Wall Street seems to be taking a wait-and-see attitude with the newly issued common stock shares of Milacron, the American-based manufacturer of three types of plastics processing machinery, hot runner molds, mold components and other products. Most plastics machinery–by an order of magnitude–is produced in China or central Europe.
The stock is trading at just about exactly at its target price of $20 per share, while volumes are light, under 100,000 shares moving daily recently.
Milacron is an interesting case. It had declared bankruptcy in 2011, was purchased by a private equity firm, then purchased by another private equity firm, which took the company on a spending spree with impressive results that were unveiled at NPE2015 in Orlando, Florida last March.
The company has a record of recent net losses, and a 2015 quarterly balance sheet disclosed $69 million in cash with over $1 billion in debt and obligations. The stock offering made a dent in reducing that debt.
The offering provides a glimpse into a lot of data and of forecasts that are not generally available in the plastics industry. Here are a few things I learned:
- The average age of plastic processing equipment in the United States in 2013 was 12 years compared to an average age of eight years in 1980. That’s clearly a reflection of the Great Recession of 2009, at least in part. I think it also reflects in part that machines are much better made than they were in the 1970s and 1980s. It also shows that there are still a lot of machines out there punching out parts 24/7 on molds that are probably also pretty old. To Milacron, it represents an opportunity. Milacron’s large direct sales team is also very aware that American molders are a conservative lot, and want to see real benefits and reasonable rates of return on new capital investments.
- The aftermarket business is far more important than I would have expected, but more apparent when you consider that machines are kept for an average of 12 years. In fact, Milacron told investors in its prospectus that aftermarket sales of parts and service could generate four times the amount of revenue as new machine sales. That’s particularly true at Milacron because it has a global installed base of some 40,000 machines and 140,000 hot runners through its Mold-Masters acquisition.
- Milacron is the number one producer of injection and blow molding machines in India, but is behind the pack in China. Milacron established manufacturing in India in 1995, and makes injection molding machines from 50 ton to 3200 tons with capacity to manufacture 2000 machines per year. As part of a corporate drive to reduce costs by $30 million by the end of 2017, Milacron is moving some engineering and administrative functions to a shared service center in India at a savings of $1.8 million.