Playing it Prudently
March 2001
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Converters put a conservative spin on spending and profits in 2001—but how much caution is too much?
by Susan Friedman, Editor
On the surface, there's plenty of positive flexible packaging news. Consider the 2000 returns reported by some of the larger players in the industry:
Alcoa turned in its best fourth quarter in the company's history, while Alcan sales were down for the quarter but up 34 percent for the year. Bemis netted a 13 percent increase in sales for the year, completing acquisitions of Viskase, and Arrow's flexible packaging business. Sealed Air's Cryovac division reported a 3 percent annual sales gain, and AEP's North American annual sales grew 10.2 percent.
The Flexible Packaging Association (FPA)'s 2001 Outlook Survey bears more uplifting data, reporting shipment values rose 3.6 percent in 2000 to an estimated $19 billion. A further 3.5 percent increase is projected for 2001, which would push values to $19.7 billion. Further, respondents to packagePRINTING's Top Flexible Packaging Converters Survey reported an average annual profit growth rate of 12.5 percent.
Bret Biggers, director of business and economic research at FPA, says the association's members generally experienced smooth sailing through the first half of 2000, but ran into dicier dealings in the second half. The year was host to a flurry of industry restructuring and cost-cutting, which he explains can boost earnings and profits, but not necessarily value of shipments.
In general, converters' responses to FPA's annual survey uncovered surprising undertones of caution and concern. For the first time in the survey's history, opinions were evenly split (40 percent each) on whether 2000 was better or worse than the previous year. Converters cited lower sales/volume and higher material costs as their leading profit nemeses.
But is this segment taking negative economic hype too much to heart? "So much visibility and talk of an economic slowdown creates psychological pressure and heightened sensitivity in the industry," observes Terry Clark, director at consulting firm Crescent Associates. "End-users almost always resist price increases from converters, but now the pushback may be more challenging than usual. Converters will find it hard to pass on not-so-visible cost increases such as those for energy and labor. They may be pressured to hold inventory for customers."
FPA's survey also found just 60 percent of converters (the lowest percentage in the survey's history) plan to purchase machinery in the coming year. "This cooling-off period supports the fact that volume is converters' number one concern," states Biggers. Clark, too, sees converter and end-user commitments to invest in new equipment being postponed at least six months.
by Susan Friedman, Editor
On the surface, there's plenty of positive flexible packaging news. Consider the 2000 returns reported by some of the larger players in the industry:
Alcoa turned in its best fourth quarter in the company's history, while Alcan sales were down for the quarter but up 34 percent for the year. Bemis netted a 13 percent increase in sales for the year, completing acquisitions of Viskase, and Arrow's flexible packaging business. Sealed Air's Cryovac division reported a 3 percent annual sales gain, and AEP's North American annual sales grew 10.2 percent.
The Flexible Packaging Association (FPA)'s 2001 Outlook Survey bears more uplifting data, reporting shipment values rose 3.6 percent in 2000 to an estimated $19 billion. A further 3.5 percent increase is projected for 2001, which would push values to $19.7 billion. Further, respondents to packagePRINTING's Top Flexible Packaging Converters Survey reported an average annual profit growth rate of 12.5 percent.
Bret Biggers, director of business and economic research at FPA, says the association's members generally experienced smooth sailing through the first half of 2000, but ran into dicier dealings in the second half. The year was host to a flurry of industry restructuring and cost-cutting, which he explains can boost earnings and profits, but not necessarily value of shipments.
In general, converters' responses to FPA's annual survey uncovered surprising undertones of caution and concern. For the first time in the survey's history, opinions were evenly split (40 percent each) on whether 2000 was better or worse than the previous year. Converters cited lower sales/volume and higher material costs as their leading profit nemeses.
But is this segment taking negative economic hype too much to heart? "So much visibility and talk of an economic slowdown creates psychological pressure and heightened sensitivity in the industry," observes Terry Clark, director at consulting firm Crescent Associates. "End-users almost always resist price increases from converters, but now the pushback may be more challenging than usual. Converters will find it hard to pass on not-so-visible cost increases such as those for energy and labor. They may be pressured to hold inventory for customers."
FPA's survey also found just 60 percent of converters (the lowest percentage in the survey's history) plan to purchase machinery in the coming year. "This cooling-off period supports the fact that volume is converters' number one concern," states Biggers. Clark, too, sees converter and end-user commitments to invest in new equipment being postponed at least six months.
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