PolyOne Corp. has pulled itself back from the brink, according to company executives who spoke at a recent meeting of the firm's suppliers.
Early this year, a stock analyst who covers PolyOne said the Avon Lake-based firm one of North America's largest compounders and one of that region's largest resin distributors had a 50-50 chance of running out of cash by April or May.
Instead, PolyOne won new business and reduced costs and working capital, according to Tom Kedrowski, senior vice president of supply chain and operations. The firm now has $42 million in cash on hand.
We're in pretty good shape now from a cash perspective, said Kedrowski, who joined the firm in 2007. We expect to grow earnings regardless of whether the economy recovers. We've set a target of generating more than half of our operating income from specialty products.
At the same time, PolyOne officials are aware that they generated 17 percent of their $2.7 billion 2008 sales total from the building and construction market and another 13 percent from the automotive/transportation sector. Both of those segments have been battered by the recession. The wire and cable sector with exposure to both of the previous fields accounted for an additional 14 percent.
We recognize that we're tied to construction and auto, Kedrowski said. But trends to lower-cost, more efficient homes and autos favor our business.
We have opportunities to cross-sell, and can leverage like no one else in the industry, Kedrowski said.
He pointed out that PolyOne was able to reduce its inventory level from $329 million in the second quarter of 2008 to $177 million a year later a drop of more than 45 percent.
Closing nine less-efficient plants also saved the firm $60 million a year by reducing the number of companies in its manufacturing and supply chain by 23 percent. PolyOne's on-time delivery rate in North America and Europe also has been above 90 percent since the first quarter of 2008. The rate had been 88 percent as recently as the first quarter of 2007 and as low as 81 percent in the first quarter of 2006.
Along the way, PolyOne has had to make some tough choices.
We've had to prune unprofitable business, Kedrowski said. Our sales incentives are no longer based on volume. They're based on profitable new business.
But we will not chase volume. That's an irrational, failed strategy in the industry.
Executives offered insights in their respective areas. In performance products including Geon-brand PVC compounds PolyOne is sill making money in spite of tough market conditions, according to sourcing director Bruce Tylicki.
We're operating in black when other [competitors] are struggling to stay above water, he said.
Performance products account for about 40 percent of the company's overall sales, with 60 percent of those sales coming from Geon products. More than 60 percent of the unit's sales come from the building and construction and wire and cable markets.
Although housing starts are down nationwide, Tylicki said remodeling and renovation markets should rebound more quickly than housing in general. He also anticipates that, as the market recovers, more people will have smaller, greener and more affordable homes.
Since 2008, the performance products unit has commercialized six new products and currently has 11 in development.
PolyOne's North American color and additives unit with almost $230 million in annual sales posted its first-ever stand-alone profit in 2008 and is developing new products for niche segments such as wood-plastic composites and biopolymers, according to Doug Grimm, the unit's supply chain and product management director.
Some 20 percent of the color and additives unit's products have been introduced in the last five years, he added.
PolyOne's international color and engineered materials unit with almost $600 million in annual sales has overseen recent product launches for film additives, long-glass-fiber compounds and compounds for photovoltaic cables, said Philippe Vanhove, international sourcing, logistics and information technology director.
The unit also is developing prototypes for high-temperature polymers and biopolymers.
Packaging, wire and cable, transportation and electrical/ electronics segments each have a 17 percent market share within the unit.
PolyOne's resin distribution unit has increased its annual inventory turns from eight to 11 and has set a goal of becoming a $1 billion-per-year distributor in North America, said supply and marketing director George Ramming.
Ramming touts the distribution unit's on-time delivery record and its position in health care.
The unit won a major account earlier this year when it was selected as DuPont Co.'s primary North American resin distributor. But Ramming said challenges remain in the form of weak financials in our customer base, which have led to customer and supplier consolidation.
Capacity utilization [among customers] has been very depressed compared to prior years, he said. We're focusing on health care and national accounts.
PolyOne's distribution unit serves more than 5,000 processors, a majority of which are injection molders. The unit distributes for 20 major material producers and offers lead times of one to three days. Officials believe the unit with sales of almost $800 million in 2008 ranks second in the less-than-truckload market in North America, with a 15 percent share.
The top four firms in that market PolyOne, Ashland Distribution, Ravago/Entec and M. Holland Co. account for 60 percent of sales, Ramming said.
PolyOne's specialty engineering materials unit including its GLS thermoplastic elastomer business has increased its share of specialty sales from 17 percent to 70 percent since 2007, while lowering its automotive market share from 75 percent to 11 percent, according to global purchasing and business systems director Gail Broker.
The unit, with annual sales of more than $250 million, claims to be North America's largest TPE compounder. It's currently developing new products based on polyetheretherketone, liquid-crystal polymers and Tritan-brand copolyester supplied by Eastman Chemical Co.
The unit also is preparing to launch new long-fiber compounds and compounds for biomedical tubing, and recently increased its sales staff from seven to 12.
Global competitors for PolyOne's specialty engineering materials unit include RTP Co. and Sabic Innovative Plastics US LLC, officials said. In North America, the unit competes with Teknor Apex Co., while in Europe, it does battle with Kraiburg.
On Nov. 4, PolyOne reported a profit of almost $44 million for the first nine months of 2009 – up from a profit of less than $10 million in the same period last year. The gain was reached even as nine-month sales fell 31 percent to $1.5 billion.
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