Demand rises for Sealed Air's packaging despite price hikes
packaging products, despite the price increases the company made to
offset higher input costs.
Sealed Air's Cryovac flexible packaging products are used for fresh meat, poultry and seafood.
In recent months packing companies have warned they are hiking prices due to higher input costs.
Price hikes for packaging will put further pricing pressure on food processors, especially the smaller ones, as their margins are being hurt from a stagnant European market and price wars among retailers.
Packaging accounts for about 10 per cent of a product's cost, according to a report by KPMG.
In the case of Sealed Air, the company has lowered its 2005 full year earnings forecast due to escalating petrochemical-based raw material and other energy-related costs. The range has been revised and broadened due touncertainty as to the after-effects of the recent hurricane which hit the US Gulf Coast.
"While we are not pleased with the short-term impact this surge in petrochemical and energy-related costs is having on our margins, we are encouraged by the continued sales growth globallyin both our food packaging and protective packaging segments," the company stated in its earnings revision. "Sales growth to date for the third quarter is tracking our first halfperformance."
Throughout the year, the company raised prices to offset the impact of the escalating costs. Sealed Air also stated it has made an improvement in productivity and controlled operating expenses tominimise the impact of the cost increases.
"In addition, as we have previously discussed, the restructuring programme that we implemented late last year and our recent supply chain initiatives are contributing to cost improvementsin the second half of 2005," the company stated. "Going forward, we expect that the operational initiatives we have in place, combined with our global presence, broad product offeringand high level of packaging expertise, will enable us to increase sales and profits in 2006."
The company had revenues of $3.8bn in 2004 from its operations in 51 countries.