Milacron misses Q3 revenue target; announces CanGen acquisition

Milacron Holdings Corp. (Cincinnati, OH), a global manufacturer, distributor and service provider of plastic technology and processing systems, announced on Nov. 6 its financial results for the third quarter ended September 30, 2015. Milacron Chief Executive Officer Tom Goeke, commenting on the report, said, "We are very pleased with the progress on our strategic initiatives, which combined with continued strong growth in our APPT aftermarket business, enabled us to grow adjusted EBITDA [earnings before interest, taxes, depreciation and amortization] and expand margins despite headwinds to our revenue from the stronger U.S. dollar and softer capital investment trends in some geographies. On a full year basis for 2015, we expect to continue our progression toward our long-term target of 20% EBITDA margins and anticipate we will achieve organic revenue growth of 2 to 3%.

"While this growth is below our 5% organic revenue growth target, we believe Milacron is well positioned to continue to grow ahead of the broader industrial sector given our leverage of positive secular growth trends in the plastics market, our well-balanced business mix across end markets and geographies and strategic growth initiatives," Goeke added.

In an interview with PlasticsToday, Goeke commented that the company's greatest accomplishment in going public was raising the funds "to pay down debt and become a healthier company." Goeke acknowledged that the going has "been tough" because of the aforementioned circumstances, but "in light of that we're moving along very well. We feel very good about where we are--4% further ahead of where we were last year with respect to sales."

For the third quarter of 2015, sales decreased 7% from the third quarter a year ago, from $314.6 million to $292.7 million. Excluding $17.3 million of unfavorable effects of currency movements, sales for the third quarter decreased 1.5% over the prior year period. Adjusted EBITDA for the third quarter of 2015 increased 4% to $54.0 million, or 18.4% of sales, compared to adjusted EBITDA of $51.9 million, or 16.5% of sales, in the year ago period. Net loss totaled $11.2 million, or a loss of $0.17 per basic and diluted share, in the third quarter of 2015 compared to a net loss of $3.9 million. Adjusted net income totaled $25.7 million in the third quarter of 2015 compared to adjusted net income of $20.3 million in the prior year period.

For the first nine months of 2015, sales decreased 2% from the same period one year ago, from $890.8 million to $873.2 million. Excluding unfavorable effects of currency movements, sales for the first nine months of 2015 rose 3.9% over the prior year period (3.1% excluding the impact of tuck-in-acquisitions). Adjusted EBITDA for the first nine months of 2015 increased 12.2% to $154.5 million, or 17.7% of sales, compared to adjusted EBITDA of $137.7 million, or 15.5% of sales, in the prior year period. Net loss totaled $54.3 million, or a loss of $0.94 per basic and diluted share, in the first nine months of 2015 compared to a net loss attributable to Milacron of $14.2 million, or a loss of $0.27 per basic and diluted share, in the prior year period. Adjusted net income totaled $64.7 million in the first nine months of 2015 compared to adjusted net income attributable to Milacron of $45.8 million in the prior year period.

Milacron ended the third quarter of 2015 with cash and cash equivalents of $74.5 million and total debt of $954.4 million at September 30, 2015, resulting in net debt of $880.0 million and a net total leverage ratio of 4.1x.

Goeke explained that the company plans to continue "directing funds internally" toward product development and technology, with an eye toward keeping the company healthy. "In general, when you look at the fundamentals of the business, [plastics] looks good," Goeke said. "They're still lightweighting autos, medical packaging is making inroads with plastics, disposability is still key in consumer packaging, and complexities with closures and containers . . . there are still so many things going on in plastics. Automation is accelerating and the overall trends in plastics are healthy. Regardless of the economic headwinds, plastics are still making inroads. It bodes well across the board for processors, equipment manufacturers and tooling suppliers."

According to the Q3 report, cost structure realignment is expected to deliver $35 million of annualized savings by the end of 2017, an increase of $5 million from previous estimates. Commenting on this, Goeke explained that Milacron plans to continue its goal of reducing costs, something he said is being helped by the consolidation of Milacron's various companies, which was announced at NPE earlier this year.

"We were a lot of independent companies and now we're using common IT, purchasing and accounting, and streamlining the company," Goeke said. "In the case of engineering we've expanded our talent in India. When we bought Mold-Masters there were 125 engineers, and we've since added 50 employees for service and engineering. We're taking advantage of different service aspects of our business and being competitive. Where we can share services across the company, that's what we're doing."

On Nov. 6, Milacron also announced the acquisition of CanGen Holdings Inc., consisting of subsidiaries Canterbury Engineering Co. and Genca. CanGen is a leading supplier of highly engineered aftermarket process control components for extrusion and injection molding applications with approximately $20 million in sales, said a release from Milacron. This acquisition will be immediately accretive to Milacron's adjusted EPS and enhances Milacron's aftermarket capabilities, including a broadened product offering into downstream tooling, proprietary rights to over 185,000 unique designs and drawings, and a regional center for parts and services in the southeastern United States. Genca also has a strong market position throughout Mexico and South America, which can be leveraged under Milacron's ownership.

"CanGen fits perfectly with our core growth strategy of accelerating life-cycle sales through consumable products and aftermarket services," commented Goeke. "This acquisition brings a complementary product portfolio and customer base to Milacron, further building upon our fully integrated customer-driven solutions. Additionally, CanGen provides an entry into the extrusion market for rubber products, which opens up a new set of customers for Milacron's existing product range."

Milacron's first acquisition was Mold-Masters in 2013, then Kortec, which Goeke noted were both technology acquisitions: Mold-Masters in melt delivery and Kortec in barrier packaging technology. CanGen represents the consumables part of the business, i.e. aftermarket parts and service, as well as geographic expansion. "CanGen offers complementary technology and consumables in our extrusion business," said Goeke.

CanGen supplies highly engineered aftermarket process control components for extrusion and injection molding applications. Its products include custom screws, barrels and tooling and cross heads for extruders operating in the building products, rubber tire, packaging and recycling end markets. The company is headquartered in Atlanta, GA, with additional facilities in St. Petersburg, FL.

"They are in end markets that have customers we don't have and we are in end markets that have customers they don't have," Goeke stated. "This will be a real good fit for us—an extension of our business."

CanGen CEO Paul Cusolito commented that "the combination offers a great opportunity for CanGen and its employees to serve a significantly larger customer base while obtaining access to the extensive resources available at Milacron. We look forward to working with the Milacron team to continue building upon our available product offerings and value-add to our customers. This is a great fit for the future of our business and our employees."