Harold Bevis, the fairly new president and chief executive officer of film producer Pliant Corp., had a lot to talk about during an Aug. 6 conference call with analysts.
There were the usual financial probes from the investment community and discussions of working capital and sales performance. But Bevis kept returning to a key business highlight that he considered a cornerstone of Pliant's future: Revolution stretch film.
Bevis spoke like the proud father of a precocious child.
``We're putting more capital into Revolution,'' said Bevis, who was named to that top post in October. ``Revolution is attracting customers, and we're winning converts. Sales [for Revolution] have been up about 15 percent year over year.''
The publicly held, Schaumburg, Ill.-based firm is placing its investment dollars into it. It is an educated risk for a company that has not always performed up to analyst expectations.
``They've been a bit of a quandary over the last few years,'' said Tim Burns, equity analyst with Solon, Ohio-based Cranial Capital Inc.
``They've gone through stages of talking about improvement but quite frankly, nothing really materialized in the past,'' he said. ``But if their new, thinner rolls with higher yields equates to higher profits and higher returns per square inch, that could help a great deal.''
Few other large film competitors have made such an investment in thin films.
``We do a lot with value-added films,'' said spokeswoman Melanie Miller of Minneapolis-based competitor Bemis Corp. ``But we're not aware of any plants focusing on downgauging to reduce costs.''
The heart of that new capacity is coming from a longtime Pliant facility in Lewisburg, which now makes most of Pliant's Revolution stretch film for the machine wrapping of pallets. Another Pliant plant in Danville, Ky., makes similar film but for hand-wrapped pallets and for shrink-bundling applications.
Officials at the two plants talk like rebels for change in the staid film industry.
``We're keeping the customer's cost per pallet wrapped at a minimum,'' said Kevin Howard, Pliant vice president of sales for secondary packaging, in an Aug. 27 interview at the Lewisburg facility. ``That's a revolutionary approach. Most everyone else is selling film the same way, and we're going against the status quo.''
Revolution film has special properties that Pliant claims makes the film stronger and more puncture-resistant on a shipping pallet than conventional stretch wrap, while offering a much-thinner gauge. But while the materials and processing are specialized, it is the way the film is sold that could truly be spurring the industry revolution.
``It's an opportunity for someone to look at the true cost of packaging and not just at a roll of film,'' said Bob Maltarich, senior vice president and general manager of Pliant's industrial and PVC films.
Any discussion of Revolution film has to start with that of resin prices. Rising polyethylene prices have been a thorn in the side of film manufacturers for several years. Margin pressures for many extruders have shrunk, brought on by climbing costs.
At Pliant, Bevis said that PE prices climbed to an all-time high in the company's second quarter. Pliant's resin costs make up as much as 80 percent of its stretch film costs, Howard said. Some experts forecast lofty prices for the next several years.
Those prices, many of which cannot be easily passed to end customers, have processors digging for solutions, said Howard Rappaport, an analyst with Houston-based Chemical Market Associates Inc.
``Many of the top-tier packaging film producers are looking for the same kind of product development and enhancements that Pliant is talking about,'' he said. ``It goes back to an old adage in the film business: You've got to be thin to win.''
However, not all companies see slimmed-down film as a solution. Extruder AEP Industries Inc. of South Hackensack, N.J., spent a lot of time studying five- to seven-layer technology and downgauging for its stretch film, said Glenn Cooper, corporate vice president for stretch products. The company decided that similar cost savings could be achieved by upping the thickness, he said.
The company plans to announce the introduction of a new film in the fourth quarter that combats the downgauged film, he said.
``Resin prices rise and fall all the time and, in this business, change is a constant,'' Cooper said. ``The price of resin should not be the overriding reason to market a product. However, of [more] major importance would be resin availability. We are careful to develop products that will have a consistent resin supply.''
For Pliant, resin costs are a factor, especially with no short-term end in sight to the increases, Howard said. The downgauged film provides a yield advantage of as much as 25 percent on each roll and allows customers to wrap more pallets per roll, Howard said.
But another, equally important reason that Pliant developed Revolution was the devolution of stretch film into a commodity item, based purely on the price per pound sold, Howard said. Stretch film sales for Pliant would involve faxing or e-mailing a quote to a buyer and waiting to see if the price was low enough to get the business, Howard said.
The company had to find a different way to sell film if it was going to prosper, he said. About 1.2 billion pounds of pallet wrap are sold yearly in North America, according to industry estimates quoted by Pliant.
``We'd spend time shooting out orders and tripping over each other to save customers one penny on a price per pound,'' he said. ``We say that's a downward spiral that we don't want to be in for the long term.''
That fueled engineers at Pliant to look at solutions, working at Pliant's stretch film technology center in Uniontown, Ohio, and at Lewisburg and Danville. In Tennessee in 2000, the company started a Black Clawson cast film extrusion line to try new materials and find the best performance mix with thinner-gauge film, said John Cook, technical director for Pliant's industrial films.
What evolved was a new mixture of film materials, involving both PE and polypropylene, and the use of metallocene-catalyzed PE that accounts for more than half the film, Cook said. The patent-pending product offers superior load containment while not restretching even with sudden load movement, he said.
Through the past decade, other film manufacturers have attempted to downgauge stretch film, Rappaport said. But generally, they used conventional films in a thinner gauge, he said. Those films did not always provide the load support required.
``As film gets thinner, it can act a lot differently,'' he said. ``You can't just downgauge for the sake of downgauging, without making performance enhancements.''
Pliant started producing machine-wrapped film at Lewisburg on the Black Clawson equipment in mid- 2000. That equipment contained several custom refinements, including different dies, trim systems and air venting, said Bob Moeller, product manager for extrusion systems at Black Clawson Converting Machinery Inc. of Fulton, N.Y.
Development took three years and many trials, Cook said. ``Once you find how to do it and lock it in, you wonder why it took so long to get there,'' he said. ``But it can be like falling off a log getting to that point.''
While the film was ready commercially, Pliant's sales staff had to nudge customers to think differently about film buying, Maltarich said. That meant looking at each pallet at a customer's location instead of quoting a pure price per pound of resin.
Salespeople talked customers into holding a ``wrap-off.'' Pliant salespeople measure the customer's current wrap - even those conventional stretch films that Pliant makes - and compare that to how much film is used with Revolution. The savings was typically around 25 percent, he said.
A big perceptual change is telling customers that a slimmed-down film is actually stronger, Maltarich said. While conventional pallet wrap usually sells in an 80-gauge thickness, Revolution offers film in thicknesses as low as 51 gauge.
The film's volume has climbed at Pliant, so much that the company is gearing its strategy in stretch film around it. Pliant is adding a sixth coextrusion line in Lewisburg that is due to come on line in November. The five-layer, Black Clawson line will add 18 million to 20 million more pounds of Revolution film and cost the company more than $4 million, Howard said.
The company will have three of its six cast extrusion lines in Lewisburg devoted to Revolution film and some of the work on a fourth line also earmarked for the thin film, said Lewisburg plant manager Jeff Tritapoe. More than half of the film made in Lewisburg goes for value-added film products, including Revolution, Tritapoe said.
The lines at Lewisburg are a mix of five- and seven-layer constructions.
The company expects others to follow its early lead and create new formulations in thin film, Howard said.
``We have to be looking for the next generation of [thin] film to stay ahead,'' he said.
Right now, only several smaller-size companies are making the thin film. One is Pinnacle Films Inc., a Charlotte, N.C.-based extruder started in 1999 by industry veteran Bill Rice. Rice already has invested in two seven-layer extruders from Battenfeld Gloucester Engineering Co. Inc. and has ordered a third that is due to be installed by May.
Pinnacle's film uses different chemistry than that at Pliant, using linear low density PE for its base along with metallocenes, Rice said. The sales pitch to customers is similar: The company must convince them to buy film based on the amount used per pallet, not on price per pound, he said.
``Sometimes, when we started, I felt like I was talking to a brick wall,'' Rice said. ``But once the volatility in natural gas and feedstocks set in, many customers began to really understand what was going on.''
Pinnacle plans to spend another $4.5 million on the new line, adding close to 25 million pounds of capacity, Rice said. The company is considering new markets for stretch wrappers, such as can liners, he said.
The company expects to record about $30 million in sales this year and process 40 million pounds of resin. Rice chooses to call it film replacement gauge, not downgauged film.
``The word downgauge is too negative,'' Rice said. ``There's a perception that thinner doesn't work better. Replacement gauge implies superior technology.''