Adapting to Market Dynamics: Strategies of Packaging Companies

Adapting to Changing Customer Demand

Packaging companies are adapting to changing customer demand by implementing strategies such as eliminating shifts, reducing overtime, and taking extended shuts (AMCR). They are also using temporary production curtailments (OI) and flexing their cost base to adjust to market conditions (AMCR).

"And that’s into account the lower demand environment. So we’ve been certainly eliminating shifts to take labor out where we can, reducing the overtime to take that labor cost out, taking extended shuts when we’re aligning with some of our customers, so we’re going to take extended shuts over long weekends and other things to get the plants fully closed and get the cost out that way." --- (AMCR, earning call, 2024/Q3)

"In order to better match production to customer demand, management has implemented temporary production curtailments in the region." --- (OI, sec filing, 2024/Q1)

"While we continue to be impacted by softer consumer demand and customer order volatility in certain markets, and higher inflation in certain areas, such as labor costs, we have flexed our cost base to adjust to market conditions." --- (AMCR, sec filing, 2024/Q3)

"Demand trends are changing as we speak. So, we’re seeing some interesting evolution." --- (OI, earning call, 2024/Q1)

"So, that’s how I think about it. And therefore, once we have this extraordinary impact behind us, and we will see with our category and customer exposure and then also – hopefully going forward, also a renewed and stronger consumer interest and demand, we will see top line growth. Tracey Whitehead: Operator, we have time for one more question, please." --- (AMCR, earning call, 2024/Q3)

Sustainability Initiatives in Packaging

Packaging companies are heavily investing in sustainability, with International Paper and D.S. Smith focusing on becoming global leaders in sustainable packaging, while Packaging Corporation of America and WestRock are innovating with recycled, biodegradable, and fiber-based materials to replace plastics.

"sustainability initiatives over the long term. Before moving to Q and A and wrapping up with Slide 18, let me reiterate how energized we are about this opportunity to create a truly global leader in sustainable packaging solutions with winning positions in North America and in Europe.I want to underscore that this combination would not have been possible without the efforts of our talented team at IP." --- (IP, event transcript, 2024/04/16)

"They are investing in sustainable solutions by using recycled packaging or with the aid of biodegradable packs." --- (PKG, press release, 2024/07/17)

"We partner with our customers to provide differentiated, sustainable paper and packaging solutions that help them win in the marketplace." --- (WRK, sec filing, 2024/Q2)

"You can see that D. S. Smith's portfolio is concentrated on packaging. Combination will allow us to focus our core business on sustainable packaging in the attractive and growing North American and European regions.The combined company will be a truly global leader of sustainable packaging solutions with a pro form a packaging portfolio representing 90% of the combined company's revenue." --- (IP, event transcript, 2024/04/16)

"The Company released its 2023 Sustainability Report in May, highlighting new innovations to replace plastic with fiber-based materials and develop alternative packaging solutions using technologies such as Cluster-Clip™, EnduraGrip™, and PETCollar™ Shield Plus." --- (WRK, press release, 2024/06/05)

Technological Advancements in Packaging

Amcor and O-I Glass are leading technological advancements in packaging by pioneering sustainable materials, enhancing plant innovations, and increasing recycled content. Amcor's focus on recycle-ready structures and O-I's innovative glass recycling solutions highlight their commitment to sustainability and performance.

"The AICE will pioneer new material technologies to make packaging more sustainable and performant, while focusing on designs that stand out in shops and increase ease-of-use for consumers." --- (AMCR, press release, 2024/05/30)

""We are proud of our advancements in Zipaquira, upgrading the sustainability, technology innovation, safety, quality and productivity of our plant" said Alvaro Suarez, Managing Director for O-I Andean Region." --- (OI, press release, 2024/04/17)

"Individuals from these teams came together to fuse their cutting-edge ideas into innovative concepts that break through traditional norms, reaffirming Amcor as the industry leader in packaging innovation." --- (AMCR, press release, 2024/05/07)

""Glass is 100 percent and endlessly recyclable, by solving for gaps in processing glass for recycling, we are helping our glass packaging to live up to its full potential in the circular economy." O-I has the ambitious goal to increase the recycled content of its packaging to a global average of 50 percent." --- (OI, press release, 2024/06/06)

"We do not have the need to push our targets out at this point in time. We are making really good progress because we have, at this point in time, roughly 90% of our packaging portfolio in recycle-ready structures or we have those alternatives available, and we are ready to sell them to customers when they want them." --- (AMCR, earning call, 2024/Q3)

Supply Chain Management Strategies

Packaging companies like WestRock and International Paper are enhancing supply chain management through diverse strategies, including supply chain financing, metrics-driven incentives, and new systems for automation and efficiency improvements.

"We use a variety of working capital management strategies, including supply chain financing ("SCF") programs, vendor financing and commercial card programs, monetization facilities where we sell short-term receivables to a group of third-party financial institutions and receivables securitization facilities." --- (WRK, sec filing, 2024/Q2)

"that pipeline grow because of that but you got to have clarity of metrics and incentives have to be tied to those metrics from the customer all the way through your production capability all the way through the supply chain. And that's something we've got work to do, and we're going to get better." --- (IP, earning call, 2024/Q2)

"The new systems are intended to transform areas such as manufacturing, supply chain, procurement, quote to cash, financials and analytics, and position us to better leverage automation and process efficiency and enable productivity enhancements." --- (WRK, sec filing, 2024/Q2)

Competitive Strategies in the Packaging Industry

Packaging companies like O-I Glass and Amcor are leveraging strategic positioning, cost reduction, and sustainability to stay competitive. O-I Glass focuses on capturing long-term demand and promoting sustainable glass packaging, while Amcor emphasizes volume improvement, cost efficiency, and differentiated products in priority categories.

"I am energized about the opportunities ahead and believe O-I is well positioned to capture the long-term demand of the packaging industry." --- (OI, press release, 2024/05/15)

"I mean we delivered a 120 basis point increase on the back of volumes improving, but cost take out really strong and the performance there across the business was great." --- (AMCR, earning call, 2024/Q3)

"The Secured Leverage Ratio could restrict the ability of the Company to undertake additional financing or acquisitions to the extent that such financing or acquisitions would cause the Secured Leverage Ratio to exceed the specified maximum." --- (OI, sec filing, 2024/Q1)

"Now in terms of the category performance against that, you would remember that we’re driving a couple of priority categories here in the business where we believe we have really differentiated products and a good position in the market and where we like the market dynamics." --- (AMCR, earning call, 2024/Q3)

"Glass is not only beautiful, it is also pure, healthy, and completely recyclable, making it the most sustainable rigid packaging material." --- (OI, press release, 2024/05/13)

Financial Performance and Cost Management

Packaging companies are enhancing financial performance through strong volume growth, cost management, and process efficiencies (PKG). They leverage supply chain financing (WRK) and strategic business combinations (IP) to expand margins and returns. Tax credits and net operating losses also contribute to cost management (WRK).

"The results were $0.18 above the first quarter guidance of $1.54 per share, primarily due to the strong volume in both the Packaging and Paper segments, along with the continued emphasis on cost management and process efficiencies across our manufacturing and converting facilities." --- (PKG, earning call, 2024/Q1)

"Certain financial institutions offer voluntary SCF programs that enable our suppliers, at their sole discretion, to sell their receivables from us to the financial institutions on a non-recourse basis at a rate that leverages our credit rating and thus might be more beneficial to our suppliers." --- (WRK, sec filing, 2024/Q2)

"Turning to Slide 15, we expect the combination of IP and DS Smith to deliver margin expansion and higher financial returns on the business. The combination is also expected to be EPS accretive in year 1 and the weighted average cost of capital by the end of year 3." --- (IP, event transcript, 2024/04/16)

"Excluding the special items, the $0.48 per share decrease in first quarter 2024 earnings compared to the first quarter of 2023 was driven primarily by lower prices and mix in the Packaging segment for $1.33, and Paper segment $0.08, higher scheduled mill outage expense $0.10, higher depreciation $0.03, higher expenses related to corrugated plant capital projects of $0.02 and other expenses $0.04." --- (PKG, earning call, 2024/Q1)

"The U.S. federal, state and foreign net operating losses and other U.S. federal and state tax credits available to us aggregated approximately $41 million in future potential reductions of U.S. federal, state and foreign cash taxes at the end of the previous fiscal year." --- (WRK, sec filing, 2024/Q2)

Market Trends and Future Outlook

Packaging companies are navigating market trends like premiumization, sustainability, and health and wellness, while adjusting strategies due to market softness and inventory normalization. They are also focusing on cost-related projects and capital management to align with favorable market conditions and long-term demand recovery.

"While the pace of consumer recovery is slower than originally anticipated, the company remains confident in the long-term positive trajectory of glass packaging demand, continuing to benefit from mega trends such as premiumization, sustainability, and health and wellness, as well as strong favorable earnings potential as markets recover over time." --- (OI, press release, 2024/04/30)

"Now you got to keep in mind that the bigger markets were the ones that were more heavily hit with inventory builds and now with a normalization, therefore, the destocking." --- (AMCR, earning call, 2024/Q3)

"It is not possible to foresee or identify all such factors. Any forward-looking statements in this announcement are based on certain assumptions and analyses made by OI Glass in light of its experience and perception of historical trends, current conditions, expected future developments, and other factors it believes are appropriate in the circumstances." --- (OI, press release, 2024/05/16)

"And we are shifting some of our capital spend a little bit less on growth right now, because of the softness in the market and a little bit more towards cost-related projects, automation, and things like that." --- (OI, earning call, 2024/Q1)

"The Company assesses its capital raising and refinancing needs on an ongoing basis and may enter into additional credit facilities and seek to issue equity and/or debt securities in the domestic and international capital markets if market conditions are favorable." --- (OI, sec filing, 2024/Q1)