Officials at A. Schulman Inc., a leading compounder based in Fairlawn, Ohio, said the firm's fourth-quarter profit will fall far short of expectations because of high raw material costs and cutbacks at its plant in Nashville, Tenn.
Profit for Schulman's fourth quarter, which ended Aug. 31, will be less than 10 cents per share, instead of at least 20 cents per share as officials previously had indicated. Higher raw materials costs and a lag in passing on those costs through increases in selling prices played a role in the warning, officials said in an Oct. 4 news release. Prices for most commodity resins are up at least 20 percent so far in 2004.
``If you go back and look at the [resin pricing] charts, it's almost unprecedented,'' Schulman President and Chief Executive Officer Terry Haines said in an Oct. 6 telephone interview. ``It's a different world. It's like hoping to see $1.25 gas again at the gas station.''
Reduced activity in Nashville also played a role. Schulman, which ranks among North America's 10 largest compounders, closed a pair of extrusion lines there in August. The firm also cut about 30 jobs in Nashville, leaving the site with 40 workers and three extrusion lines.
Haines described Schulman's Nashville product mix as split between the automotive and consumer markets.
``The capacity that was taken out was from our large-volume product mix,'' he said. ``We decided not to compete in those markets. We'll focus on higher-value-added products instead.''
Costs connected to the Nashville cutbacks are not expected to affect Schulman in fiscal 2005. Haines added that Schulman has seen increased costs related to complying with the Sarbanes-Oxley Act, which requires a higher level of financial reporting from public firms.
Through the first nine months of its fiscal year, Schulman's sales were up 10 percent over 2003 to $921 million. Profit also was up 80 percent to almost $28 million.
But there was a sharp difference between Schulman's operations in North America and Europe in that period. Europe accounted for two-thirds of total sales and all of Schulman's pretax profit in those nine months. European pretax profit largely was flat vs. 2003 at $51.6 million, while Schulman's North American operations posted a pretax loss of $2.6 million. In the first nine months of 2003, Schulman's pretax loss in North America had been almost $11.5 million.
On Wall Street, Schulman's per-share stock price was around $21.50 in early trading Oct. 6. It started the year at around $21 but dropped close to $17.50 in mid-March before rebounding.
Schulman operates a dozen plants worldwide, including five in North America. It produces color concentrates, PVC compounds and other compounded products.