Dave Spence knows what it means to take risks. Just more than one year after he sold a stake of his company to private equity firm Stonebridge Partners, Alpha Packaging Inc.'s chief executive officer is keeping pace with rapid change as he sets a goal to reach $100 million in sales in the next three years.
Since 2000, the company's average annual sales growth has been roughly 14 percent. In Plastics News' 2005 annual ranking of North American blow molders, Alpha reported $54 million in sales, and it expects to reach $70 million this year.
On June 5, the company named Jack Baily vice president of sales, a newly created position as Alpha sets its eyes on rapid growth. The firm is adding blow molding equipment in St. Louis, and has planned improvements to its toolmaking shop.
Elsewhere in the company, Alpha will be completely moved out of its blow molding facility in Brooklyn, N.Y., in January. It moved six PET stretch blow molding and extrusion blow molding machines into a newly acquired site in Bethlehem, Pa. Some workers transferred to Pennsylvania. Alpha employed about 35 in Brooklyn.
``The costs were great in operating that [Brooklyn] facility,'' Spence said. ``It was not a prudent investment to keep spending money on it. It got us to where we needed to be in the Northeast.''
Alpha Chief Operating Officer Dan Creston gave Plastics News a tour of the blow molder's St. Louis headquarters June 8. Spence participated in this question-and-answer in a follow-up telephone interview June 13.
Q: You've owned your company since 1985 and then you secured private equity backing last year, fueling Alpha's ability to expand more quickly. The company was enjoying steady sales growth before Stonebridge bought its stake. Was private equity backing necessary for Alpha to continue to compete, especially long term?
Spence: There was nothing forcing us to do the Stonebridge deal. There's never a wrong time to have some security. This was a way for me to take some chips off the table. Some of the management bought in, too. Stonebridge has been great to work with; they've been instrumental in having us take our company to the next level of financial sophistication.
We don't like status quo. We have very aggressive goals. Doing the Stonebridge deal was the way for us to take the personal exposure out of some of those goals. We are making money, and our EBITDA [earnings before interest, taxes, depreciation and amortization] is increasing.
Q: At the beginning of the year, Alpha acquired Yorkbridge Packaging Northeast in Bethlehem, Pa., allowing the company to grow into smaller PET bottles. Prior to that, in 2001 you acquired Gutmann Plastics in Brooklyn, N.Y. How would you define Alpha's strategy now with growth via acquisition?
Spence: We don't like to take on marginal business. I've looked at a deal probably every other week. We've also learned the word ``No,'' which is an important word. We are not going to put the company in a highly leveraged situation. You're not made to do every bit of business that's out there. To me, to chase something that doesn't make strategic sense just doesn't make sense to me. You either have to bring technology, a footprint or some process that makes sense, or some customer base that has an overlap.
Q: According to a recent article in the Wall Street Journal, manufacturing profits almost quadrupled since 2001 on a pretax basis to $208 billion last year, while profits for all types of companies doubled to $1.2 trillion. That's based on data from the Bureau of Economic Analysis. Therefore, manufacturing profits now exceed the level they reached at the height of the economic boom of the late 1990s. Does this fact surprise you? How were Alpha's profit margins during this period?
Spence: Our profits have kept pace, but it has been a real challenge with resin costs. We have certain goals and expectations. 2005 was a crisis year for our industry.
Q: Dan Creston said he believes managing resin issues is the biggest challenge to Alpha's business this year. He said, ``Rising resin costs have forced everyone to figure out other ways to do business. You're being forced to improve your operations. We've been forced to become smarter companies.'' How has Alpha become a smarter company over the last three years, operationally speaking?
Spence: We've invested in automation, we've invested in equipment that produces faster with better quality. We've reinvested back in preventive maintenance on machinery and molds. We've had to add smart and motivated people when we need to. We've had to augment our staff to get there as we've grown.
We see a lot of green grass ahead of us. If you don't reinvest and put preventive maintenance on machinery and technologies, eventually that catches up with you. You have to spend money to make money in this business.
We're always looking at throughput efficiencies. We're almost always looking at lowering the percentage of labor on a product. As far as technology, we're getting into reheat and blow for larger bottles. We're starting that in August in Salt Lake City. We are building six preform molds, doing graduated weights of preforms.
Q: Also, can you address Alpha's need to source resin from overseas suppliers? Other packaging-related companies tell us they've started sourcing resin from overseas suppliers during the last year, given the catastrophe from the hurricanes.
Spence: We've had to hedge offshore a little bit [for spot purchasing]. We've been forced to do that because we have to average out our resin costs. The resin has stabilized somewhat. Last year forced us to look at it on a more aggressive basis. It's still not something you want to sole-source because it's not good business.
Q: What are the other challenges to the business?
Spence: Capital expenditures and keeping up with growth certainly has been a challenge. That's been the biggest challenge. And the expectations of our customers have tightened. They expect more from us than they ever have in terms of quality. Quality used to be a sales tool and now it's an expectation. People have so many options today. Competition makes you better, bottom line.
Q: How important are degradable resins like polylactic acid to Alpha's current offering, and do you see them as a significant force in Alpha's growth over the next 10 years?
Spence: I'd like to think so. I think [the material] makes sense. I love the concept of it. I would love to see the next stage of these materials and where they can go. Our whole company feels like it's the right thing to do, to not ignore it and make something of it. We're gaining momentum. We want to be part of the solution. It's really made sense to us. [But] I don't think it will displace PET or [high density polyethylene].