Corrugated pipe producer Advanced Drainage Systems closed a plant recently and raised prices Oct. 1 as part of a plan to offset higher transportation, labor and material costs.
The Hilliard, Ohio-based company said sales of its products for storm water, sanitary sewer and drainage uses for the residential, commercial and infrastructure markets are up 1.4 percent to $406.6 million for the second quarter of its fiscal 2019.
Profit is up, too, by 63.6 percent to $29.4 million for the quarter ending Sept. 30.
However, inflationary pressure is having an impact, according to ADS President and CEO Scott Barbour.
“We're working very hard to stay ahead of these cost pressures, including two recent actions we have taken,” Barbour told investment bankers during a Nov. 8 quarterly call. “First, we announced the closure of a plant on Sept. 1, which will provide a modest benefit this year with the majority coming in fiscal 2020. Second, we announced a price increase on Oct. 1 to offset higher material and transportation costs, which went into effect Nov. 1.”
ADS has its own fleet delivery trucks that Barbour said puts the company in a better position than competitors, but still the cost to move goods has increased.
“We estimate our cost is up about half the rate of what third-party providers are charging in the marketplace,” Barbour said.
As for material costs, Hurricane Irma disrupted the resin supply last year, which led to higher prices.
“This year our resin costs have stayed up and polypropylene is up 20 percent,” Barbour said.
In response, ADS's cost restructuring plan, which started in fiscal 2018 with the closure of three plants, will continue. The plan, which has no end date or estimate of expected cost savings, calls for closing underutilized manufacturing facilities, reducing headcount, optimizing product offerings and eliminating nonessential costs.
ADS officials didn't immediately respond to questions about what plants have or will closed and how many employees were affected.
Founded in 1966, ADS made plastic drainage tiles for farm fields before developing a way to manufacture dual-wall high density polyethylene pipe with a corrugated exterior and smooth interior for storm water management. More recently, ADS added a triple-wall composite pipe for storm and sanitary sewers made of corrugated polypropylene with a ribbed core and fiberglass exterior.
In the marketplace, ADS continues to drive growth by converting sales of concrete, corrugated steel and other pipe materials to its PP and PE products. Sales grew for residential and non-residential uses as well as internationally, particularly in Mexico.
“We continue to feel good about the health of our end markets,” Barbour said. “The people we do business with remain busy and confident about future demand.”
With $1.33 billion in annual sales, ADS is the third largest extruder of pipe, profiles and tubing in North America, according to Plastics News' latest ranking.