The new top gun at Ferro Corp. expects the Cleveland firm's plastics unit to continue to boost profit as it has in recent years.
Hector Ortino, who will replace Albert Bersticker as Ferro's chief executive officer Jan. 1, added the firm is looking at potential compounding acquisitions in North America and Europe in 1999.
``Plastics has performed extremely well for us and has become a major profit contributor,'' Ortino said in an Oct. 1 telephone interview from Cleveland. ``We expect the unit to achieve record profit for the third straight year.''
With 17 percent of a $1.4 billion sales total in 1997, plastics was the smallest of Ferro's three operating units, trailing its coatings, colors and ceramics segment and its chemicals business. But the unit stands tall in the North American compounding market, where it's tied for the No. 5 spot overall.
Frost & Sullivan, a Mountain View, Calif.-based consulting firm, gives Ferro 3-4 percent of the $9 billion annual North American compounding market. Ferro also ranks as North America's third-largest maker of filled and reinforced resins, with 9 percent of that market.
Ferro's strength is in polypropylene compounds that are sold into markets ranging from automotive to appliances to consumer goods.
Ortino, a 27-year Ferro veteran, takes the helm while the company is in the midst of a three-year realignment that will close 30 of its 80 global plants and eliminate 1,200 jobs. The company also took a $100 million after-tax charge last year for costs associated with the realignment.
The plastics unit will be largely unaffected by the closings, primarily because it already had been reduced from 30 sites to 15 since 1991. In that time, the company has exited such plastics-related businesses as colorants and advanced composites.
The new, leaner Ferro will be able to cover the market in ``more-efficient ways,'' according to Ortino, and will be more resilient to economic cycles.
Ortino said Ferro also has been able to avoid some of the market pitfalls other compounders and specialty companies have endured this year, as sinking commodity prices have taken their toll.
Ferro has seen its stock price drop about 16 percent this year, while two of its specialty chemicals peers — M.A. Hanna Co. of Cleveland and A. Schulman Inc. of Fairlawn, Ohio — have seen their stock values tumble 54 percent and 39 percent, respectively.
Both Hanna and Schulman also have announced decreased earnings expectations for 1998, while Ferro has not had to take that step.
Ferro's plastics unit has overachieved through two primary areas, Ortino said.
First, the unit has put a detailed productivity program in place to track and increase worker productivity and to improve the company's response time to customers.
Second, Ferro's plastics staff has emphasized high-margin, value-added products such as glass-filled PP compounds and high-concentration masterbatch color compounds.
``We've walked away from low-margin businesses, such as resin coloring, that we're no longer interested in,'' Ortino said. ``We've moved into value-added and away from commodity-type products.''
The internal transition from Bersticker to Ortino should be a smooth one, according to Saul Ludwig, a market analyst who tracks Ferro for McDonald & Co. of Cleveland.
Ortino, 56, joined Ferro as treasurer of Ferro Argentina in 1971. Bersticker, 64, joined Ferro as a research engineer in 1958. In his time with the company, annual sales rose from $56 million to $1.4 billion.
Both men have similar goals and objectives although they have complementary management styles, stemming from Bersticker's experience in technology and marketing and Ortino's in finance and administration, Ludwig said.
Ludwig also credits Ferro officials with implementing successful steps to make its plastics unit ``more vibrant.'' Ferro accomplished this by using its PP compounds to replace ABS in several markets and by streamlining its marketing force to allow for cross-marketing of different product lines to a single buyer, Ludwig said.
For his part, Ortino is looking to capitalize on almost three decades of hard work.
``It's time to put a major emphasis on growing revenues,'' Ortino said. ``I'm not going to change our strategy — I still want to accelerate the growth of our company.''