Advantage: Flexible Packaging

Sustainability and shelf appeal are two advantages flexible packaging can leverage as the economic recovery continues.

Cautious optimism appears to be the general consensus in many market segments these days. Even though the U.S. and world economies appear to be in the initial stages of recovery, many indications point to a sluggish recovery at best, with many bumps in the road and dangerous hairpin turns to negotiate.

During the past year, the flexible packaging segment suffered through the downturn just like other industries. At the Flexible Packaging Association's (FPA, www.flexpack.org) annual meeting held last month, John Baumann, president and CEO of Ampac Packaging LLC (www.ampaconline.com) and chairman of FPA, presented preliminary data from the association's State of the Industry report that will be issued mid-year.

Baumann reported total sales for U.S. flexible packaging of $25.7 billion in 2009, down from $26.2 billion in 2008. Of this, value-added flexible packaging—which involves multiple processes, usually including extrusion, laminating, and printing—decreased about 1.5 percent in 2009 to $20.0 billion. In addition, preliminary results from FPA's converter member survey indicated that 69 percent of participants had lower revenues in 2009 versus 2008. Relative to capital expenditures, 57 percent reduced their investment levels in 2009, while a respectable 29 percent were able to increase capital spending. As another relatively positive indicator, capacity utilization was up slightly in 2009 with 43 percent of participants running at greater than 80 percent.

Going forward, the State of the Industry report forecasts slow growth in the near term, with gradual improvement of 2 to 4 percent per year. It also predicts that the industry will experience further consolidation, along with challenges coming from raw material cost volatility and margin pressure.

Although this Great Recession has proven that the packaging segment isn't quite recession-proof, packaging in general, and flexible packaging in particular, do have distinct advantages versus commercial printing because of the markets they serve. For example, the largest category for flexible packaging sales is food (one of the more non-discretionary consumer categories), with the FPA reporting 56 percent of 2009 sales going for food products.

One snapshot of how the downturn has impacted companies that supply flexible packaging in consumer markets can be seen with a look at Bemis Company (www.bemis.com). In its annual report for 2009, it reported its net sales decreased 7.0 percent overall from 2008. While net sales for its flexible packaging business (which accounts for 85 percent of the company's total sales) decreased about 5.4 percent, its operating profit for this business increased from 10 percent of net sales in 2008 to 12.9 percent in 2009. Henry J. Theisen, president and CEO reports: "Our flexible packaging business achieved record operating profit in 2009 driven by lower raw materials costs early in the year, followed by stronger sales of value-added products and manufacturing improvements."

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