CHICAGO - Among injection molders, the gap between rich and poor seems to be thinning as quickly as a high-technology stock portfolio.
Large firms - those with sales of at least $75 million annually - took advantage of the go-go economy of the late 1990s to amass greater wealth through acquisitions, said Brian Tartell, managing director of Wyomissing, Pa.-based PenResearch Group Inc.
But with the downturn have come changes: Midsize and smaller molders could start lapping their Goliath-size counterparts in profit and sales growth. Custom molders, sometimes maligned for their size and vulnerability, stand to prosper, Tartell said.
``Size sometimes still matters, especially in the case of overhead expenses,'' Tartell said. ``But while larger companies have shown significant sales increases in the past, we're not as optimistic as we were before [about their growth prospects].''
PenResearch's annual survey, based on financial results from 42 injection molding companies, provides a benchmark for molding companies of staggered sizes. This year's results hinted that the heady growth-years for large companies could wane.
Large companies recorded sales growth of close to 16 percent last year. But for 2001, projected growth is only 2.9 percent, because of a shrinking acquisition market and a slowing economy, Tartell said at the 2001 Injection Molding Financial Symposium in Chicago.
Yet, small companies with less than $10 million in annual sales are expected to grow 9.2 percent in 2001, Tartell said. And profit margins for smaller firms are projected at a median of 11.2 percent this year; large companies are expected to record only an 8.1 percent margin.
That reverses a rising trend for large companies, which recorded a margin of 15.8 percent in 2000, Tartell said.
``Large companies grew by mergers and acquisitions,'' Tartell said. ``We've established that growth will go down. And we think those projections are optimistic.''
What makes a company profitable? According to the study, the healthiest molders have profit margins of 13-22.6 percent, after deducting bonuses, interest, taxes, depreciation and amortization. About 80 percent of them provide value-added services outside of molding, and about 60 percent offer a proprietary product.
The hot sectors they serve include automotive products, where about half of the most profitable 10 firms have major business; medical and pharmaceutical items; and industrial goods.
Sectors that fare the poorest in profit margins include lawn and garden products, electrical/electronic products, and some industrial and automotive goods. In the case of automotive products, results were split about evenly between those molders who think it is a profitable area and those who do not.
``It's a love-hate relationship,'' Tartell said. ``Either you do very well in automotive or you're getting your lunch eaten.''
The study also looked at benchmarks for company expenses and turnover. For the latter, large companies fared better: Voluntary turnover rates in 2000 were at a median of 23.8 percent, compared with 28.1 percent for small companies.
But those large companies also laid off about 2.2 percent of their work forces last year, while few employees at midsize or smaller companies faced similar downsizing.
Median overhead expenses at both large and small companies accounted for about 7 percent of gross sales, while midsize companies recorded 8.6 percent in overhead costs. Last year, that figure for all molders was a little more than 9 percent.
One troubling sign for smaller companies was the amount of assets on-hand in the form of cash, inventory and intangible items. For large companies, assets accounted for about 70 percent of gross sales. The percentage for small and midsize companies was about 45 percent.
``Small companies have a significantly smaller asset base,'' Tartell said. ``The equity of those companies is relatively low. But they are also not as laden with debt.''
While the news is relatively good for molders, some custom shops are prospering in a sputtering economy. EnviroTech Molded Products of Salt Lake City has carved out a prosperous niche molding large, thick products for such areas as plastic industrial drums and filter plates, said Chief Financial Officer Tim Peel.
The company walks the line between proprietary products, accounting for about 45 percent of its business, and custom products, Peel said at the symposium.
The keys to remaining a profitable custom molder include developing strong partnerships and marketing channels, Peel said. The death of custom molders has been greatly exaggerated, he said.
``I don't see us going away,'' Peel said. ``There still is a market for custom molding in the United States, and we plan to be part of it.''