The term "plastics" might not quicken the pulse of tech-happy
geeks eagerly awaiting the day their cellphones can sprout wings
and fly them to the moon.
But that doesn't mean the plastics industry is stuck back in
the 1970s. A number of companies are using 21st century
innovation and technology to push the industry into new areas of
One of those companies isPolyOne (
). It makes specialized polymer materials for the plastics
industry, everything from PVC (polyvinyl chloride) resins and
biodegradable color concentrates to high-density compounds as
strong as metal.
Over the past six years, PolyOne has transformed itself from a
supplier of low-margin, commodity-type products into an industry
leader in innovation, research and development. The strategy has
allowed PolyOne to fetch some of the highest margins in the
"Every project they take on has much higher margins than those
at the average company," said Dmitry Silversteyn, an analyst at
Longbow Research. "They've really become an R&D engine."
He gives much of the credit to Chief Executive Stephen Newlin,
who took over the helm at PolyOne in February 2006 after previous
stints atEcolab (
) and Nalco Chemical.
"It took Newlin three or four years to transform the company
culture from a commodity mindset to one that focuses on profit
margins and R&D," Silversteyn said. "PolyOne has increased
its R&D twofold over the past six years, more than doubled
its sales and marketing staff and doubled its gross margin."
He cites the company's work with computer makerHewlett-Packard
) as an example of how PolyOne has evolved over the years.
After HP was having problems with a plastic part in one of its
printers -- a "low-value product" that had problems moving paper
and wore out too quickly, Silversteyn says -- PolyOne developed a
much more advanced part that involved a blend of additives and
plastic. It ended up fixing the problem.
"It's a small piece of plastic, but in terms of dollar value
it's almost equivalent to the entire plastic casing around a
printer," Silversteyn said.
In addition to beefing up its R&D, PolyOne also has used
buyouts to broaden its product line. The latest acquisition came
Oct. 24, when PolyOne announced plans to buySpartech (
), a maker of bulletproof barriers and aircraft cabin
The deal is valued at $393 million, including $246 million for
the acquisition itself as well as the assumption of $142 million
PolyOne's stock price rose 9% to 18.36 the day the buyout was
announced, helped by a better-than-expected Q3 earnings
Shares continued to rise over the next several sessions,
touching a 13-year high of 20.30 on Nov. 2.
PolyOne said it expects the buyout to add to earnings in the
first year. The deal is expected to close in the first quarter of
In addition to its security and aerospace gear, Spartech makes
plastic sheets, specialty film laminates, specialty plastic
alloys, color concentrates and blended resin compounds. The
company had $1.1 billion in sales last year.
On a conference call to discuss Q3 results and the buyout, CEO
Newlin said Spartech resembles PolyOne in the early stages of its
"(Spartech has) strong positions in several growth segments,
but is underappreciated in the specialty space," Newlin said.
"They utilize many technologies that serve specialty markets such
as aerospace, security and specialized packaging. They also
recognize the importance of leading innovation."
Spartech gets 94% of its revenue from North America. One of
PolyOne's priorities is to widen the company's geographic
"We have a tremendous opportunity to expand all of Spartech's
platforms from a predominantly North American focus to other
regions of the world," Newlin said. "(We can grow) organically
with existing Spartech customers and open new opportunities
through prospecting and cross-selling, using the broader and
already established global PolyOne network."
PolyOne gets 64% of its revenue from the U.S. Europe accounts
for 18%, Canada 9% and Asia 7%. The rest is split between South
America and other markets.
Last year, PolyOne acquired ColorMatrix, a manufacturer of
colorants and other additives for plastics. That deal has added
about 2 to 3 cents to earnings per share this year.
Financially, PolyOne has produced 12 straight quarters of
sales and earnings growth.
The bottom line has grown in double digits all but one quarter
over the past three years. But the top line hasn't grown in
double digits since the June 2011 quarter, a cause of concern for
"People are concerned about volume declines, but part of that
is because PolyOne is not willing to deal with customers who
don't look at them as a value provider," Silversteyn said. "So
there has been some voluntary volume erosion. Plus there's been a
volume decline in Europe due to some of the economic problems
He expects PolyOne's revenue to grow 4% this year, then rise
37% in 2013 as the Spartech business comes aboard. Revenue growth
should ease back to 7% in 2014.
Earnings growth should be much steadier. Analysts polled by
Thomson Reuters expect profit to grow 18% this year, 14% in 2013
and 19% in 2014.