THE DURABLE HARD GOODS MARKET SEGMENT CONSUMER, COMMERCIAL, AND INDUSTRIAL

Transcription

1 THE DURABLE HARD GOODS 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. Lower Spending Expected in 2006 U.S. manufacturers of durable goods as defined above, are expected to spend roughly -3% to -5% less for packaging machinery in 2006 than they did last year (Figure D-1). Based on a decline of -4 percent, the mid-point of the projected range, the segment s total expenditures will fall to approximately $405 million. As the bar chart of Figure D-1 illustrates, this year s predicted downturn comes on the heels of two consecutive annual increases, including a double-digit surge in A graphic summary showing how many of the sample s respondents expect to increase spending this year versus the number projecting a decline is a reflection of the moderately bearish outlook prevailing in terms of the amount of dollars to be spent. As shown in Figure D-2, 37 percent of the respondents expect to invest less for packaging machinery this year, while a lesser 23 percent plan to add to last years total, and 40 percent are budgeting roughly the same amount as in

2 FIGURE D-1 HISTORICAL PROJECTED GROWTH OF U.S. DOMESTIC SPENDINGFOR PACKAGING MACHINERY BY THE DURABLE HARD GOODS SEGMENT ACCORDING TO THE PMMI PURCHASING PLANS STUDIES (Percent Range of Projected Annual Growth) 14% 12% 10% 8% 6% 4% 2% % Change 0% -2% -4% -6% -8% -10% -12% High Point of Range Low Point of Range A more detailed view of the segment s increase-decrease ratio by plant size (determined by number of employees) is presented in Figure D-3. As the bar-chart reveals, the downward trend is evident across all but one size category the exception being the employee size group where the ratio was even. Likelihood of Adjustments to Budget Plans In response to a line of inquiry assessing the potential for revisions in their spending plans as the year progresses respondents were first 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 that they feel their budget is set in stone and a rating of 10 means that it is very susceptible to change. As shown in 112

3 Figure D-4, 43 percent of the respondents rated their budgets on the higher end of the scale (between 6 and 10 ), while just 19 percent gave a rating of 1. The remaining 38 percent positioned their spending plans on the lower end of the scale between 2 and 5. FIGURE D-2 PERCENT OF THE DURABLE HARD GOODS PRODUCTS SEGMENT SAMPLE PROJECTING AN INCREASE, DECREASE, AND NO CHANGE IN PACKAGING MACHINERY EXPENDITURES, COMPARISON 2006 VERSUS 2005 (Based on Conditions Existing as of January/February 2006) Will Spend About the Same 40% Will Increase Spending 23% Will Reduce Spending 37% They were then asked as a follow-up: If the budget were to be adjusted, which direction would you expect it to likely go up, down, or is either direction equally possible? As shown in Figure D-5, half the respondents said an increase is more probable, while just 18 percent favored the chances of a cut-back, and 32 percent said an adjustment in either direction is equally possible. 113

4 FIGURE D-3 PERCENT OF DURABLE HARD GOODS PRODUCTS SEGMENT SAMPLE PROJECTING AN INCREASE, DECREASE, AND NO CHANGE IN PACKAGING MACHINERY EXPENDITURES 2006 VS 2005 COMPARISON BY COMPANIES' EMPLOYEE PLANT SIZE (Based on Conditions As of Jan/Feb 2006) 100% 90% 80% 38% 31% 39% 70% 60% Project Decrease for % 50% 38% Project No Change for % 50% 39% Project Increase for % 20% 10% 0% 12% Less than 100 employees 31% employees 40% 0% employees 22% employees 114

5 FIGURE D-4 THE DURABLE/HARD GOODS SEGMENT SAMPLE S RATINGS REGARDING SUSCEPTIBILITY OF THEIR 2006 PACKAGING MACHINERY BUDGETS TO CHANGE FROM CURRENTLY PROJECTED LEVELS (Respondents rated their budget s susceptibility to change on a scale from 1 to 10 with 1 meaning the budget is set in stone and 10 meaning it is very changeable ) 70% 60% 50% 40% 38% 43% % of Responses 30% 20% 10% 0% 19% 1 2 to 5 6 to 10 Ratings Reasons for Reducing Spending in 2006 As indicated earlier, 37 percent of the durables/hard goods segment s respondents said they will spend less for packaging machinery this year than they did in Figure D-6 presents the reasons cited by those respondents for the expected cut-backs. Twenty-eight percent said their existing machinery is adequate for their current packaging needs, while another 22 percent pointed to limited available capital as the cause, and 17 percent simply stated that capital spending is being directed to other areas of the company this year. 115

6 FIGURE D-5 THE SAMPLE'S ASSESSMENT: IF THEIR CURRENT 2006 PACKAGING MACHINERY BUDGETS WERE ALTERED, WOULD THE REVISION MOST LIKELY BE HIGHER OR LOWER? (Based on Conditions Existing as of January/February 2006) More Likely Would Be Revised Higher 50% Equal Chance It Could Go Either Way 32% More Likely Would Be Revised Lower 18% Reasons for Spending in 2006 In looking at why durables/hard goods companies are investing in packaging machinery this year, two reasons stand out among the rest in terms of being most commonly mentioned. As shown in Figure D-7, 50 percent of the respondents said their primary focus is to increase the efficiency and/or productivity of their existing packaging operations, while 38 percent said they are aiming to reduce labor and/or maintenance costs. Not surprisingly in light of intense global competition and rising energy and raw materials costs, both of those reasons squarely address the idea of squeezing more profit out of the manufacturing process. 116

7 FIGURE D-6 THE UNDERLYING REASONS FOR REDUCING SPENDING ON PACKAGING MACHINERY IN 2006 BY THE DURABLES/HARD GOODS SEGMENT (Of the RespondentsWho Indicated They Will Reduce Spending in 2006) More Retrofitting in Place of Buying New 6% Other Priorities this Year 17% Plant Closings/Consolidation 11% Using Contract Packagers More 6% Limited Capital Available/Budget Cuts 22% Existing Machinery is Adequate 28% Made Major Purchases in % 0% 5% 10% 15% 20% 25% 30% Trends to Watch in 2006 While the respondents comments provide fairly general insight into their current budgetary considerations, the following underlying market trends merit monitoring throughout the year. Factors Limiting Packaging Machinery Spending A. Further Struggle by automotive parts industry The well-documented difficulty facing many U.S. auto parts manufacturers is expected to continue into The economic troubles of U.S. auto manufacturers are being funneled through the supply chain by cuts in production, while at the same time, raw material costs are rising, leaving auto parts makers with less demand and little leverage to pass along higher manufacturing costs. 117

8 FIGURE D-7 THE UNDERLYING REASONS FOR ORDERING PACKAGING MACHINERY IN 2006 BY THE DURABLES/HARD GOODS SEGMENT (For Respondents Who Indicated They Will Order Packaging Machinery in 2006) Accommodate New Product Lines/New Package Designs 7% Improve Efficiency/Prod. of Existing Packaging Ops. 50% Improve Ergonomics/Worker Safety 7% Add Flexibility/Reduce Downtime 11% Reduce Labor/Maintenance Costs 38% Adding Capacity to Existing Packaging Operations 20% 0% 10% 20% 30% 40% 50% 60% 70% B. A continuation of manufacturing cost escalations Most durable product manufacturers will continue to be hampered by high energy and raw materials costs, which in turn will lead to lower profits, and less capital available for investment. While some manufacturers have been able to pass along the higher costs to their customers, others are being forced to keep prices lower to remain competitive with foreign suppliers. C. More plant closings/consolidations The manufacturing facilities of many U.S. companies in the durables/hard goods segment have been, and continue to be consolidated into more efficient operations that can more effectively compete with foreign manufacturers. Of the study s respondents who said they will reduce spending for packaging machinery this year, 11 percent directly attributed the cut-backs to plant closings and/or consolidation. 118

9 D. Improved plant capacity rates, but still below traditional expansion trigger At the end of February 2006, capacity utilization rates at U.S. durables manufacturing plants averaged just above 79 percent, much improved from the roughly 76 percent average recorded in February 2005, but still below the low 80 percent range that often triggers expansion. Factors Supporting Spending for Packaging Machinery A. Look for continued strength of home improvement market Despite signs of a declining housing market, sales of hardware/home improvement products remain robust going into the year. B. Expect U.S. manufacturers to maintain focus on improving efficiency In the face of strong foreign and domestic competition, durables/hard goods manufacturers are expected to continue placing a high value on the improvement of manufacturing facilities as a means of driving down costs. Fifty percent of the study s respondents who indicated they will buy packaging machinery this year, said they are doing so primarily to improve packaging line efficiency and/or productivity. C. Count on further need for packaging line automation While many durables product manufacturers have traditionally relied more on manual labor for packaging than other market segments, competitive pressures are forcing more companies to adapt partially or fully to automated packaging operations. Evidence of the trend is presented in Figure D- 7, as 38 percent of the study s respondents (who are planning to buy packaging machinery this year) said they are buying machinery in 2006 primarily to reduce labor and/or maintenance costs. 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. The components and parts manufactured by the group include: architectural and commercial hardware; OEM and aftermarket automotive parts; plumbing fixtures and 119

10 attachments; computer and printing equipment; major appliance parts; industrial gaskets, belts, and seals; heavy industrial equipment parts; abrasives; electronic components; electrical components, tools; and other related items. Two 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 119 U.S. plants and establishments. Of the total, 100 percent of the respondents participated in the 2005 study as well. 120