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Milacron: sales up, consolidation pending

March 2, 2006

4 Min Read
Milacron: sales up, consolidation pending

With increased North American business helping it post the highest consolidated sales and new orders it had seen in five years, the news for plastics machinery and mold component supplier Milacron (Cincinnati, OH) was largely upbeat in its Q4 2005 earnings report, but a drop in orders (3%) and shipments (10%) for its European plastics business continues to drag on the company, as it pursues largely unspecified consolidation plans.

Corporate spokesman Al Beaupre said negotiations on any consolidation are ongoing, with few new details available, but the reductions, although emphasizing Europe, would affect plastics machinery and mold operations in the U.S. as well as Germany, where the company''s Ferromatik Milacron division is based in Malterdingen. The moves could seep into 2007, according to Beaupre, but should be substantially completed by the end of this year. In all, the restructuring will generate $20 million in fees, but should create $14-$15 million in annualized benefits once fully realized, with most of that coming in 2007. Milacron announced these moves prior to its November earnings conference call (MPW e-Weekly, Oct. 3) with some speculation last week as to what operations would be affected (MPW e-Weekly, Feb. 20).

In the conference call, Brown said many of Milacron''s competitors in Europe faced similar difficulties, saying all of the major players are going through a restructuring. Earlier this year, Battenfeld, a member of the SMS Plastics Technology Group, announced it would close down its manufacturing facility for large injection presses in Germany. "Anyone with global operations knows that it''s more difficult and expensive to make major changes in Europe compared to North America," Brown said, "but we also know that it''s not going to get any easier or less expensive if we wait."

When asked by an analyst if it might be more profitable in the long run for Milacron to simply abandon its European operation, Brown disagreed. "We don''t believe that''s the case," Brown said. "We believe we''re doing the right thing by fixing it and returning these businesses to profitability." Milacron''s European operation lost $700,000 in 2005 and $200,000 in 2004.

For the quarter, Milacron reported net earnings of $5.7 million on global sales of $217 million ($107 million North America), which pushed the company to a net loss of $14.1 million for the year, compared $51.8 million in 2004.

Brown said that half of Milacron''s 4% sales increase came from higher pricing for its products. In all, Milacron said materials costs in 2005 were $23 million higher due to increases in raw materials like steel, with all but 33% of those lost monies recouped through higher pricing.

Citing a recent Society of the Plastics Industry report that pegged injection molding machinery sales up 9% in 2005, Brown said Milacron''s results were roughly double that, helping the company increase market share.

John McGinty, an analyst with Credit Suisse, was surprised that Milacron''s profits seemed rather anemic given that in the fourth quarter orders were up 12% and sales lifted 11% but overall profits were only up 4%.

"Where''s the rest of it?" McGinty asked. "That was a shock." Brown accounted for the gap by citing pension costs, fees associated with Sarbanes-Oxley compliance, and temporarily low margins on some newly released products.

As of now, Milacron said its pension was 72% funded, with a gap of $165 million that the company will have to start paying down on a quarterly basis in 2007 with the biggest payment, $44 million, due in September of that year.

Going forward, Milacron is optimistic, although it refused to release full-year guidance for 2006. Brown said capacity utilization in U.S. plastics processing had risen from 88% in September to 89.2% in January: the highest it''s been since March of 1997. Milacron expects sales increases of 4-5% in 2006, emphasizing continued expansion in growth markets like Asia, and greater focus on aftermarket sales and service operations in mature geographies like Europe and North America. In 2005, Brown said 33% of the machinery segment''s sales were generated by its aftermarket operation.

In other markets, Brown said sales were around $20 million/yr in India, with margins slightly above those Milacron earned in the U.S. Asia in general has posted consistent double-digit growth for the firm. China saw a $6 million jump in sales volume thanks to Milacron''s joint venture there, with total sales in China of $20 million including imports and local production. Last week Herb Hutchison, director of international business development for Cincinnati Milacron''s extruder business, said that unit is looking to expand manufacturing globally, potentially at its Indian or Chinese facilities (MPW e-Weekly, Feb. 20).

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