Packaging Market to Remain Strong
Analysts project revenues for packaging and container industries to increase 10% this year.
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The packaging industry started off 2018 very strongly, according to first-quarter financial results provided by publicly traded packaging and container manufacturers. The packaging industry in general has experienced tremendous growth since 2016, and the first quarter of 2018 continued that trend.
Gardner Intelligence’s review of 24 publicly traded U.S. packaging and container firms indicates that first-quarter 2018 real (inflation-adjusted) revenues grew 10.1% from a year ago. (Gardner Intelligence applied a 2.5% annual deflator to forecasted values.)
Executives at one large packaging firm stated to investors during its first-quarter 2018 shareholders meeting that its latest inancial results were bolstered in part by the ability to push through higher prices and volumes. According to the latest available actual and forecast data from Wall Street analysts, the packaging and container industry is expected to experience revenue gains of just under 10% during calendar year (CY) 2018. Next year’s expectations from these same analysts show marginal revenue change in 2019 following 2018’s strong gains.
Earnings expectations in CY 2018 and 2019 largely follow the same trajectory as revenues. Earnings growth during CY 2018 is projected at an impressive 54% before turning slightly negative the year after. Although projections for revenue and earnings are very encouraging for 2018 and 2019, actual capital-expenditure growth during CY 2017 was just 1.8% over CY 2016. This may have been due in part to poor revenue and earnings performance in 2015 and 2016, along with subdued free cash flows during 2017.
If the lack of investment in 2017 was in fact a reaction to the struggles experienced in the prior years, then 2018 and beyond may see above-average spending on investments. Among the 19 firms in our study that had reported their first-quarter 2018 capital expenditures at the time of this article’s publication, capital spending was up 3.9% compared with Q1 of 2017.
By comparison, capital spending among these same firms was down 1.3% from 2016’s fourth quarter to that of 2017. Among other sources pointing to an upbeat 2018 is The Association for Packaging and Processing Technologies (PMMI). According to PMMI’s April 2018 Business Indicator Report, survey data provided by OEMs and end users investing in packaging equipment indicates significant optimism about 2019 equipment investment in every end market examined. Survey respondents were most optimistic about the chemicals, food and durable-goods markets.
Following behind these top three were pharmaceuticals, beverages and personal care. None of the six end markets reported in the PMMI survey indicated contraction for 2019.
ABOUT THE AUTHOR: Michael Guckes is the chief economist for Gardner Business Intelligence, a division of Gardner Business Media (Cincinnati, OH US). He has performed economic analysis, modeling and forecasting work for nearly 20 years among a wide range of industries. Michael 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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