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WIKI ANALYSIS
Pactiv Corporation (NYSE: PTV) makes plastic food packaging and consumer goods such as Hefty garbage bags. The company sells most of its goods in the United States, which accounted for 91% of its total 2007 revenues of $3.3 billion.[1]
In 2007, a 33% increase in the price per pound of polyethelene plastic resin sold in the U.S.[2] reduced Pactiv's gross margin from 31% to 29%.[3] Revenue growth (excluding the impact of acquisitions) in Pactiv's Consumer Products segment slowed to 2% in 2007, down from 10% in 2006.[4][5] In addition, with a slowing economy in the second quarter of 2008, Pactiv reported decreased sales volume in both their Consumer Products and Foodservice/Food Packaging segments.[6]
On the other hand, the amount of fresh fruit and vegetables produced in the U.S. during 2006 increased by 1 lb per person.[7] Likewise, the total amount of red meat produced in the U.S. increased about 4% in 2006.[8] This resulted in 4% revenue growth for Pactiv's Foodservice/Food Packaging segment during the same period.[9] Pactiv's products compete with similar products produced by companies such as Sealed Air (SEE), Bemis Company (BMS), S.C. Johnson & Son and Clorox Company (CLX).
Business Overview
In October 2005, Pactiv sold nearly all of its protective and flexible packaging businesses.[11] The remaining protective and flexible packaging products are included in the Foodservice/Food Packaging segment.[12] In 2007, Pactiv purchased Prairie Packaging, a manufacturer of plastic silverware and packaging products, for $1 billion.[13] This resulted in increased revenues and operating income for both Pactiv's Foodservice/Food Packaging and Consumer Products segments.[14]
Business and Financial Metrics
| Revenue and Income[16] ($ MM) | 2007 | 2006 | 2005 |
| Consumer Products | 1,221 | 1,085 | 989 |
| Foodservice/Food Packaging | 2,032 | 1,832 | 1,767 |
| Total Revenues | 3,253 | 2,917 | 2,756 |
| Operating Income | 472 | 424 | 300 |
| Net Income | 245 | 274 | 54 |
Between 2006 and 2007 Pactiv's revenues grew 12%. 10% of the increase between 2006 and 2007 was due to the company's acquisition of Prarie Packaging.[17] The rest of Pactiv's revenue growth in 2007 was due to increased sales volume, higher prices and favorable exchange rates.[18] Between 2005 and 2006, sales grew 5.8%. 5.3% of this increase was due to higher prices.[19]
Business Segments
- Foodservice/Food Packaging (62% of 2007 Revenues, 52% of 2007 Operating Income): manufactures mostly plastic products used to package meat, baked goods, restaurant takeout, vegetables, fruits and other foods.[20] Foodservice/Food Packaging revenues grew 11% in 2007.[21] 10% of this growth was due to the effects of the acquisition of Prairie Packaging and the rest was due to increases in volume and prices. Pactiv sells its Foodservice/Food Packaging products directly to customers such as Wal-Mart Stores (WMT), other stores that sell grocery items, and restaurants.[22]
- Consumer Products (38% of 2007 Revenue, 48% of 2007 Operating Income) makes plastic food storage bags, plastic garbage bags, disposable tableware and other similar products. Pactiv sells its Consumer Products under the Hefty, Baggies, Kordite and EZ-Foil brand names.[23] The Prairie acquisition added $117 million worth of revenue to PCA's Consumer Products segment in 2007. [24] This combined with a small amount volume and price increases to grow the segment's total revenues by nearly 13%.[25] Pactiv's Consumer Products are sold through retailers such as Wal-Mart Stores (WMT), Target (TGT), Safeway (SWY), and other similar stores.[26]
Key Trends and Forces
A slowing economy results in slowed sales growth for Pactiv
In June 2008, real consumer spending fell 0.2% signaling a slowdown in the U.S. economy.[27] Because premium branded products such as Hefty garbage bags are generally more expensive than private label goods, consumers usually decrease purchases of branded products and increase purchases of private label products during an economic slowdown. As a result of this, Pactiv Consumer Products volume decreased slightly in the second quarter of 2008.[6] Consumers also tend to cut back on spending at restaurants during economic slowdowns. As a result of this, Pactiv's Food Service volume fell 1% to 2% excluding the impact of the Prarie acquisition during the second quarter of 2008.[6]
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Higher price of plastic resin compress Pactiv's gross margins
According to Chemical Market Associates Inc., the price of polyethelene resin increased 33% from about $0.60 to $0.80 per pound in 2007.[29] Likewise, the price of polystyrene resin increased from about $0.72 to $0.75 per pound.[30] When the price of plastic resin increases, Pactiv's gross margins decrease. As a result of the increase in plastics prices, Pactiv's gross margin decreased from 31% in 2006 to 29% in 2007.[31]
Increased production of red meat increases Pactiv's Foodservice/Food Packaging sales of those products
Between 2005 and 2006, the total amount of red meat produced in the U.S. increased about 4% from 45.8 billion pounds to 47.7 billion pounds.[32] When consumers demand more foods packaged with Pactiv's Foodservice/Food Packaging products, the sales of those products increase. Partially as a result of the increase in food produced, Pactiv's Foodservice/Food Packaging revenues increased 4% in 2006.[33]
Key Competitors
- Sealed Air (SEE) manufactures packaging materials for food, medical and other industrial and consumer applications. Sealed Air's food packaging products compete with those produced by Pactiv's Foodservice/Food Packaging segment.[34]
- Bemis Company (BMS) produces packaging for food, industrial, medical and personal care products. The company also produces pressure sensitive films used in label and graphics printing. Bemis' food packaging products compete with those produced by Pactiv's Foodservice/Food Packaging segment.[35]
- Clorox Company (CLX) manufactures consumer products such as bleach, cleaners, cat litters, charcoal, sauces, plastic storage bags, plastic garbage bags, and other products. Clorox's plastic storage and garbage bags sold under the Glad brand name compete with Hefty bags produced by Pactiv's Consumer Products segment.[36]
- S.C. Johnson & Son, Inc. is a private company that produces consumer cleaning and home care products as well as home packaging products sold under the Ziploc and Saran brandnames. The company's Ziploc and Saran products compete with similar products produced by Pactiv's Consumer Products segment.[37]
Pactiv and Key Competitors 2007 ($ in millions)
| Company | Total Revenues | Net Income | Net Profit Margin |
| Pactiv | 3,253 | 245 | 8% |
| Sealed Air (SEE) | 4,651 | 353 | 8% |
| Bemis Company (BMS) | 3,649 | 182 | 5% |
| Clorox Company (CLX) | 4,847 | 501 | 10% |
| S.C. Johnson & Son, Inc. | Pvt. | Pvt. | Pvt. |
References
- ↑ PTV 2007 10-K: Segment and Geographic Area Information, pg 55
- ↑ PTV 2007 10-K: Year 2007 compared with 2006, pg 12
- ↑ PTV 2007 10-K: Consolidated Statement of Income, pg 28
- ↑ PTV 2007 10-K: Year 2007 compared with 2006, pg 13
- ↑ PTV 2007 10-K: Year 2006 compared with 2005, pg 17
- ↑ 6.0 6.1 6.2 Pactiv Corp. Q2 2008 Earnings Call Transcript
- ↑ Data-Food Availability Per Capita Search for Fresh Fruit, Fresh Vegetables, Beef and Chicken
- ↑ Data-Food Availability Per Capita Download spreadsheet for Beef, veal, pork, lamb and mutton, and total red meats
- ↑ PTV 2007 10-K: Selected Financial Data, pg 10
- ↑ PTV 2007 10-K: Selected Financial Data, pg 10
- ↑ PTV 2007 10-K: Notes to Consolidated Financial Statments, pg 32
- ↑ PTV 2007 10-K: Notes to Consolidated Financial Statments, pg 32
- ↑ PTV 2007 10-K: Management’s Report on Internal Control over Financial Reporting, pg 24
- ↑ PTV 2007 10-K: Management’s Report on Internal Control over Financial Reporting, pg 24
- ↑ PTV 2007 10-K: Segment and Geographic Area Information, pg 55
- ↑ PTV 2007 10-K: Selected Financial Data, pg 10
- ↑ PTV 2007 10-K: Year 2007 compared with 2006, pg 13
- ↑ PTV 2007 10-K: Year 2007 compared with 2006, pg 13
- ↑ PTV 2007 10-K: Year 2006 compared with 2005, pg 17
- ↑ PTV 2007 10-K: Products and Markets, pg 2
- ↑ PTV 2007 10-K: Year 2007 compared with 2006, pg 13
- ↑ PTV 2007 10-K: Marketing, Distribution and Customers, pg 3
- ↑ PTV 2007 10-K: Products and Markets, pg 1
- ↑ PTV 2007 10-K: Year 2007 compared with 2006, pg 13
- ↑ PTV 2007 10-K: Year 2007 compared with 2006, pg 13
- ↑ PTV 2007 10-K: Marketing, Distribution and Customers, pg 3
- ↑ June consumer spending down as inflation gauge runs hot
- ↑ PTV 2007 10-K: Year 2007 compared with 2006, pg 12
- ↑ PTV 2007 10-K: Year 2007 compared with 2006, pg 12
- ↑ PTV 2007 10-K: Year 2007 compared with 2006, pg 12
- ↑ PTV 2007 10-K: Consolidated Statement of Income, pg 28
- ↑ Data-Food Availability Per Capita Download spreadsheet for Beef, veal, pork, lamb and mutton, and total red meats
- ↑ PTV 2007 10-K: Selected Financial Data, pg 10
- ↑ Google Finance: SEE
- ↑ Google Finance: BMS
- ↑ Google Finance: CLX
- ↑ Google Finance: PTV
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