We all know that the U.S. printing ink industry has faced hard times in recent years. Caught between the proverbial rock, in the form of dramatically increasing raw material and operational costs, and a hard place, i.e., increasingly tight competition and overcapacity, the ink industry has watched its margins shrink despite efforts to contain costs.
Virtually all ink manufacturers were forced to raise their prices last year. The most positive thing that people took out of the increases is that the industry was indeed able to raise prices for the first time in a long time. However, most executives agreed that the increases did not begin to match their own higher costs.
This result is borne out by the numbers released in the National Association of Printing Ink Manufacturers’ (NAPIM) 2005 State of the Industry Report. There are a few numbers that particularly deserve noting. According to the survey, the ink industry’s earnings before interest and taxes (EBIT) was a paltry 1.4 percent, down from a poor 3.3 percent in 2004.
What is even more shocking is this breakdown: For companies with sales of $50 million or less, the EBIT is 6.0 percent. For companies with sales of $50 million or more, the EBIT is 0.7 percent. That is hard to explain. Meanwhile, return on net assets (RONA) fell from 7.6 percent in 2004 to 2.9 percent last year.
Operating expenses as a percentage of sales is also indicative of the tough times the ink industry is facing. On average, from 2000 to 2004, the ink industry spent 52.1 percent of its sales on raw materials. In 2005, industry leaders reported that figure went up to 58.8 percent.
Overall, ink sales did grow slightly, while volume remained fairly flat, indicating that price increases did go through. However, there is reason to believe that the printing industry is in the midst of an economic upheaval, and most printers are finding it difficult to raise prices.
It is difficult to say where the ink industry is heading. One intriguing opportunity is the world of RFID and printed electronics. On page 24, I report on where RFID and printed electronics stand today, and what we can expect in the future. Also, starting on page 15, European Editor Sean Milmo discusses what he saw at IPEX, including the growth of digital technologies.
The printing industry is changing rapidly. For ink manufacturers, the time is clearly here to take stock of their business and determine what the future holds.