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February 11, 2008 01:00 AM

Schulman offloading two sites

Frank Esposito
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    The revamping of A. Schulman Inc.'s North American compounding business has begun, with plans to close or sell a pair of plants that represent almost half of the firm's compounding capacity in the region.

    A plant in St. Thomas, Ontario, will be closed, while a buyer will be sought for a plant in Orange, Texas, Schulman officials said in a Feb. 6 news release.

    ``Our plan is to achieve more efficient and effective utilization of our North American manufacturing facilities and to drive profitable growth,'' said Joseph Gingo, president and chief executive officer of the Fairlawn, Ohio-based compounder and resin distributor.

    North American operations accounted for only about 25 percent of Schulman's sales in fiscal 2007. The unit has struggled in recent years, partly because of a soft automotive market, which is its largest end segment. North America posted a pretax loss of $19 million for Schulman in fiscal 2007 after losing more than $9 million pretax in fiscal 2006.

    The 141,000-square-foot St. Thomas plant employs 120 and primarily produces compounds based on engineering plastics for the automotive market. Closing the 74 million pound-per-year capacity plant will save Schulman $6 million to $7 million in fiscal 2009 and $9 million to $10 million each year after that. The closing is expected to be complete during the first quarter of 2009.

    In a news release, Schulman said that ``low-margin'' business in St. Thomas will be discontinued, and other work will be relocated to the company's plants in Nashville, Tenn., and possibly Bellevue, Ohio.

    The 182,000-square-foot Orange plant operates about 135 million pounds of capacity, most of which is used for third-party toll compounding. Schulman plans to exit that business and hopes to have the Orange plant sold by the end of fiscal 2008. Orange is the largest of the firm's North American sites, with almost 32 percent of regional compounding capacity.

    ``We've got too much capacity and a low utilization rate,'' Gingo said in a Feb. 7 phone interview. ``We've been taking on commodity-type business to build the business up, but tolling is extremely low-margin.

    ``And I'm not opposed to automotive business. I just don't like automotive business where we don't make any money.''

    Schulman's capacity utilization rate in North America was reported at 84 percent for fiscal 2007. By comparison, its European plants were running at a 93 percent rate.

    After these moves, Schulman will have four manufacturing plants in North America. Two plants will support the automotive and industrial markets and two plants will support the packaging market. A third plant to serve the packaging market is due to start production in Findlay, Ohio, by December 2008.

    The Findlay plant had been built to make Invision-brand plastic sheet for the automotive market, but now will be used for production of Polybatch-brand color and additive concentrates, primarily for the packaging sector. Invision sheet production will remain at a plant in Sharon Center, Ohio, but with an increased marketing focus on the packaging field.

    ``Invision is a fantastic product and a real growth vehicle,'' said Gingo, who took office Jan. 1 after several years as a board member. ``But in automotive, you can go three years before you get business from a project. We want to look at markets that have a shorter range than that.''

    For fiscal 2007, ended Aug. 31, Schulman's sales were up nearly 11 percent to almost $1.8 billion. But profit plunged almost 31 percent to $22.6 million. Schulman is off to a better start in fiscal 2008, with sales for its first quarter - ended Nov. 30 - up 12 percent to almost $497 million vs. the year-ago period. First-quarter profit also jumped from $2.3 million to $10 million in the same comparison.

    Schulman ranks as one of North America's largest compounders, with a market share estimated at between 2-3 percent.

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