The recovery from the financial meltdown of 2008 is paving the way for growth in many different industries. The global packaging industry was a $ 633.7 billion market in 2009. With an increase in demand for packaging products from other industries, it is forecast that the market will grow to a whopping $ 739.9 billion through 2014. This means that the industry is expecting growth of up to 3.1% annually in this five-year period.
Therefore, by implementing the right strategies, we can expect packaging companies to show robust growth in the future. AptarGroup, Inc. (NYSE:ATR), Ball Corporation (NYSE:BLL) and Bemis Company, Inc. (NYSE:BMS) are three packaging companies with interesting business models.
AptarGroup’s successful niche
Not only that, but the company has diversified itself to serve the highest number of dispensing-system customers.
AptarGroup, Inc. (NYSE:ATR) has several investment-grade companies as its customers, which provides for the long-term stability in its revenue. AptarGroup is unique because it has a broad product offering to cater to the dispensing system needs of the industry and it has an extensive geographic presence, which makes it easier to serve multiple markets.
The company has launched an optimization plan for its European operations. It plans to spend $19 million up until the end of 2014 to close two of its production facilities. AptarGroup, Inc. (NYSE:ATR) maintains that this change will result in annual savings of approximately $12 million beginning in late 2013.
The company needed to reduce its costs because even though its revenue has been highest in the trailing-12 month period, its net margin was the highest in the year 2010. After that, the increasing cost of raw materials and operating expenses dampened the profitability of the firm to a noticeable extent. The company’s trailing P/E is 24.5; and with the cost savings, we can expect a forward P/E of 22.7 (against an industrial average of 34.8). The company seems undervalued to me.
Ball’s global business
Ball Corporation (NYSE:BLL) supplies metal packaging products to personal care, beverage, food and household-product industries around the world. In fact, it is the world’s largest producer of metal beverage cans. The company is also diversified into technology products with its aerospace and technologies segment. Through the segment, the company is the leading supplier of aerospace products to the U.S. government.
The North American market for 12-ounce cans has been declining. Ball Corporation (NYSE:BLL) has responded to this change by focusing more on the specialty can markets. The company already has significant geographic presence in the Americas, Europe and Asia and many of its customers are investment-grade companies. The standard metal beverage cans market in the United States may be down, but the demand for these cans is increasing rapidly in China and Brazil.
According to company estimates, the demand for metal beverages will increase by 10% to 15% in China and by 7% to 8% in Brazil. The presence of Ball Corporation (NYSE:BLL) in these countries gives it immense leverage to take advantage of this opportunity. The contracted backlogs of the company’s aerospace and technology segment also stands at a solid $1.0 billion, which is the segment’s highest figure ever.
Bemis’ focus on emerging markets
Bemis Company, Inc. (NYSE:BMS) manufactures and sells pressure-sensitive materials and flexible packaging products in the Americas, Europe and Asia Pacific. This vertically integrated company has been a packaging leader since 1858. The company’s U.S. packaging and pressure-sensitive materials sales have increased in the last year, whereas its global packaging sales have decreased. The company’s revenue has also been declining. The decreasing revenue figures have also been reflected in the decreasing EBITDA and EPS figures of the company.
The company sees growth potential in the emerging markets. There has been an increase in the regulations regarding food safety and convenience in these countries. The retail growth in these countries has made shelf-stable packaging crucial to businesses. This is the reason why Bemis Company, Inc. (NYSE:BMS) has recently acquired a Chinese manufacturer of specialty plastic films, Foshan New Changsheng Plastics Films.
The company also sees an increase in demand from the the modern bio-technology companies that require complex packaging solutions, giving birth to the smart packaging opportunities. With its new focus, the company’s net margins have improved considerably in the trailing-12 month period and with a P/E of 24.0.
The takeaway
The packaging industry has become a very dynamic industry with companies targeting specific packaging solutions. From the three companies analyzed, I believe AptarGroup, Inc. (NYSE:ATR) has the best profit potential, given low P/E and the savings arising from its cost-cutting measures.
Awais Iqbal has a long position in AptarGroup. The Motley Fool has no position in any of the stocks mentioned.
The article Packaging Industry Investment Options originally appeared on Fool.com.
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