With more than $150 million in bonds and revolving credit coming due in March, and a still-hurting U.S. machinery market, Milacron Inc. faces its biggest challenge since the Wolfpack days 20 years ago, when it beat back an onslaught of injection presses from Japan.
Several analysts think Milacron probably will sell its attractive metal-cutting fluids business to help refinance its debt. Another option is to issue high-interest junk bonds.
For months, Milacron executives have said they are exploring alternatives, but securities laws prevent them from offering specifics. Company officials and analysts agree that debt reduction has moved to the top of the ``to do'' list for the largest U.S.-owned plastics machinery manufacturer.
Eli Lustgarten, a New York stock analyst, delivered a blunt assessment: ``The only thing that matters is restoring the balance sheet. The rest doesn't matter.''
Milacron's top executive, Ronald Brown, expressed confidence that the company is making the right moves.
``Because of our leadership in the industry, the products we have in place and the organization and our reputation in the industry, I'm convinced that we will have a solution that makes sense, with respect to repayment of the bonds,'' said Brown, chairman and chief executive officer.
``Our No. 1 priority is to continue taking care of the bonds. But it's just as high a priority to take care of our customers,'' Brown said.
Milacron will be confronting its future without its president and chief operating officer, Harold Faig, who is taking early retirement Sept. 30 after 38 years with the Cincinnati company. As part of its cost-cutting moves, Milacron does not plan to replace him, preferring instead to spread his duties across several existing executives.
Now the clock is ticking down on $115 million in bonds, and the $42 million that Milacron currently is using from its revolving loan. Both are due March 15. Another bill comes due just a year after that, in April 2005: bonds that total 115 million euros.
A bit of relief came Aug. 14, when Milacron announced its main lender had relaxed terms on its revolving line of credit. That news came two days after Moody's Investors Services downgraded both the revolving loan and the $115 million in unsecured bonds.
``The company's bank group continues to be supportive'' on the revolver, Brown said.
``You have a series of milestones that have to be met over the next 12-18 months that have to be paid back,'' said Lustgarten, managing director of H.C. Wainwright in New York. Lustgarten and other analysts said that, because the plastics machinery sector continues to struggle, Milacron also is likely to face higher interest rates when it refinances.
Milacron's roots are in metal-cutting products, but that business now is a distant memory. The company, which launched its injection press operations in 1968, now is almost completely dependent on plastics machinery and related products.
During the Wolfpack project, back in the early 1980s, the enemy was easy to spot. An onslaught of low-priced injection molding presses from Japan pushed Milacron executives and employees into action. Faig helped craft the Wolfpack strategy, as they slashed product-development time and drove out costs. Milacron survived.
In 1993, the company bought the Ferromatik business in Germany, kicking off a decade of expanding its reach as a global player in plastics equipment. Milacron spent more than $450 million for three major acquisitions - D-M-E, Autojectors vertical injection presses and Uniloy blow molding machines.
A major change happened in 1998, when Milacron sold its Machine Tool Group to Unova Inc. That was followed by the metal-cutting products sale.
Today, Milacron leaders again are in survival mode. But the problems of 2003 are far different, fueled by an ugly U.S. manufacturing recession that has hemorrhaged plastic molding work to China. Milacron's key U.S. customer base is weaker than during the Wolfpack era. Now, instead of choosing between a machine from the United States or Japan, many molders simply have clamped their wallets closed.
The dramatic collapse in machinery started in late 2000. The U.S. plastics machinery market collapsed by 40-50 percent from the record levels of the late 1990s and early 2000, and pretty much has stayed there for three years.
In another indicator of industry health, attendance at the NPE 2003 show in June was down 30 percent from the prior show in 2000. Milacron said it booked $26 million in orders at the Chicago show, down 50 percent from the record-setting $50 million of business it said it did at NPE 2000.
Most machinery officials report spotty business, marked by nasty price cutting. Too many machines still stand idle, waiting for orders. Some big molders have closed plants and auctioned off late-model machines, which further depresses sales of new machines.
Milacron, which generated $693.2 million in 2002 sales, is considered a bellwether for plastics machinery since it makes injection presses, extruders, blow molding machines, structural foam machines and D-M-E mold bases and components. Some evidence of a turnaround is emerging.
``Since the NPE show we have seen some increase of quoting activity, particularly here in North America,'' Brown told analysts in a second-quarter conference call July 29. ``We've seen this in several industries, basically automotive, packaging and consumer goods. We hope it's a sign of better things to come in the plastics industry.''
Milacron executives contend their company is doing better than the overall U.S. market, citing statistics from the Society of the Plastics Industry Inc. in Washington. Even so, Milacron is on track to lose money in 2003, its third straight year without a profit. Brown said the company hopes to run at a profitable rate during the fourth quarter. Overall, the machinery sector needs a two- or three-quarter recovery in plastic part production before suppliers see a significant pickup in sales, he said.
``The trends are going in the right direction. But it's still a very difficult environment,'' Brown said.