Trade war puts a wet blanket on Milacron's results

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Photo by Caroline Seidel Milacron CEO Tom Goeke.

Milacron Holdings Corp. reported a 2% increase in 2018 sales, at $1.26bn (€1.1bn). But tariffs and global trade tensions have hurt China’s economy, and that took a toll on results in the second half of the year, executives said in a 21 Feb conference call.

Orders of $1.2bn (€1.1bn) decreased by 6.8% from 2017 levels, or down 3.7% measured on a pro-forma basis. Pro forma numbers include adjustments for some product lines that have been discontinued or eliminated through plant closures, including the Ferromatic Milacron plant in Malterdingen, Germany, as well as the impact of the North American large-tonnage automotive market.

In that pro forma view, Milacron’s sales increased, by 4.8%.

Regardless of the accounting method, Milacron is facing challenges because of the trade war’s impact on China.

“What started as a tariff issue is really turning into a global economic, kind-of- fallout,” CEO Tom Goeke told financial analysts. He called 2018 a “tale of two halves.” Business held up in the first half. But then “policy headwinds” clipped results in the second half, he said.

For 2019, Milacron officials predict a sales decline of 3 or 4%. They are predicting a relatively weak first half, followed by a pickup.

“We’re being careful about it as opposed to being bullish in the first half,” Goeke said.

Chief Financial Officer Bruce Chalmers told analysts the stronger second half guidance for this year comes from an expected easing of tariff issues.

President Donald Trump, who already has jacked up tariffs on Chinese goods, and imposed tariffs on imported steel and aluminium from several countries, was poised to hike China tariffs even more on 1 March. But in recent days, Trump has signalled some flexibility, depending on how trade negotiations progress with China.

Goeke told analysts: “I’ll be watching TV on 1 March just like to you to see what happens.”

Milacron generated net income of $41.5m (€36.6m) for 2018. Operating earnings increased by 19.6%, to $106.6m (€104m), from the prior-year period.

Goeke said Milacron continues its strategic switch from a capital equipment strategy to one based on consumable products and services, which need regular replenishment. Examples include the Melt Delivery and Control Systems unit, which includes hot runners, mould bases and components and metalcutting fluid, plus machinery parts service, retrofits, rebuilding and remote monitoring.

Consumables generated 68% of total sales in 2018. Long-term, executives want to see consumables at 75%. “We have spent the last several years investing in the infrastructure in these businesses,” Goeke said.

Equipment, including injection moulding machines, extruders, blow moulders and structural foam moulding machines, generates 32% of total business.

“Our strategy is to continue to grow our installed base and continue to grow our business in consumables,” Goeke said. He said the average age of the North American press fleet is 13-15 years old, and that should boost retrofit and rebuilding as an option for upgrading. “That’ll be a laser-focused effort for 2019, Goeke said.

He said business held up in North America and India, where the company has made major investments in manufacturing to serve the global market.

In 2018, MDCS unit did better than the machinery unit, which Milacron calls Advanced Plastics Processing Technologies. MDCS sales were $451.7m (€398m), a 7% increase over $423.9m (€374m) in 2017.

APPT, the machinery area, declined 1% gain in 2018, to $677.2m (€598m), down 2% from the year before. Officials said double-digit growth in India was offset by the impact of product eliminations in other regions.

Fourth quarter sales for the MDCS segment were flat from the year ago period. In consumables, slowing growth in China has hit orders for the Mold Masters hot runner business there, Goeke said. “Our biggest concern remains the economy in China,” he said.

But he said Milacron plans to keep its manufacturing capacity in place in China, because it will rebound. Mold Masters business is largely based on new product launches, Goeke said.

And Goeke said the Mold Masters hot runner business did benefit from the Trump administration’s decision in late December to put a hold on the 25% tariffs on injection moulds imported from China.

Trump’s tax reform also helped Milacron record a tax benefit of $6.4m (€5.6m) in the fourth quarter, which is 9 cents (€0.08) per diluted share.

Chalmers said Milacron has a stronger balance sheet now, thanks to refinancing to get lower interest rates and has paid down debt. Cash flow also is solid.

“We are extremely well-positioned to make sure we can get through [the first half] and be able to come back in the second half,” Chalmers said.


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