PolyOne Surfs Recession on Plastics Platform

Seeing the future,Polyone invested in its sales, marketing and R&D teams ahead of the downturn.
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NEW YORK (TheStreet) -- Shares of plastics maker PolyOne (POL) - Get Report have surged almost 40% this year, compared with a slightly negative S&P 500 index. The secret to the company's success, CEO Steve Newlin says, has been finding and capitalizing on secular growth spots for PolyOne's specialty products.

Newlin spoke with

TheStreet

about his company's strong performance and where he is finding those areas of growth.

PolyOne's stock has been seriously outperforming the market. What's driving it?

Newlin:

Innovation has been very important to us. We track very carefully the new-product development that we have. And our specialty business is finally hitting 40% of our products of less than five years duration. So that's been a great help in our growth. We also made some investments in our sales force, our marketing and our research and development teams. We did this before the recession started and we held our course throughout the recession. Now we are gaining new business and growing on all those fronts.

The plastics business saw some tough times two years ago. Has it fully recovered?

Newlin:

It certainly has for PolyOne. I can't say that it's fully recovered for the entire industry. Certainly there are elements of our business that have not recovered -- housing in particular, because we have some linkage to new housing starts. So that's still an upside opportunity for us.

In the automotive sector, we are building a little under 12 million units a year in the U.S. That is basically the scrap rate, so we have a long way to go before we get back to the 15 million to 17 million normalized units. In general, we have been fortunate because we have been able to grow in adjacent markets and entering new markets like health care that have high growth and a nice rhythm to them.

What are some of the end products where one might find PolyOne plastics?

Newlin:

We are in the business of making creative materials that make our lives better. For example, the soft-touch handle of a toothbrush would be a PolyOne product. Another example would be a metallic-looking plastic engine cover for hybrid vehicles. Plastic takes the weight out of automobiles, which increases fuel efficiency. So when you can substitute for a metal and give it a real metallic look, it's a great opportunity for us. Then you also get into more sophisticated applications where you will find our products, like on the inner workings of a CT scanner in a hospital.

Is PolyOne hiring right now?

Newlin:

We just started hiring. We went cautiously into this year. We began seeing a lot of progress in the fourth quarter of last year, but we were cautious. Sometimes I think we listen too much to the outside world and not enough to our own customers and potential customers. But we have committed to hire about 50 commercial resources in the next six months, and that's progress considering we went dormant for quite some time. And in fact in 2008 and early 2009, we actually had to reduce our staff to some degree.

What where do you see input prices heading?

Newlin:

We see it fairly stable on the natural gas front, which is one of our biggest inputs. That said, we do see some raw material shortages that will drive pricing and costs. Plus, we are already seeing some inflation in some short-supply chemicals that might be derivatives or actual products that had reductions in the 2008 recession.

Your revenues were up around 40% in the first half. What are your expectations for the second half and 2011?

Newlin:

We don't forecast revenues for Wall Street. But we have said publicly that we have seen no sign at this point of a double-dip recession. I worry that -- as a country -- we may talk ourselves into it, but so far so good. And the early part of the third quarter looks to be holding together quite well for us. So that's where we stand.

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Reported by Gregg Greenberg in New York

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