Breaking News

Recession: The converters speak

February 24, 2009

Narrow web printers face aching customers, sales, profits, and difficult internal choices.

It is difficult to get label printers to talk about anything else. Join a conversation at a meeting and the subject is always the same: the economy. Narrow web converters are willing to share quite a bit of information about how the recession is affecting them, though they prefer anonymity in every case, and sometimes their comments are unprintable.
The stories coming out of the Converter Meeting of the Tag & Label Manufacturers Institute this week in Naples, FL, USA, plus commentary from others in the industry, are all over the map. Nobody can discern a pattern in their own companies’ sales performance over the past three or four months, so forecasting is out the window. Some are asking, “What recession?”, while others are suffering through the pain of layoffs and slack business.
Converters do have a general consensus on two subjects, however: The economy will not take an upward turn in 2009, but the label converting industry most likely will not suffer the downturn as drastically as others will.
“There is no question that the current downturn and recession is having an impact on everyone in one shape or form or another,” says Frank Gerace, chairman of TLMI and the president of Multi-Color Corporation. “When you look at it relative to what is happening in other industries, we should feel pretty good about where we are as an industry. I think that everyone here is very confident that coming out of this we will be stronger and better, and continue to create a lot of value for our customers. So although in our current state people are not feeling great, I still detect a tremendous amount of confidence and optimism about how things will come out. I don’t see anyone running scared. Nobody feels like the world’s coming to an end. It’s an adjustment that we have to go through.”
Gerace attributes the relative health of label companies to the fact that “most in this industry support the consumer products segment of the economy: food, beverage, household products, personal care products. And consumer spending is two thirds of the economy. We happen to be attached to the consumer side of the marketplace.”
Here’s what converters are saying about sales over the past two to four months:
“Things are very quiet. We are optimistic about the future, but the present isn't too great.”

“We are experiencing the same sales as last year. I feel good for one breath and not so good the next. With no backlog, what are we doing the day after tomorrow?”
“Down 7.5 percent versus last year. Inbound orders are still slow.”
“Our 4th quarter 2008 was very strong, and beat the previous year on sales and profits. October 2008, for no discernible reason, was our best month ever for sales and profit. January 2009 was very soft, but February is improving and will definitely be better than January (almost never the case in normal years), but still weaker than last year.”
“We are still busy with repeat business and some new sales.”
“It is really incredible. We had a record fourth quarter and the bottom dropped out in late January. We do not see sales picking up until April. Customers are just not going to order until they know their inventories are down.”
“We are doing fine, busier than ever. I’m afraid to mention it to anybody.”
What measures are converters taking to maintain their relative financial health these days?
“We’ve gone from two shifts to one. We haven’t had layoffs, but there are people standing around with not much to do.”
“We have cut hours and totally eliminated overtime. We stopped our 401k match, and have looked very closely at all expenses.”

“We got out every cost cutting book, novel and theory and put them into practice. We called and are working with any state agency that can help us be a better company. We have not eliminated jobs, but there are a lot of people taking days off. We met as a company and I explained that it is not my plan to eliminate jobs. If there is no work tomorrow, do not come in. My team is on board and willing to do what it takes to make it through this together.”
“No raises. Hiring freeze. No overtime unless tied to a specific contract performance requirement. A very enthusiastic cost reduction team in place. Ongoing talks with suppliers about price roll backs on more volume based materials. We have not reduced the work force.”

“We are using this recession as an opportunity to revisit every expense we have, and we are very open with all of our suppliers of all types about our drive to cut expenses. We are seeking the best value. We are evaluating head count at this moment and have cut overtime significantly. Many people are on incentive compensation and this will ratchet down automatically if our profits decline.”
“We have never laid an employee off for lack of work. Not for the last 85 years. We are working more efficiently and are developing some new products.”
“We have reduced our work force. During January we met with our suppliers to ask for reduced pricing. Now that gas is down, some are considering it.”
We are going to reduce our workforce by trimming hours. We do not like to cut people, but it is time to evaluate underperforming assets.”
And the customers of the label converters? What are they saying to their printers?
“Customers are slow, too. We haven't really lost anyone, and nobody is really squeezing us on price. They are just ordering less.”

“Our second largest customer went bankrupt this week. They are also concerned about their viability. We can meet their needs as long as they continue to pay. If they continue to order we will maintain our integrity.”
 “We  have been standing by and absorbing the price increases on our big customers. They have not asked us for anything yet. I’m not sure what I’ll say to them except show them my children’s pictures and see if they will let them move in.”
“They have no better visibility into their business potential than we do. They have revised their own forecasts two or three times in the last 90 days. That’s normally unheard of in most cases.”
The overwhelming sentiment from our customers is bewilderment about the future. Nobody seems to know what’s going to happen near-term in their industry. Getting our price has been much easier than getting more and bigger orders.”
“Our customers have become more demanding of quality and delivery. We purchased a new press to meet their demands and are attempting to improve service to them.”
“You can maintain your fiscal integrity only if you had integrity to start with.  We have a strong balance sheet so we will continue to explore investments. Like all bubbles, the pendulum has now swung too far the wrong way. I suspect customers will be screaming for rush deliveries in April and May. They have said as much.”
“Customers are saying ‘We don’t know what the consumers are going to do’,” says TLMI Chairman Frank Gerace. “The buying patterns, the consumer behaviors have changed, and our customers are unsure and unclear about what the consumers are going to do. And because of that, it is very difficult for them to plan, to forecast. They are reducing inventories, conserving cash, delaying new launches, delaying product development projects, looking for ways to reduce spending.
“This situation is pervasive. There isn’t anything that it hasn’t touched.”
The main speaker at Tuesday’s TLMI session in Naples was Clint Swindall, author of books about corporate leadership. The exuberant Swindall ventured the opinion that the recession could be viewed as a blessing when seen from a different perspective.
“It’s hard to say this, because it’s a very difficult thing to swallow,” says Gerace, referring to Swindall’s observation. “But it can be looked at in a positive light, because when times are good, we tend to overlook the waste and the mediocrity. So there is a silver lining in this, in that it tends to cause us to focus on what is important, and to deal with the tough decisions now in a perfect context, to do some of the things we probably should have done months ago with respect to waste, recessionary spending, and the other challenges we have to meet.”