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January 12, 2016 06:00 AM

Quality issues hit A Shulman shares

Frank Esposito, Plastics News
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    A Shulman chief executive: Bernard Rzepka said "immediate actions" had been taken

    Shares in A Schulman, one of the largest compounders in the US, nose-dived yesterday after it emerged that issues surrounding the quality reporting on some materials made with recycled or reclaimed content had hit the group's quarterly earnings.

    The firm's shares fell by nearly a quarter to $21.50 (£14.80) after it revealed it had “discovered discrepancies between laboratory data and certifications provided by [a manufacturer] to customers with respect to certain products using recycled or reclaimed raw materials”.

    The issues were with some material made at plants that originally were operated by Lucent Polymers and then by Citadel Plastic Holdings, which Shulman acquired last year.

    Schulman president and chief executive Bernard Rzepka said the firm had taken “immediate decisive actions following our initial discovery, including implementing strict protocols designed to meet customer standards and certification requirements for all future shipments.

    “To date, we have notified all affected customers. And I am encouraged that no customers or other parties have initiated recalls or have made material claims against the company or have sought to terminate their relationships with us.”

    Schulman announced its financial results for the three months to 30 November yesterday.

    The reporting situation cost Schulman $4.9m (£3.4m) in the quarter. Executives said that an internal investigation would continue as to the scope of products, customers, and other parties affected.

    “Our bottom line was significantly impacted by the costs incurred during the investigation and the ongoing resolution process of the Lucent quality reporting matter,” executive vice president and the firm's finance chief Joseph Levanduski said.

    Schulman closed two former Lucent plants late last year. Officials could not be reached to confirm whether the plants that were closed were the ones that had reporting issues.

    More cuts could be on the way, according to additional statements from Rzepka.

    “Fiscal 2016 has begun on a challenging note, with weakening macroeconomic conditions across several regions, continued pressure in the oil, energy, and material markets, ongoing currency headwinds, and the costs of our internal actions to resolve the Lucent matter,” Rzepka said.

    “To that end, we are undertaking additional cost reduction actions company-wide, designed to more than offset the first quarter shortfall.”

    Lucent was founded in 1997 by compounding veteran Tim Martin. It then was acquired in late 2013 by Citadel, which combined numerous materials firms, including several compounders, before it was itself acquired by Schulman for $800m (£550m).

    At the time it was acquired by Citadel, Lucent operated 15 extrusion lines and employed 250 at four Evansville-area plants.

    Although Schulman's first-quarter sales grew more than 5% to $649.2m (£446m) on the same quarter year-on-year, the Lucent situation and currency conversion caused first-quarter profit to tumble 44% to less than $7.5m (£5.2m).

    The 25 percent stock price drop left Schulman's per-share price near $21.50.

    The firm posted sales of $2.4bn (£1.65bn) in fiscal 2015.

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