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New plastics processing study evidence of the “New Normal?” Time will tell

Medical and packaging remain the places to be, though a good company earns money no matter its end-use market: those are among the points laid out now that the results of the most recent North American Plastics Industry Study have been tallied. The survey, organized and conducted by Plante & Moran PLLC's Plastics Group, offer plastics processors benchmarks against which they can grade themselves.

The survey was completed in 2009-2010 with more than 150 processors participating. "As the economy was crashing around us in 2008 and 2009, it was difficult to identify trends that were permanent ('new normal') versus those that were a reaction to the sudden drop in credit availability and consumer confidence," the study's authors comment. "A full year post-recession, we now have a glimpse of a few trend breakers from the norm of prior years, [but] it will be years before we fully can grasp whether any of these trend breakers represent a 'new normal' or just a slow return to the old normal."

The most important "trend breaker" the study uncovered would have to be processors' improved finances. According to the survey, plastics processors' earnings before interest, taxes, and owners' compensation recovered 40% (47% for return on assets) from the 2008/09 recession, and exceeds 8% on average across the survey's respondents. The historical medial return on sales has hovered between 5% - 7% for 15 years, according to Plante & Moran. Gross profits, which haven't varied more than a few percentage points for the past 13 years, increased almost 20% from the recessionary low.

Utilization of injection molding machinery increased 7% over 2008/2009 levels, according to the survey's authors. Utilization, however, is still very low, averaging under 40% based on a 24/7 basis. As the authors note, though, press utilization does not correlate directly with profitability as many weak companies routinely low-ball quotes to keep the presses running. "Also, increased utilization often comes with increased complexity (number of presses, molds and resins to monitor and schedule)"and thus higher labor costs. Still, this is only the fourth year out of the last 15 years with an increase in utilization. For those with good margins, any increase in utilization results in improved profits," said the report.

Respondents also reported that their resin costs shrank 3% as a cost of sales as resin price increases were passed on to customers. There again was a reduction in spending on controllable costs including various travel, MRO (maintenance, repair, and operational supplies), and capital investment.

"A clean manufacturing environment with limited new program launches and tryouts, along with a 26% lower manufacturing complexity, contributed to an efficient recover," the report notes.

The automotive industry recovered somewhat after first "plummeting to 50% of its former self, before recovering 40% from the low point." The bright spots, the report points out, are the medical industry, "still showing strong performance top to bottom," and the packaging industry, which is "close behind" the medical industry. "Generally, a good performer [in molding] can make money in any industry, but the stronger industries allow the weaker and average performers to make decent money as well," said the report. "Furthermore, the medical industry is the only industry that had continued growth during the recession."

Plante & Moran's Plastics Group predicts "launch headaches" returning as the "respite of new programs in 2009 and into 2010 cannot continue," said the analysis. "OEMs will need to refresh their product or risk losing their brand or technology to knock off companies in low-cost countries. All products eventually become commodities if not enhanced in some way."

The consulting firm and accountancy also predicts new capital investments, and that investments in technology will increase. "What is clear is the plastics industry is a technical industry, and technology must be embraced to defend your business model," said the report.

[Ed. note: The Plante & Moran North American Plastics Industry Study is a 77-page tailored benchmarking report that is available only to study participants. Processors interested in participating in the next study should contact Jeff Mengel at [email protected].]

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