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GOLDMAN
SACHS HIGH YIELD RESEARCH
Plastipak Reports Strong FY 2004 Results
Joe Stivaletti
Goldman Sachs High Yield Research
January 31, 2005
Plastipak reported excellent results
for the fiscal year and fourth quarter ended October
30, 2004. EBITDA for the year came in at $116.9 million,
up 15.6% from the $101.2 million generated in fiscal
2003. Interest coverage for fiscal 2004 was 3.3x. EBITDA
for the fourth quarter was a very strong $30.9 million,
up 31.9%, and interest coverage was 3.5x.
During fiscal 2004, Plastipak's revenue
increased 11.8%, to $1.0 billion. Unit sales increased
14.4%, to 8.5 billion units. Contributing to the growth
were significant increases in the food and processed
juice category, strong unit volume growth in Brazil,
and consistent performance in the carbonated and non-carbonated
beverage area. The company benefited from new products
and new customers served by its new manufacturing facilities
in Florida and Alabama, which moved up the learning
curve during the year. Higher resin prices also contributed
to higher revenue. Price reductions partially offset
these positive factors. Plastipak's EBITDA margin moved
up to 11.6% for fiscal 2004, from 11.3% in fiscal 2003.
This was impressive, especially in light of higher resin
costs that increased revenue without increasing associated
EBITDA. EBITDA and EBITDA margin benefited from higher
unit volumes and improved operating performance, which
were partially offset by approximately $18.2 million
in price reductions for the year.
A portion of Plastipak's significant
growth has been the result of high capital spending
to expand its production capacity in recent years. In
fiscal 2004, capital spending was a high $110.7 million.
Despite high spending on growth capital, Plastipak's
financial condition has improved during the past couple
of years. Net debt / EBITDA fell to 3.3x as of October
30, 2004, down from 3.5x one year earlier. Liquidity
remained strong, with nothing drawn on the company's
revolving credit facility. Subsequent to the end of
fiscal 2004, Plastipak doubled the size of its revolving
credit facility to $300 million and extended the maturity
to January 2010. In its 10-K, the company indicated
that it may use this facility to repurchase outstanding
senior notes.
Our outlook for Plastipak is positive,
and we continue to rate the bonds Outperform. We believe
the benefits of high fiscal 2004 capital spending will
be reflected in operating results in the coming year.
Although the company expects to continue to spend above
its maintenance level -- with a revised capital spending
budget of $85 million for fiscal 2005 and $70 million
for fiscal 2006 -- the company should be able to fund
this growth with EBITDA. We view the Plastipak bonds
as a short piece of paper, and believe the company will
look to refinance these high coupon notes prior to the
first call date in September 2006.
Joe
Stivaletti
Goldman, Sachs, & Co.
High Yield Research
85 Broad Street, 29th floor
New York, NY 10004
(212) 902-3299
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