Richardred, basing the investment on this is risky: "They will all be stronger this time around in a recovery. Just in time inventories, industry consolidation, will help them maintain and possibly expand profit margins..."
The reason is that input costs are likely over time to be the same for all competitors. That is, it's oil. Some companies can hedge the price, some can hedge better than others, but imo, ultimately the raw material costs (oil) will be the the same for all competitors. Secondly, the output sales price will be the same for all competitors. That is, the resins they sell are fungible too- no difference among competitors, they'll all have the same chemical formulation.
So one is left with small differences. Maybe transportation costs. Maybe not even that difference is meaningful, if the SHLM plants are close to their raw material (oil) sources and competitors' plants are close to those same sources too.
If the input costs are the same and if the output products are about the same, that leaves the competitive advantage to the processing efficiencies and customer service. Labor costs, if they're not the same among competitors, are likely to be only a small portion of cost-of-goods sold. Which ultimately means that ALL the competitors are using SAP (or equivalent) to understand/track costs, processing bottlenecks; all the competitors are taking a stab at JIT manufacturing; all the competitors are attempting to streamline their structures, etc. etc. Nobody ever has a sustainable competitive advantage.
Still, the products seem necessary, and if the business is cyclical (imo, it is), the falling earnings now may be indicate it is a favorable time to buy one or more of these companies, ie. POL and/or SHLM.
For me though, rightly or wrongly, I'll avoid, at least for now. |
