Look at the financials for publicly traded plastics processors, and it's hard to avoid thinking that the industry has hit a recession.
During the first quarter of 2001, there were enough examples of profit either thinning or in the red to make Alan Greenspan head for the aspirin cabinet. Especially compared with the first quarter of 2000, processors experienced incredible shrinking earnings. The problems seemed to affect most markets.
For automotive supplier Donnelly Corp. of Holland, Mich., the sudden downturn started in November, when carmakers put the brakes on many projects slated for production. The news still has not gotten much better, said Chief Financial Officer Kevin Brown.
``We felt the pain immediately,'' Brown said. ``We had a lot of downtime, a leaner mix of products, short-term changes to production and more absorption of fixed costs. It was a tale of two halves from the first half of 2000 to the second, and we're just starting to gain perspective on it.''
The auto industry was not the only end market mired in a slump. The electronics and telecommunications industries, where many end users faced cutbacks due to overcapacity, have found some molders' profit estimates running into brick walls.
For consumer goods, Chicago-based Home Products International Inc. saw its sales and profit plummet as retail customers consolidated. Packaging company PVC Container Corp. saw its numbers drop as some signs of recession appeared.
And industrial goods producers Rotonics Manufacturing Inc., a custom rotational molder based in Gardena, Calif., witnessed a 24 percent sales drop during the first quarter of 2001 from the same period a year ago. The firm expects that picture to continue through the year, said Sherman McKinniss, president and chief executive officer.
``I'd say we've been in a recession for six months,'' McKinniss said. ``Most people don't want to use that word. We can't play ostrich and put our heads in the sand about it.''
Of course, that is not how it is for everyone: Merit Medical Systems Inc. of South Jordan, Utah, ran record sales and profit up its flagpole in the most recent quarter, and Minneapolis-based packaging giant Bemis Co. Inc. found rising sales and profit.
Taken as a whole, the U.S. economy continues to grow, albeit very slowly.
But among manufacturers, it is a bear. Overall U.S. industrial production has declined for eight consecutive months, and many economists consider the U.S. manufacturing sector in a recession.
The question is - is the plastics processing industry also in a recession?
``I would say absolutely. Without question,'' said Robert Shrouds, corporate economist with DuPont. He gave a presentation on the industry's economic picture at a recent meeting of the Washington-based Society of the Plastics Industry Inc.
As evidence, he said the processing segment's production has been declining since late last year and will remain down until next year. Figures from the Federal Reserve Board say plastics processing capacity utilization nose-dived from 84.8 percent in July 2000 to 77.9 percent in May, a drop that closely parallels what happened during the recession in the early 1990s.
The entire year should bring few glad tidings, according to figures from Livingston, N.J.-based financing firm CIT Group Inc. Its annual Plastics Outlook was presented July 19 during Plastics Encounter, a conference and trade show in Cleveland sponsored by Plastics News.
Real shipments of processed plastic parts are expected to decline by at least 3.5 percent, to $134.6 billion, in 2001. That slump is the first for processors since the 1991 recession, and it could get worse. Shipments could drop as much as 7 percent if the industry experiences more-severe recessionary conditions, said Michael Paslawskyj, CIT director of economic research.
The odds are about even on the plastics industry facing a recession during the next six to nine months, Paslawskyj said. Even if that happens, the recession should be mild and short, he said.
``I'm betting that some will avoid it and continue expanding,'' Paslawskyj said. ``But we've had a slowdown in growth [for processors] since the third quarter of last year.''
The Federal Reserve Board's interest cuts, consumer tax rebates, a strong housing market and the fact that inventories already have corrected sharply all figure into the case for ongoing growth, he said. In 2002 the market should brighten considerably, with processors' shipments jumping as much as 20 percent, he added.
Other experts are equally cautious about 2001. Shrouds thinks the processing sector will hit bottom in the middle of this year, contracting about 4 percent, and then slowly improve through the rest of the year and start growing again in early 2002. The automotive segment already is showing some signs of picking up, he said.
``We think the old economy has hit bottom, like the auto industry,'' Shrouds said. ``But the high-tech sector, telecom and computers, are still falling.''
Donald Duncan, president of Washington-based SPI, resisted calling the current slowdown a recession, but he said the industry is in a worst-case scenario downturn: Sales are down, price pressure from customers remains strong, resin prices remain high and energy costs have skyrocketed.
``What you have then is a really serious situation, perhaps more serious than what you have in more traditional economic downturns,'' Duncan said. ``You have this tremendous pressure on cost from the bottom line while you have the softening demand from the top.''
When will the economy start to pick up? The answer depends on who you ask. Processors selling mass-market consumer goods to retailers are reporting trouble.
In the first quarter of 2001, Home Products International's sales dropped almost 6 percent to $64.1 million, while its losses mounted to more than $4 million. One of the company's key customers, retailer Bradlees Inc., filed for bankruptcy. HPI warned that others could follow.
The firm hopes a restructuring, including closing its Leominster, Mass., plant, will return it to profitability. But Chief Executive Officer James Tennant declined to predict when the losses would stop.
Avon, Mass.-based First Years Inc. still is profitable, but both sales and profit dropped in the most recent quarter, mainly because retailers are taking a very cautious approach, the firm said.
The packaging sector is a mixed bag, with some companies reporting much tougher markets and others, like those in food packaging, saying that demand continues to be strong.
PVC Container is in the midst of shifting production between plants to beef up its utilization. The company's sales fell 9 percent in the first three months of 2001, compared with the same period a year earlier, but it turned a small profit, unlike the loss in 2000.
``I wouldn't say we are in a full recession, but there are some signs,'' said Phil Friedman, president and chief executive officer for the Eatontown, N.J.-based company. There are ``some of the things you would normally see in a recession, like a lot of pressure on margins,'' he said.
Other packaging companies, including Silgan Holdings Inc.'s plastic bottle unit, reported positive results. Even without added sales from acquisitions, the company reported sales up 10.1 percent, or $8.6 million, in the first three months of the year.
Packaging firms said they are finding problems in industrial packaging, not in consumer goods.
``Historically, the food industry has been seen as recession-proof,'' said Melanie Miller, director of investor relations at Bemis Co. Inc. in Minneapolis. ``The weakness is in products that serve the industrial markets.''
Bemis reported first-quarter sales of $577 million, up from $512 million a year ago. Profit rose slightly, to $29.7 million. The company makes film for food packaging and pressure-sensitive products, such as warning labels in the industrial market.
``If you get out towards the consumer end, it's not growing as much as it was, but it's still positive,'' Shrouds said. ``But if you get back to the back end, things are ugly.''
Mixed signals also were found for processors serving the housing market. Domco Tarkett Inc., a maker of vinyl flooring based in Farnham, Quebec, recorded sales increases but sharp declines in profit during the first quarter, compared to the same period a year ago. Much of the slowdown came from the residential side of its business, said Domco Tarkett President and CEO Ulf Mattsson.
``It looks like it's growing, and then it drops again,'' Mattsson said. ``There's so much consumer uncertainty that it's hard to predict what's going to happen and to know where we are going.''
CPI Plastics Group Ltd. recorded a 3 percent sales increase and flat but steady profit for the first quarter of 2001, compared to a year ago. That company's plastic decking products, fairly new on the market, contributed to the rise, said CFO Daniel Ardila. Other industrial and automotive products have declined, though.
``Every month, we see some turnaround in categories,'' Ardila said. ``It's a bit of a guessing game, but our eyes are focused.''
Omnova Solutions Inc. recorded a bumpy ride for the first six months of 2001. Its plastics products - including commercial wall coverings, coated fabrics and decorative laminates - declined slightly in sales. Yet, sales of its PVC and thermoplastic olefin roofing membranes rose.
But with several home-products retailers going bankrupt and building occupancy rates decreasing, the firm recorded a loss of $14.3 million for the first six months of the year. However, the company expects moderate growth in the last half of 2001, said Michael Hicks, chief financial officer of the Fairlawn, Ohio-based firm.
``We're looking to hit our sweet spots for growth,'' Hick said.
Across the board, work seems to be slightly off-kilter.
Myers Industries Inc., a custom processor in Akron, Ohio, that serves consumer and industrial markets, announced June 7 that it expects second-quarter sales and profit to fall far short of last year's levels.
The industrial and automotive markets, where the firm makes plastic crates and cartons, is a main culprit for the decline but not the only ones, said Gregory Stodnick, vice president of finance.
``The general economy is very slow,'' he said. ``We're a diversified company, and usually when we have a slowdown in one product area, we're still strong in another. This time, we're hurt all over.''