THE DURABLE HARDGOODS MARKET SEGMENT CONSUMER, COMMERCIAL, AND INDUSTRIAL

Transcription

1 THE DURABLE HARDGOODS MARKET SEGMENT CONSUMER, COMMERCIAL, AND INDUSTRIAL (Formerly Two Defined Segments: The Hardware, Plumbing, Automotive, Industrial, and Related Components and Parts Segment; and The Durable Products, Consumer/Commercial, Electronics, Appliances and Other Hard Goods Products Segment) The Segment Defined By the broad definition of durable products, products arbitrarily intended to last three or more years, this segment comprises manufacturers of a wide variety of consumer, commercial, and industrial hard goods. They include consumer appliances, electronic video and audio home entertainment items, personal computers and related products, CDs, computer software, photographic products, toys, games, sporting goods, among many other items. A large proportion of this segment s products also falls within SIC 34 Fabricated Metal Products, which contains: cutlery, hand tools, and hardware; plumbing fixtures and trim; structural and architectural trim; fasteners (nuts, bolts, etc.); industrial fittings and components; and a variety of related items. In addition, the segment further consists of products from SIC 37 Transportation Equipment for automotive, aircraft, and marine parts; SIC 35 Industrial Machinery and Equipment for replacement parts; SIC 36 Electric and Electronic Equipment for certain parts; and SIC 30 Rubber and Miscellaneous Plastic Products for a variety of consumer and commercial components and parts. Further Weakness Projected for 2007 U.S. manufacturers in the broadly-defined durables segment are expected to spend approximately -3% to -5% less for packaging machinery in 2007 then they did last year. Assuming a decline of -4% (the mid-point of the forecast range), total expenditures will come to an estimated volume of $408 million. As Figure D-1 reveals, this year s outlook is a repeat of the moderate decline projected last year and in large part, is driven by similar market fundamentals. While generalizations for a wide-ranging segment such as durables can be overreaching, most of the various durable product sectors have been especially hard hit by one or both of the following trends: 1. Ongoing competitive struggles against foreign companies with lower-manufacturing costs 2. The progressively weakening U.S. housing market 115

2 FIGURE D-1 HISTORICAL GROWTH PROJECTIONS OF U.S. DOMESTIC SPENDING FOR PACKAGING MACHINERY BY THE DURABLES SEGMENT (According to the PMMI Purchasing Plans Studies ) 14% 12% 10% 8% 6% 4% 2% 0% -2% -4% % Change -6% -8% -10% -12% High Point of Range Low Point of Range Source: PMMI According to the study s findings, almost half (47%) the segment s respondents plan to spend less on packaging machinery this year, 40 percent forecast higher expenditures, and 13 percent expect to spend about the same as in 2006 (Figure D-2). An analysis by sector shows a general slowdown from automotive companies; although not unexpectedly, aftermarket consumer auto parts manufacturers report a slightly more favorable spending outlook than do those marketing parts directly to auto makers. Manufacturers in the hardware, plumbing, and various household/home improvement sectors, while also projecting a generally unenthusiastic spending forecast, are not by any means down across the board. Rather, the spending increase-decrease ratio for that group is fairly equal. 116

3 FIGURE D-2 PERCENT OF THE DURABLES SEGMENT SAMPLE PROJECTING AN INCREASE, DECREASE, AND NO CHANGE IN PACKAGING MACHINERY EXPENDITURES 2007 VERSUS 2006 (Based on Conditions Existing as of January & February 2007) Will Increase Spending 40% Will Spend About the Same 13% Will Reduce Spending 47% Source: PMMI By employee plant size, the smallest operations those with fewer than 100 employees exhibited the most favorable increase-decrease ratio ( 50% increase 37% decrease 13% no change). And as Figure D-3 shows, the projected declines outnumber the increases in each of the other three size groups. 117

4 FIGURE D-3 PERCENT OF THE DURABLES SEGMENT SAMPLE PROJECTING AN INCREASE, DECREASE, OR NO CHANGE IN PACKAGING MACHINERY EXPENDITURES 2007 VS 2006 COMPARISON BY EMPLOYEE PLANT SIZE (Based on Conditions Existing as of January & February 2007) 100% 90% 80% 70% 60% 50% 37% 13% 47% 47% 60% 12% 13% Plan Decrease for 2007 Plan No Change for 2007 Plan Increase for % 30% 20% 50% 20% 41% 40% 10% 20% 0% Less than 100 Employees Employees Employees Employees Source: PMMI 118

5 FIGURE D-4 POTENTIAL FOR CURRENT 2007 PACKAGING MACHINERY BUDGET ESTIMATES TO BE ADJUSTED EITHER UP OR DOWN DURABLES SEGMENT (Respondents rated their budget s susceptibility to change on a scale of 1 to 10 with 1 meaning the budget is set in stone and 10 meaning it is highly likely to change ) Current Budget 'Set in Stone' ( rating of' '1') 16% Current Budget 'Most Likely to Change' (includes ratings between 6 and 10) 56% Current Budget 'Slightly to Moderately Susceptible to Change' (includes ratings between 2 and 5) 28% Potential to Adjust Budgets Up or Down In acknowledgement of the likely potential for capital spending budgets to change, respondents were asked to assess the possibility for revisions as the year progresses. First, they were asked to rate on a scale of 1 to 10 their packaging machinery budget s susceptibility to adjustment either up or down in response to changing economic and/or market factors. A rating of 1 means they feel their budget is set in stone and a rating of 10 indicates that it is highly likely to change. As Figure D-4 shows, 56 percent of respondents 119

6 rated their budget estimate between 6 and 10 (more likely to change), whereas just 16 percent said theirs is set in stone (rating of 1 ). The remaining 28 percent responded with ratings between 2 and 5 (slightly to moderately susceptible to change). As a follow-up, respondents were asked: If your packaging machinery budget were to be changed from its currently planned level, would it most likely be higher, lower, or is there an equal chance that it would go either way? FIGURE D-5 THE SAMPLE'S ASSESSMENT: IF THEIR CURRENT 2007 PACKAGING MACHINERY BUDGET WERE ALTERED, WOULD THE REVISION MOST LIKELY BE HIGHER OR LOWER? (Based on Conditions Existing as of January/February 2007) More Likely Would Be Revised Higher 32% More Likely Would Be Revised Lower 32% Equal Chance It Could Go Either Way 36% Source: PMMI 120

7 The results, presented in Figure D-5, reflect a decidedly mixed outlook. While 32 percent indicated their budget would more likely be revised higher, another 32 percent reported just the opposite, and the remaining 36 percent said there is an equal chance it could go either way. FIGURE D-6 THE UNDERLYING REASONS FOR REDUCING SPENDING ON PACKAGING MACHINERY IN 2007 DURABLES SEGMENT (For Respondents Who Indicated They Will Reduce Spending on Packaging Machinery in 2007) Plant Closing 4% Budget Cuts 9% More Pressing Needs in Other Areas 35% Made Major Purchases in % Existing Machinery is Adequate 48% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% Reasons for Reducing Spending in 2007 Figure D-6 presents a breakdown of the underlying reasons given by the segment s respondents for reducing packaging machinery spending in Forty-eight percent indicated that their existing machinery is adequate, while 35 percent said more pressing 121

8 needs exist in other areas of the company and/or plant this year. Indicative of the segment s soft spending last year, just 17 percent said they are cutting back after having made major purchases in FIGURE D-7 THE UNDERLYING REASONS FOR ORDERING PACKAGING MACHINERY IN 2007 DURABLES SEGMENT (For Respondents Who Indicated They Will Order Packaging Machinery in 2007) To Improve Worker Safety/Ergonomics 3% Reduce Labor/Maintenance Costs Add Flexibility/Reduce Downtime Accommodate New Product Lines/Packaging Designs 10% 14% 17% Add Capacity to Existing Packaging Ops. 31% Improve Efficiency/Productivity 69% 0% 10% 20% 30% 40% 50% 60% 70% Reasons for Ordering Packaging Machinery in 2007 Figure D-7 provides a breakdown of the basic underlying reasons durables manufacturers will order packaging machinery in Inasmuch as most durable product manufacturers face significant pricing pressure from lower-cost manufacturing facilities abroad, it is not 122

9 particularly surprising that the most frequently cited reason for ordering packaging machinery this year is to improve efficiency/productivity (69%). Other noteworthy reasons for purchasing this year include: to add capacity to existing packaging machinery operation (31%); to accommodate new product lines/packaging designs (17%); and to add flexibility/reduce downtime (14%). Market Trends (Considerations for Strategic Planning) OPPORTUNITIES Further impetus to create better production efficiencies While high manufacturing costs have driven and continue to drive many U.S. durables product companies to move production overseas, those that remain will aggressively seek to reduce costs through increased automation and greater flexibility of their packaging lines. Expect modest growth in auto and truck parts aftermarket While OEM direct sales to U.S. auto makers remain weak, aftermarket auto and truck parts demand is expected to see some growth in OBSTACLES Manufacturing costs for U.S. durables product makers remain a primary concern U.S. manufacturers will continue to face significantly higher production costs than many of their foreign rivals, and consequently, a further shift of U.S. operations to lower-cost overseas markets is expected. Negative Impact of U.S. housing market decline Production demand for manufacturers of hardware, plumbing, tools, and various other home construction related products is expected to ease in 2007 as consumers and builders wait out the downturn. Although views among economists and other industry experts remain 123

10 mixed as to when the decline will abate, most do not expect to see improvement until at least the second half of the year. Auto and truck parts OEM market to remain weak In conjunction with the ongoing difficulties of U.S. auto makers, OEM auto and truck parts suppliers will continue to struggle in Further consolidation expected Inorganic growth will continue to be a popular strategy among durables product manufacturers to gain product line diversity, improve purchasing power, and to more effectively battle against foreign competition. The Study s Durable Hard Goods Segment Sample Respondents from 49 companies classified within the hardware, industrial, commercial, and automotive components and parts segment were interviewed in connection with this study. Three of the respondents answered for all of their respective organization s domestic plant packaging operations. The data provided by the sample covered the packaging decisions of 139 U.S. plants and establishments. Of the total, 63 percent of the respondents had participated in the 2006 study as well. 124