Packaging Growth Points to Strong 2019

As the plastics industry adjusts to 2018’s higher orders volume, capital expenditures in the industry have increased significantly.

Using the financial data submitted to the Securities and Exchange Commission (SEC), along with forecasts provided by major Wall Street brokerages, Gardner Business Intelligence (GBI) has compiled financial results for 17 publicly traded firms in the containers and packaging industry to assess the current and future state of the industry. The results reveal an industry that has experienced eight consecutive quarters of revenue and earnings growth through the third quarter of 2018.

Total inflation-adjusted revenue and earnings growth during this time were 12.6% and 18.6% respectively. In 2018’s third quarter, the container and packaging industry achieved year-on-year revenue growth—known as the “12/12” rate of change—of 9.2%. Earnings before interest, taxes and depreciation (EBITDA) achieved a 12/12 growth rate of 12.2% during the same period. These strong results enabled the industry to achieve a profit margin not seen since the Great Recession of 2007-2009.

The industry’s financial success in recent years has also been well captured by the Plastics Processing Index—another GBI index (see p. xx)—which measures fundamental business conditions as reported by plastics processors. Among the six components that constitute this index, 2017 and 2018 data indicate an industry that has rarely expanded faster. The index since 2017 has been driven in large part by growth in new orders, production, and supplier deliveries. Backlog data collected since the first quarter of 2018 suggest that the industry has struggled to raise production levels sufficiently to match new orders growth, resulting in significant expansion of backlogs in the current calendar year.

As the plastics industry adjusts to 2018’s higher new orders volume, capital expenditures in the industry have increased significantly. The 12/12 rate of change ending in the third quarter of 2018 saw capital expenditures rise by 16%. Similarly, the supplier deliveries component of the Plastics Processing Index experienced unprecedented expansion readings in 2018. Since May, supplier deliveries were the fastest expanding component of the Index.

Using the aggregated financial forecasts provided by Wall Street analysts for the firms used in this study, the industry in 2019 and 2020 is expected to see continued but slowing growth in revenues after climaxing sometime during the second-half of 2018. As revenue growth slows, EBITDA growth is also expected to slow in the quarters afterward. Aggregated projections, however, do not show revenue or earnings growth falling below 4% until the third quarter of 2019 and second quarter of 2020 respectively. This suggest that containers and packaging will grow faster than the overall economy for most of 2019.

ABOUT THE AUTHOR: Michael Guckes is the chief economist for Gardner Business Intelligence, a division of Gardner Business Media, Cincinnati. He has performed economic analysis, modeling and forecasting work for nearly 20 years among a wide range of industries. Guckes received his BA in political science and economics from Kenyon College and his MBA from The Ohio State University. mguckes@gardnerweb.com.

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