For the past few years, year-end results for printing ink manufacturers were, in a word, disappointing. Sales for most ink segments were down, and prices were off even more, a combination that deservedly causes concern.
At its annual convention held last month, the National Association of Printing Ink Manufacturers (NAPIM) presented its annual State of the Industry report, and the message was mixed. Generally speaking, sales were up slightly and prices rose, but margins were down dramatically. Unfortunately, that should come as no surprise.
A closer look at the numbers shows why. NAPIM’s Management Information Committee reported that raw material cost made up an average of 53 percent of operating expenses for ink companies from 1999 to 2003. In 2004, that number rose to 56 percent.
Price increases have been drastic across the board, with the costs for essential ingredients such as feedstocks, acrylic acid, titanium dioxide, carbon black and countless other materials going up. In addition, transportation costs were 5 percent of operating costs in 2004, up from 4 percent for the previous four year average.
Ink companies have responded by raising prices, but these increases in no way make up for the higher raw material costs.
Higher prices of raw materials have impacted earnings. For 2004, the earnings before interest and taxes (EBIT) dropped from 4.5 percent in 2003 to 3.3 percent, the lowest level in more than a decade. Return on net assets (RONA) dropped to 7.4 percent, less that half of 2002’s high of 15 percent.
On a positive note, NAPIM reported that overall ink sales rose 0.7 percent in 2004, while volume increased 0.2 percent, meaning that prices moved ahead a little.
What will the results show in 2005? Printers seem to be picking up business, which should bode well for ink manufacturers. Ink prices have generally increased, which should also lead to higher sales, although raw material costs are still rising. This could mean another bleak year for margins.
What needs to be done? Ink companies continue to be reluctant to raise prices, but the reality is that all of their costs are on the rise. Unless ink companies want to see margins decline further, they are going to need to clearly explain to their customers the need for higher prices, and see whether printers indeed value their partnership, or are just looking for the lowest prices. When you come down to it, profit is not a bad word, and it should not be treated as one.