The U.S. thermoforming industry is financially solid and enjoys a stable workforce, but needs capital investment to replace older equipment, said Jeff Mengel, a partner with Plante & Moran PLLC in Chicago.
The average thermoforming machine is 14 years old, Mengel said at the Society of Plastics Engineers Thermoforming Conference. “So we have a lot of older stock and we're just sitting on it.” Mengel said he thinks companies will buy new equipment as the economy recovers.
Mengel delivered results of Plante & Moran's survey of thermoformers Sept. 24 at the Grand Rapids conference. The firm contacted 20 thermoformers, representing 30 different plant locations, a fairly small sample. Participants were broken down into four size categories, by annual sales: $13 million and smaller, $13 million to $18 million, $18 million to $45 million, and more than $45 million. Mengel looked at the packaging and industrial forming segments.
On the financial side, thermoforming compares favorably with other types of plastics processes, especially, Mengel said, in value added per labor dollar. That number is reached by subtracting material costs from sales, then dividing that total by labor. Value added per labor dollar is $2.08 for the lowest 25 percent of thermoformers, meaning that for every dollar of labor, they see a return of $2.08. Value added per labor dollar is $2.42 for the median and $2.96 for the largest 25 percent of thermoformers.
Another important metric is EBITOC, or earnings before interest, taxes and owner's compensation — measured as a percent of sales. Mengel said thermoforming looks good here for the larger players: 7.1 percent for smaller companies, 8 percent for the median and 11.5 percent for the upper 25 percent.
Mengel said that for the auto industry, EBITOC ranges from just 2 percent to 11 percent.
The numbers show that the thermoforming sector is more equitable and much less harsh than the automotive industry, which tends to punish weaker suppliers and reward stronger ones, he said.
Thermoformers in the survey have low employee turnover, just 5 percent for smaller companies, 9 percent for the median and 15 percent for larger firms. Even 15 percent is low, he said.
Mengel cited several causes for the workforce stability. Processors were more selective in hiring because of the slow economy. And the housing collapse means people aren't selling their houses for a move, because of the risk of losing money. “One of the things that's driving the low turnover right now is the fact that the housing market inhibits the flow of labor,” Mengel said.
An area of weakness for the smaller companies is a negative two-year rate of sales growth, which has driven some consolidation, Mengel said. By contrast, for the upper 25 percent, sales have increased 7.8 percent over the last two-year period.
Mengel said labor and material account for 75 percent of the cost of thermoforming a part. He said the recession proved labor costs are not fixed — because companies could freeze or cut wages. “Labor is the largest controllable cost you have,” he said.