Graham Packaging struggles with costs

By Ahmed ElAmin

- Last updated on GMT

Related tags Net sales Revenue

While Graham Packaging reported sales and operating income rose in
the second quarter due to the purchase of Owens-Illinois' plastics
unit, the company has still not been able to bring its costs under

The company has reported a 130.2 per cent gain in net sales and a 19.8 per cent gain in operating income for the second quarter of 2005, as compared to the second quarter of 2004. Net incomefor the second quarter of 2005 totaled $4.1m, a decrease of $11.8 million, or 74 per cent, as compared to the second quarter of 2004.

Like the food industry it serves, packagers have been consolidating to achieve cuts in costs and to meet the global demands of their customers, who are entering emerging markets in eastern Europeand Asia.

Company chairman and chief executive Philip Yates said in addition to the boost from O-I's plastic blow-molded container (OIPC) business the increase was also due to resin pricing.

Graham Packaging essentially doubled in size as a result of the $1.2bn acquisition of OIPC. Overall in the second quarter, the number of container units sold increased 79 per cent compared to thesecond quarter of 2004.

During the second quarter the company relocated and re-installed equipment across its plant network and installed five new high-speed blowmolders to boost productivity. The moves resulted in aone-time increase in project start-up costs of $7.4m when compared to the second quarter 2004.

The company is also managing the integration and restructuring of the companies and working to reduce costs at a few key plants, Yates stated in an earnings release.

"We are at the nine-month point following the acquisition of OIPC, and the integration of the two organisations is proceeding well, but with the normal set of challenges in closing andconsolidating plants, moving lines, and starting new equipment,"​ Yates stated.

Second-quarter net sales in North America rose by $332.1m, or 142.3 per cent, mainly due to OIPC and resin pricing. Net sales were up 70.4 per cent in Europe and 65.6 per cent in South America.Yates attributed the increases to the OIPC acquisition and favourable changes in exchange rates.

Operating income from the additional sales was partially offset by expenses related to the acquisition of OIPC, an increase in restructuring expenses of $12m and a net increase in project costs of$7.4m.

Yates stated that shipments in a couple of product areas were softer than expected. For the half year net sales for the six months ended 30 June totaled $1,265.3m, an increase of $724.9 million, or134.1 per cent.

The net loss for the six-month period was $7.4m, a drop of $33.9 million, or 128 percent, from net income of $26.5m in the same period last year.

The loss was related to the increased expenses combined with a rise in net interest payments. These increased $45m, or 109 per cent, to $86.2m during the six months. The increase in net interestwas primarily related to higher debt levels following the refinancing in connection with the OIPC acquisition.

Graham Packaging has 88 plants and is a leading supplier of plastic containers for hot-fill juice and juice drinks, sports drinks, drinkable yogurt and smoothies, nutritional supplements,wide-mouth food, dressings, condiments and beers. The company also supplies plastic containers for yogurt drinks.

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