PWP primarily manufactures a range of APET foodservice containers for several channels, including packer processor bakeries, supermarkets and quick service restaurants. It operates three manufacturing facilities in the United States, as well as a facility that processes post consumer PET.
Pactiv expects this acquisition to be accretive to earnings and free cash flow in 2010. With this acquisition, Pactiv has further strengthened its position in APET, which according to the company is a material finding ready acceptance in the foodservice market due to its outstanding functionality, particularly its freezing capability, as well as recyclability.
Strategic acquisitions have been an important element in the company’s growth strategy. Pactiv has a very strong track record of integrating acquisitions. Moreover, the company’s competitive advantage is its strong brand equity among consumers and new product launches.
To capitalize on the favorable position in the market, products are developed and sold under the Hefty brand name. Since the launch of Hefty Ultra Flex in the second half of 2004, sales volumes of these products have grown significantly.
However, prices of plastic resin are very sensitive as they depend largely on the price of oil, natural gas and chemical intermediaries such as benzene and ethylene, which see significant price volatility. Thus, margins can be negatively impacted by the time lag between raw material cost increases and corresponding increases in the selling price of the product.
We maintain our Neutral recommendation on the stock.