Rising overheads hit packaging profits, despite higher sales

While major industry players such as O-I, Bemis and Sealed Air experienced greater economic activity, all saw profits slip or fall below expectation as raw material prices and overheads continued to climb.

O-I ​

O-I saw its first quarter profits fall year-on-year by 15 per cent to US$73m as higher overheads more than offset the growth in sales.

The glass packaging giant posted sales of $1.7bn for the three months ending 31 March, 2011, compared to $1.5bn in the previous year. However, rises in manufacturing, shipping and delivery costs, interests charges as well as selling and administrative expenses all meant its net earnings for the period dipped below 2010 total of $85m.

The company’s on-going issue with regard to asbestos-related lawsuits cost it $33m in the quarter, with some 5,900 cases still outstanding.

“Our shipments were up from prior year levels across all regions and end-use categories,”​ said chairman and CEO Al Stroucken. “Higher volumes reflected last year’s acquisitions in ​South America​ and ​China​ as well as improving economic conditions. However, the benefit of greater shipments was offset by higher costs including elevated cost inflation and interest expense on additional borrowings to fund recent and future acquisitions.”​

The company expected higher shipment and production levels in the second quarter. The CEO cautioned that rising energy costs in Europe would put pressure on margins but believed it would be easier to pass on price rises to customers.

Bemis​

Plastics packaging company Bemis posted lower than forecast Q1 profits of $51m as unexpectedly high resin costs hits its flexible packaging operations.

“Increasing raw material costs have created a challenging environment for our flexible packaging business,”​ said company CEO and president Henry Theisen.

He said the strategy to concentrate production on at the most profitable sites to boost sales in targeted markets was on track.

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“Unfortunately, raw material cost increases for specialty resins were more dramatic than we had anticipated,”​ said Theisen.

The Bemis chief forecast that profit margins would improve in the third quarter “as most selling prices should be adjusted to reflect the impact of the raw material cost increases earlier in the year”.​

Sealed Air​

Sealed Air saw its year-on-year Q1 profits slip 2 per cent to $59m on the back of rising petrochemical raw material costs and increasing freight tariffs.

Sales increased 6 per cent to $1.13bn, while gross profit increased 3 per cent to $309m.

Its food packaging division saw sales increase 6 per cent to $475m, thanks in part to price irises introduced in North America. Volumes rose by 4 per cent in that region and 5 per cent in Europe.

CEO and president William V. Hickey said rising overheads had cost the company an extra $40m in the three-month period and were due to the ongoing unrest across the Middle East as well as the general upward trend in global commodity prices.

He said that resin prices were approaching 2008 peaks but that increases introduced by the Sealed Air would restore yields by the third quarter.