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March 17, 2016 02:00 AM

Coveris steps up capital spending

Jim Johnson
Senior Reporter
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    Coveris Holdings S.A. is spending more than typical on capital expenditures this year, but at the same time looking to cut costs in other areas.

    The Chicago-based plastics packaging company expects to spend about 6 percent of sales on capital expenditures this year when the industry average is about 4 percent.

    “We are investing in growth opportunities in our key product segments as well as modernizing our facilities,” Chief Financial Officer Mike Alger said on an earnings conference call.

    Coveris has identified markets such as protein, produce, dairy and cheese as important for the firm.

    This elevated capital expenditure spending is similar to what took place last year, when the company spent $163 million. The company expects future spending will be in line with industry averages.

    At the same time, Coveris is looking at its so-called SG&A spending — or selling, general and administrative expenses — for potential cuts there.

    “We've also recently decided to right size our SG&A, which will result in a bit of a charge to earnings in 2016. However, the benefits will significantly exceed the costs in 2016,” Alger said.

    CEO Gary Masse added this perspective:

    “We just completed a pretty extensive review and comparison of our SG&A costs compared to other top tier companies, not just top tier packaging companies, but top tier industrial companies. We're going through that analysis now,” he said.

    He pointed to a couple of places where the company could make SG&A cuts to help lower these costs.

    “One area is the span of control. So how many direct reports various managers have. And the other is the amount of layers we have in the organization,” he said.

    Coveris currently is analyzing its costs vs. what other companies spend, and expects to know in the next month or so “where we feel that we can go,” Masse said.

    Coveris is a private company owned by Sun Capital Partners Inc. of Boca Raton, Fla., but has expressed an interest in becoming a publicly traded company at some point. With that backdrop, the company provided insight to its 2015 financial performance to stock analysts.

    Masse said net sales for 2015 were $2.7 billion, and adjusted earnings before interest, taxes, depreciation and amortization was $336 million.

    Sales are down from about $3 billion in 2014. But when accounting for currency exchanges, the lower cost of resin and acquisitions, sales actually increased by about 1 percent for the year. And adjusted EBITDA, considering the same factors, was $369 million. About two-thirds of Coveris' sales are in foreign currency, the company said.

    Volume increased by 2.3 percent for 2015, including a 2.6 percent increase in the flexible segment and 1.2 percent in the rigid segment. “Most importantly is the reversal of negative volume and pricing trends experienced in prior years,” Masse said.

    Coveris said it saved $71 million in manufacturing and procurement savings last year compared to the year before.

    “Similar to the manufacturing savings, we believe there is still significant opportunity to drive further savings as we simplify and rationalize our supply chain,” Masse said.

    “We believe there is still great opportunity to improve our waste, reduce set up time, modernize our facilities and improve our quality despite the significant improvements we've already accomplished since the formation of Coveris three years ago,” Alger said.

    Coveris calls itself the sixth largest plastic packaging company in the world.

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