beverage supplier,'' added Burns, referring to the firm's recent move into AquaPenn Spring Water Co.'s plant to produce and supply bottles. ``This puts Crown in an increasingly difficult predicament.''
Shrinking the commodity portion of its business and turning the focus toward custom manufacturing is one way for Crown Cork to stay in the game.
Crown Cork expects to maintain its existing manufacturing capacity and, by relocating equipment among the remaining larger facilities, meet all current and prospective volume requirements. Throughput is expected to improve, providing profitability in the U.S. system.
An aftertax charge of $43.3 million, or 31 cents per share, affecting third-quarter results covers U.S. PET and other, non-PET related restructuring. The firm is allotting $36 million to cover its U.S. PET actions, and intends to use the remaining $7.3 million to restructure non-PET activities in Europe. It provided no details concerning its plans for the non-PET sector.
Following the plant closings, Crown Cork will operate 12 U.S. plants and a total of 25 worldwide. It employs 44,600.