Spending on new plastics machinery will lag two or three quarters behind any solid manufacturing rebound, according to Milacron Inc. officials.
OK, when will that happen? Milacron does not expect to see a significant pickup in demand for plastics machinery until late 2002 or even into next year, executives told shareholders and financial analysts on April 23.
``We feel pretty good that things have flattened out, they've stabilized at the bottom. But I think it's going to take six months or more to get any appreciable improvements,'' Harold Faig, vice president of the Plastics Technologies Group, told analysts in a conference call.
The economic recovery may be starting already. U.S. industrial production ticked up in January and February. Milacron said the first quarter marked the first time in seven straight quarters that its new orders did not decline from the prior quarter.
``So it appears the manufacturing recession is beginning to bottom out,'' said Ronald Brown, Milacron chairman, president and chief executive officer.
But Brown - who has overseen a major restructuring that slashed jobs and closed plants - remains cautious.
``We're seeing a small turnaround. But, of course, we have a long way to go before we get back into positive territory, and we have no way of predicting whether the recovery's going to be quick or slow,'' he told shareholders.
Milacron is a bellwether for plastics machinery. With $662 million in 2001 sales, the Cincinnati company is the largest U.S.-owned player, and second in the world behind the Munich, Germany-based Mannesmann Plastics Machinery AG. Milacron's Plastics Technologies Group makes a range of machines, including injection presses, blow molding machines and extruders, plus components such as mold bases and screws.
Milacron also makes grinding wheels and other metal-cutting products through its Metalworking Technologies Group. Last year, the metalworking group turned a profit, but Plastics Technologies lost about $10 million, as its sales fell 24 percent from 2000. Overall, Milacron lost $35.7 million on total sales of $1.26 billion, because of the plastics machinery results and $30 million in restructuring costs from plant closings.
But it's all relative in today's dismal market for plastics machines, where some segments have plunged as much as 50 percent. Faig said Milacron is gaining market share. And he pointed out the plastics group reported an operating profit of $1.1 million for the first quarter of 2002, on sales of $136 million.
``The first quarter was profitable, and the restructuring we've done is working,'' he said in an interview before the shareholders meeting.
Faig said demand is picking up for intermediate-size injection molding machines with clamping forces of 500-800 tons.
But the overall market remains down. Despite the first-quarter profit, the Plastics Technologies Group reported sales for the quarter declined by 23 percent from the first quarter of 2001.
Body-slammed by the recession, plastics processors are holding off on buying equipment because they have too many machines sitting idle. Those that do buy machines - especially injection presses - are getting big discounts. Capacity utilization for plastics stands in the low 70 percent range.
``It's a very competitive market, and that market's going to exist until capacity utilization gets up to 84, 85 percent,'' Faig said.
Milacron had faced a serious problem with too many unsold plastics machines, but the company has slashed its inventory.
``We've continued to cut production to below sales levels, which allows us to reduce inventory,'' Brown told stock analysts.
Speaking to shareholders earlier in the day, Brown painted a stark picture of U.S. manufacturing in the last year and a half. The decline in spending for industrial machinery began at the end of 2000, then deepened in 2001, surprising economists.
``It was worst decline in capital spending since the Great Depression of the 1930s,'' he said. ``Markets for all capital equipment, including plastics processing machinery, declined by 40 to 50 to 60 percent. And then, just when we thought it couldn't get any worse, along came Sept. 11.''
Brown outlined how Milacron has cut costs during the past two years, closing 18 plants and six office facilities and eliminating 2,200 jobs. The job cuts will save about $100 million in payroll costs. Faig said more than 1,000 of those job cuts came from the Plastics Technologies Group - more than 20 percent of total group employment.
Management also took pay cuts, Brown said.
Milacron is three-quarters of the way through the restructuring, which should be completed by the end of 2002, he said.
At the same time, Milacron is training workers in lean manufacturing and Six Sigma practices. It also invested $45 million in 2001 to develop products, spent another $32 million for equipment to boost productivity, and made three small acquisitions.
``We sowed the seeds for future profitability,'' Brown said. ``We're making permanent improvements that will leverage us when the economy rebounds.''