AKRON, OHIO (Jan. 13, 10:30 a.m. EST) — The packaging industry came to terms with its own version of a midlife crisis in 2002.
After touting youthful new plastic products such as beer bottles and stand-up shampoo dispensers during the latter half of the 1990s, it found there were limits to how much it could change the world with plastics.
“You can come up with the greatest thing since sliced bread, like a container for beer, but at what price?” asked Timothy Burns, president of packaging consulting firm Cranial Capital LLC of Solon, Ohio. “End users won't pay a premium for technology unless a company provides a technical or convenience feature that the competition can't.”
Still, faced with a tougher buying environment and a glut of capacity, makers of both flexible and rigid packaging continued to test boundaries. A surfeit of new products and features made their ways to store shelves last year, many replacing tried-and-true glass or metal packages.
Burns' laundry list of those items includes vividly colored, injection molded snack-food containers; shrink film labels for specialty waters and soft drinks; zippers on plastic bags and retort pouches; film printed in up to 11 colors; and dispensing closures to measure exact medicine dosages.
Yet business conditions were fairly flat. According to figures from New York equity firm Salomon Smith Barney Inc., shipments of non-PET rigid plastic containers were up only 5.5 percent in 2002, while flexible film shipments rose a miniscule 0.2 percent.
For beverage containers, including those made of PET, shipments were similar to those of 2001.
The economy should start to pick up next year, said Stan Biku-lege, president of Pliant Corp.'s U.S. operations. The Schaumburg, Ill., firm had a difficult year in 2002, as did others, fighting thinning profit margins in the film industry.
Yet Pliant continues to invest in new products and technologies. In the past three years, Pliant has invested $150 million in capital alone and made several transactions, Bikulege said. “Our investments support our customers undergoing changes and different dynamics in the marketplace,” he said. “On the technology side, we have to support customers from a cost standpoint, not just from a new product standpoint.”
Valuations for many packaging firms continued to rise last year, Burns said. Apart from the companies hit by asbestos litigation, publicly held packaging stocks were up 40 percent more in 2002 than the average recorded on the Standard & Poor's stock index, he said.
“As the economy continued to dwindle in the throes of a recession, people preferred to have money in the packaging industry,” Burns said. “It provided a kind of safe-deposit box and offered more security.”
Those with asbestos issues, including Sealed Air Corp. and Crown Cork & Seal Co. Inc., faced declining stock prices amid uncertainty. Recently, litigation and legislation have worked in those companies' favor, and their stocks are rising, Burns said.
Yet, partly due to rising valuations, the frequency of transactions leveled off in 2002, he said. A few large purchases shook up the relative calm. In July, Amcor Ltd. bought the plastics business of Schmalbach-Lubeca AG, making the Melbourne, Australia, firm the world's largest producer of PET containers.
In other deals of note, Alcoa Inc. bought Ivex Packaging Corp to strengthen its plastics portfolio, while equity firm Goldman Sachs & Co. bought Berry Plastics Corp.
The year's biggest soap opera was staged at Tyco International Ltd. The Pembroke, Bermuda, company announced plans in January to sell off its plastics business, including a film operation valued at more than $1.2 billion.
Tyco's reluctance to open its books to interested equity firms resulted in that deal's undoing, shortly before the firm was hit by alleged financial shenanigans. Now rumors are starting that Tyco again might consider selling off all or part of its plastics operations.
Packaging companies, including Amcor, will continue to look at acquisitions as a growth vehicle.
“There are still a lot of PET converters out there,” said Kirby Losch, vice president of business development and strategy at Amcor's North American headquarters in Manchester, Mich. “We don't expect the consolidation strategy to stop next year.”