CINCINNATI — The North American market for plastics machinery has fallen, and it may take some time get back up, Milacron Inc. executives told shareholders and financial analysts recently.
Meanwhile, Milacron and some other companies are cutting back U.S. plastics equipment production through layoffs and furloughs.
"There was a steep falloff in capital equipment spending that hit all three areas of injection, extrusion and blow molding," said Daniel J. Meyer, chairman and chief executive officer of the Cincinnati-based company.
Demand began falling in the second half of 2000. This year has started out rough, said Harold Faig, group vice president of plastics technologies. Faig said the North American market for plastics machinery plunged 50-60 percent in the first quarter of 2001, compared with the same period last year.
"We haven't seen this kind of a downturn since 1991," Faig told analysts in a conference call explaining first-quarter results. "It's been a run of almost nine years of consecutive growth, and it's certainly now caught up with us."
Plastics machinery and related products, such as screws and mold bases, accounted for 55 percent of Milacron's 2000 sales of $1.58 billion. The rest comes from products used in metalworking.
Speaking to shareholders at the April 24 annual meeting, Milacron President and Chief Operating Officer Ronald Brown cited a "sharp recession" facing U.S. manufacturing. Capacity utilization has dropped under 80 percent, so companies have idle machinery.
Brown noted that stock market gyrations grab headlines.
"But in the industrial or manufacturing sectors of the economy, particularly capital goods, you may not fully appreciate how severe the declines have been. ... Most of the slowdown has been right here in North America, our largest market," he told shareholders in Cincinnati.
He added that European business has held up.
Although a 50-60 percent drop means the overall market is bleak, Faig maintained that Milacron's plastics-related sales only fell 15-20 percent in the first quarter for North America. That means Milacron is gaining market share, he said.
Milacron released its numbers for the first quarter of 2001 a few days before the shareholders meeting. The company's total worldwide sales for plastics machinery declined 18.5 percent, to $177.2 million, from $217.6 million in the first quarter of 2000.
All-electric presses have helped offset the downturn. Milacron officials say sales of all-electric injection molding machines have doubled and now account for about half of all injection presses the company sells.
"Every new order today is asking for quotes on the electric machines," Faig said.
Even with that bright spot, the slump caught Milacron with too much inventory, according to Brown. The company has been forced to cut production quickly, mainly through layoffs and furloughs in its plastics machinery units.
In 2000, Milacron laid off 400 mostly white-collar employees. Early this year, that was followed by cutting 300 factory workers — including 115 from plastics machinery plants in Ohio and Michigan.
Brown told shareholders Milacron wants to trim payroll costs by $16 million this year and cut another $16 million in nonpayroll costs.
Now, instead of more layoffs, Milacron is doing staggered furloughs at its North American plastics operations. That means factories stay open, but some employees are told to take a week off while they receive unemployment compensation. Management has taken a corresponding pay cut.
Faig said Milacron is starting its second round of furloughs right now. If business doesn't pick up, Faig said "there's a good possibility" that the furloughs will continue later this year.
Milacron is not alone in adjusting its work force. This month, Van Dorn Demag Corp. enacted one-week shutdowns at its headquarters plant in Strongsville, Ohio, and at two machining plants in South Carolina. President William G. Pryor said the injection press builder also laid off 30 hourly and salaried workers earlier this year.
Faig said the downturn is hitting all sectors of machinery, not just injection molding presses.
HPM Corp. also has laid off employees in Mount Gilead, Ohio, where it makes injection presses, extruders and die-casting machines.
Three extruder makers contacted last week by Plastics News also said they have laid off employees. Officials at several other machinery makers say they have not had any layoffs. Several companies did not return telephone calls. Ronald Brown, who will move up to become Milacron's chairman and chief executive officer June 1, when Meyer retires, called 2000 a "challenging and successful year."
For all of 2000, Milacron's Plastics Technologies Group reported sales of $874 million, a decline of 3.4 percent from $904.2 million in 1999. The decrease came from the sale of its extruder operation in Vienna, Austria, to SMS AG of Germany — a deal announced in December 1999. Milacron also made one acquisition in 2000, buying the much smaller Akron Extruders Inc.
After excluding acquisitions and divestitures, 2000 sales actually increased by 3 percent for the plastics group, based in Batavia, Ohio. Orders fell by 1 percent.
Global currency rates also reduced the group's reported sales and orders.
Plastics Technologies reported 2000 operating profit of $97 million, an 8.6 percent gain over the 1999 figure of $89.3 million.
Despite the second-half slowdown, for the full year of 2000, Milacron's North American injection press business grew by 8 percent, compared with just 3 percent for the overall market, Faig said.
Milacron is predicting the Plastics Technologies Group will generate 2001 sales between $750 million and $775 million.
During the slow period, Brown wants to make improvements to reduce cycle times and boost cash flow. Milacron will implement Six Sigma and lean manufacturing programs at its factories.
Brown had no crystal-ball forecasts to give shareholders.
"While a turnaround could come as quickly as the third quarter, it could be delayed until next year. We can't control the economy, but we can control how we run our business," he said.