Milacron Outlines $30 Million Cost Reduction Plan

Milacron executives yesterday discussed detailed plans to drive down costs $30 million by the end of 2017 in the first quarterly earnings conference call with investment analysts since the company went public in June.

The company’s earnings report seemed impressive, with rising revenues and strong improvement in margin as measured by adjusted EBITDA, a key financial metric that measures earnings before interest, taxes, depreciation and amortization.

The company’s stock prices, however, have slid from $20 per share July 27 to $15.25 this morning. That’s represents a more than 20 percent loss in market capitalization in 13 days. In that same period of time, the Dow Jones Industrial Average dropped 1.5 percent.

In the conference call, Milacron CEO Tom Goeke said there had been a “pause” in business in mid-July that was attributable to the hot runner business. He said, however, that business has returned to normal since and that there are plenty of orders “in the pipeline.” He said there has been no change in the consummables’ area, which represents 61 percent of the company’s business.logo

An analyst asked if an overall slump in capital spending affected Milacron, and Goeke said no. In response to another question, he said that Milacron’s business is good in Europe despite overall reports of slowness. Like much American business, the company’s results were negatively affected by conversion of foreign sales back into the strong American dollar.

The overall trend at Milacron appears positive, particularly on the margin side. The company is developing a strong focus on operational efficiencies and procurement savings that is common for Fortune 1000 companies but uncommon for companies in the plastics processing business.

A cost reduction/restructuring program kicked in during the second half of 2014 and Milacron reported to date (“run rate”) savings of $8 million toward the $30 million goal.

“Increasingly, we are leveraging our global footprint to drive costs out of our business and increase margins,” Goeke said. “We have initiatives in place to achieve $30 million in run rate savings by the end of 2017.”

Highlights of the program include:

  • Facilities consolidation in Europe. Milacron has completed the transition of the MDCS (Melt Delivery and Control Systems) warehouse from Belgium to the Czech Republic and has begun transitioning blow molding systems manufacturing operations from Italy to the Czech Republic
  • Back office integration and transition of several functional groups to a company-owned service center in India. These functions include human resources, accounting, information technology and engineering. Milacron is also consolidating certain sales offices and cost centers. Several recent acquisitions, including Mold-Masters, have created the opportunity to remove duplication and combine sales focus. Milacron has a large direct sales force. The company recently received state and local financial incentives to keep, and add, jobs in the Cincinnati area.
  • The company is generally driving efficiencies and procurement savings. Mark Dixon was appointed to the new position of Chief Procurement Officer in April, 2014. Before joining Milacron in 2013, Dixon headed the supply chain integration team at Eaton following its acquisition of Cooper Industries.
  • One other leg of the cost reduction program is to increase manufacturing in China. Specifics were not provided

The goal is to boost EBITDA growth to better than 20 percent.

One blip in the cost reduction program was the company’s “extraordinarily high” expenses for NPE2015 held in Orlando, Florida in March. Chief Financial Official Bruce Chalmers said the NPE tab was $3 million, but told analysts the cost will not be repeated in the next two years. The NPE is held every three years.

Milacron also said in the conference call that it intends to drive organic growth by better than 5 percent annually and derive more than 20 percent of its revenue from new products. Key opportunities in the hot runner market include increased penetration in emerging markets and conversion of cold runner systems to more productive hot runner systems.

Other strategies include: 1) optimization of the existing equipment portfolio to meet regional requirements, 2) broaden the hot runner platform, 3) use the deep pockets of majority owner CCMP Capital Advisors to “identify and execute select bolt-on acquisitions.”

About Doug Smock

Former Chief Editor at Plastics World and Senior Technical Editor Design News
Injection Molding

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