Novel Products, Steady Growth

The flexible packaging segment continues its position as a leading bright spot in the overall packaging market. It has a number of advantages, most noteworthy being sustainability advantages (with opportunities for continuing conversion from rigid packaging configurations) and a high-level of innovation in materials and products.

At the recent Flexible Packaging Association (FPA) annual meeting held in February, predictions for segment growth topped 4 percent. James Mize, FPA chairman, and vice president, global sector—food packaging solutions for Sealed Air Corporation, highlighted information from FPA's State of the Flexible Packaging Industry Report. Projected growth in 2012 is 4.5 percent, with higher volumes, but relatively flat profits overall. In a presentation on "Growth Opportunities for U.S. Flexible Packaging," Jeff Bornstein, vice president for business research firm SAI Industrial, LLC, predicted the U.S. flexible packaging segment growing at a 4.2 percent compound annual growth rate (CAGR) from 2010 to 2015, with a $30.1 billion segment in 2015. He also noted another strength of the flexible packaging market—its strong position in food categories. More than 55 percent of flexible packaging is used in the relatively stable food markets.

The Freedonia Group, in its report on "Converted Flexible Packaging to 2015," noted some of reasons for solid growth in food applications. "Advances will be driven by favorable demographics and rising demand for convenience-oriented and other processed food items, which often use more costly higher barrier packaging materials for extended shelf life. The fastest gains are anticipated in beverage, meat and related products, and snack food applications."

Pouches have been a real bright spot for flexible packaging for some time and will continue to be so. Much of the innovation in materials and products results in expanded opportunities for pouches, especially in food categories. Freedonia notes: "Growth will be driven by continued conversions to stand-up pouches and healthy gains for flat pouches in a number of markets, along with a smaller environmental footprint due to light weight and reduced material use, which also holds down shipping costs."

2011, 2012

Last year—although sluggish and teetering at times on the edge of falling back into recession—was generally a favorable year and ended with some signs of strength. Some of the bigger players in the flexible packaging industry highlighted obstacles they faced during 2011 in their annual reporting.

"2011 proved to be a challenging year," said Sonoco's Chairman and CEO Harris E. DeLoach, Jr. "In addition to the unexpected decline in industrial-related volumes at year end, we faced escalating raw material, energy, freight, and other costs during the year and productivity was well below our historical standards. Despite these significant headwinds, Sonoco achieved record sales, while achieving our second highest base earnings before interest and taxes and the third highest base earnings in Company history."

Challenge seems to be the operative description. "We faced a challenging environment in 2011, as dramatic resin price increases and softening customer demand impacted our performance throughout the year," said Henry Theisen, Bemis Company's president and CEO. "As we enter 2012, we are making changes to our manufacturing footprint in order to meaningfully reduce expenses and create positive profit momentum going forward." The company's Flexible Packaging Business Segment did experience an increase in net sales of 11.1 percent versus 2010. While 5.4 percent of the increase was attributed to acquisitions, the rest of the increase in net sales came from higher selling prices "partially offset by the impact of lower unit sales volumes of packaging for certain applications such as bakery, confectionery, pet food, and health and hygiene products," according to the annual report.

If 'challenge' is the descriptor for 2011, 'caution' takes its place for 2012. "We remain cautious entering 2012 as global economic trends remain uncertain," observes DeLoach. "The first quarter is historically our weakest quarter due to slow seasonal demand. We do not expect any further decline in industrial-related volumes from the fourth quarter and believe capacity utilization at our paper mills will improve during the quarter. For 2012, we are adjusting our forecast to reflect changing business conditions, a negative shift in expected foreign currency exchange rates, and a higher than previously expected effective tax rate."

Graphic Packaging's CEO David Scheible provides a similar outlook. "Although end-consumer demand has yet to rebound, our fourth quarter volume and mix trends were positive as a result of share gains in consumer products, new product introductions, and a slight increase in the underlying business. I remain cautiously optimistic on volume heading into 2012."

Some of the reasons for a cautious outlook can be seen in the uncertainties highlighted by Mize in FPA's State of the Flexible Packaging Industry Report. These include raw material cost volatility and ongoing concerns for the overall health of the U.S. and world economies.

Tony Maginnis, CEO for flexible packaging printer Global Packaging based in Oaks, Pa., also sees raw materials costs as a concern in the coming year, along with the potential for overseas outsourcing. Although not nearly on the scale of Sonoco or Bemis, Oaks Packaging experienced business growth of 15 percent in 2011 and expects of up to 10 percent this year. Personal hygiene is one of its largest market segments and Maginnis believes this market will continue to grow in the foreseeable future. In general, he says, "Wide-web flexible packaging is continuing to grow and we remain bullish."

On the horizon

While flexible packaging has been the historic realm of wide-web package printing, there is a trend for more flexible packaging to be printed on narrow-web printing presses. This can be attributed to two things: the general trend for consumer products companies to require smaller lot runs for regional promotions and marketing programs, and the great strides achieved in the past several years that allow narrow-web flexo presses to effectively process thin film substrates.

Another technology that is moving forward for flexible packaging is digital printing. HP Indigo's digital presses have made a big impact in the label printing arena due to their narrow-web format. HP and other digital press manufacturers have made it clear that they are working to provide digital printing capabilities that will make the technology attractive for folding carton and flexible packaging printers.

To that end, HP is unveiling new press designs that are directed at these markets. The 30˝ wide, web-fed HP Indigo 20000 Digital Press and the 29.5˝ wide, sheetfed HP Indigo 30000 Digital Press will be demonstrated at drupa and are based on the same technology used for label production on HP Indigo WS6000 series presses.

"HP Indigo digital printing already has transformed the label market, and the larger format and higher throughput brings the unique benefits of digital to other segments of this market," says Christopher Morgan, senior vice president, Graphics Solutions Business, HP. "With these new presses, we can help packaging printers offer their customers the benefits of digital printing and redefine what is possible for the brands they serve." Both of these presses are scheduled for commercial availability in late 2013.

Dynamic development

Flexible packaging will remain a dynamic segment in the package-printing arena for some time to come. Materials developments and innovative product developments by consumer products companies will ensure that more and more flexible packaging formats take their place on the store shelves. pP