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 96% of its total 2009 revenues of $3.36 billion.
As a leader in the consumer and food packaging industry, Pactive has 43 manufacturing facilities in North America, 1 in Germany, as well as 2 joint ventures in China. During 2009, Pactiv earned a net income of $324 million, a substantial increase from its 2008 net income of $217 million.
On January 5, 2009, Pactiv acquired the company WinCup for $20 million. Wincup operates one manufacturing facility in North Carolina, and has helped increase revenues for Pactiv as a whole. In February 2010, Pactiv announced it was going to buy PWP Holdings, Inc. for $200 million. Pactiv's self stated strategy at growth is to make strategic acquisitions, meaning that future purchases of companies may be in store.
Total sales for Pactiv decreased 6% between 2008 and 2009 despite a 3% increase in total volume. The decrease in sales is due to the average price of their products falling by 8%. Although total revenues declined from $3.57 billion in 2008 to $3.36 billion in 2009, Pactiv was able to increase its net income by $106 million. The company was able to do this largely because it significantly reduced its expenses, thereby helping its bottom line.
Pactiv breaks its business into three segments: i) Consumer Products, ii) Food service and Food Packaging, and iii) Other.
Consumer Products manufactures disposable plastic, foam, cardboard, and aluminum packaging products. It then sells them to grocery stores, mass merchandisers, and discount chains. Products include waste bags, food storage bags, and disposable tableware and cookware. We sell many of our consumer products under well-known trademarks, such as Hefty®.
In 2009, sales for Consumer Products fell 4%, reflecting lower pricing of 6%, partially offset by a 2% increase in volume. The price decline reflects normal reductions due to lower raw material costs, while volume growth was a result of increases in tableware, partially offset by a decline in waste bags. Waste bag volume was down due to a decline in the overall waste bag market.
The Food service/Food Packaging segment manufactures styrofoam, plastic, aluminum, and cardboard packaging products, and sells them to customers in the food distribution channel, who prepare and process food for consumption. Customers include foodservice distributors, restaurants, other institutional foodservice outlets, food processors, and grocery chains.
Food service/Food Packaging sales fell 7%, driven by lower average selling prices of 9% and offset partially by volume growth of 3%. The lower pricing was related to decreases in raw material costs. The volume increase primarily was related to continued growth in cups and cutlery.
Other includes corporate and administrative service operations and retiree benefit income and expense. This segment does not generate any income.
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. Consumers also tend to cut back on spending at restaurants during economic slowdowns. In 2009 Pactiv was able to maintain and even increase to volume of sales to customers. However, it was forced to reduce prices in order to achieve this. If Pactiv raises prices in the future as the economy improves, its earnings could see a boost.
The price of polyethelene resin, a critical input into making plastics, has a large impact on the overall price of Pactiv's goods. Increases in this would cost Pactiv more to make each product, and thereby squeeze its profits if it is unable to pass on the price increase to the customers. When the price of plastic resin increases, Pactiv's gross margins decrease.
The total amount of red meat produced in the U.S. increased about 4% from 45.8 billion pounds to 47.7 billion pounds. When consumers demand more foods packaged with Pactiv's Foodservice/Food Packaging products, the sales of those products increase.
Pactiv and Key Competitors 2007 ($ in millions)
|Company||Total Revenues||Net Income||Net Profit Margin|
|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.|