Ultra Pac, Inc.

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Ultra Pac, Inc.

21925 Industrial Boulevard
Rogers, Minnesota
55374-9575
U.S.A.
(612) 428-8340
(800) 999-9001
Fax: (612) 428-2754

Public Company
Incorporated: 1987
Employees: 362
Sales: $61.71 million (1997)
Stock Exchanges: NASDAQ
Ticker Symbol: UPAC
SICs: 3089 Plastics Products, Not Elsewhere Classified

Ultra Pac, Inc. ranked 12th among 48 U.S. thermoform manufacturers in the $ 1 billion plastic food packaging industry according to 1997 estimates. The majority of Ultra Pac sales were to bakery customers; a second sizeable market was among produce distributors. Ultra Pac also manufactured bakeable plastic products for the baking, home meal replacement, and delicatessen segments of the food industry.

Entry into the Plastics Industry: 1970s-80s

Calvin S. Krupa’s entrepreneurial spirit led him to the plastics manufacturing business. “It happened in the process of trying to sell a little chemically activated hand-warmer he’d started manufacturing in the early 1970s while working as a traffic manager at Pillsbury,” wrote Dick Youngblood. Krupa purchased equipment to make plastic packaging for the product but later expanded the enterprise.

Through his company Custom Thermoform, Krupa produced rigid plastic containers for products such as fishing tackle, cosmetics, and hardware from 1973 through 1984—the thermoforming process uses heat and pressure to mold plastic sheets into containers. But undercapitalization and the recession of the early 1980s compelled him to merge the business with Innovative Plastics, where as vice-president of marketing Krupa developed 25 packaging products for bakery supermarkets.

Innovative Plastics, like Krupa’s earlier venture, was plagued by lack of capital funds which ultimately hampered the company’s ability to bring new products to the marketplace. Krupa moved on and established Ultra Pac in February 1987 with Twin Cities businessman James A. Thole. Funds from two other investors and a public offering of $150,000 helped get the business off the ground.

Ultra Pac began production in an 8,000-square-foot facility in the Minneapolis suburb of Plymouth. The first product was packaging for compact disc (CD) recordings. Krupa had developed the 6x12 CD Blister Pack in 1983 for RCA Records; it became widely used by the industry. The company added a line of food packaging for bakery and delicatessen products toward the end of the year.

Expanded Food Packaging Operations: The Early 1990s

In 1989, CD packaging brought in 57 percent of Ultra Pac’s $2.8 million in revenues. But by 1991 only about 10 percent of sales came from the CD package production. Food packaging had become the company’s primary product. Ultra Pac produced about 80 different designs and held about five percent of the national plastic food packaging market. The company now operated out of a 60,000-square-foot facility in Rogers, Minnesota, northwest of Minneapolis.

In a January 1991 Corporate Report Minnesota article, Krupa attributed his company’s early success in the food packaging market to the recyclability and durability of the product as well as Ultra Pac’s rapid response to customers’requests for new designs. To ensure continued growth, Ultra Pac invested nearly $1 million in sheet extrusion equipment. The company expected to save up to $400,000 per year, by producing their own plastic sheets instead of buying them ready-made.

Ultra Pac placed 37th on Business Week’s 1991 list of the top 100 small U.S. corporations based on sales growth, earnings growth, and return on investment capital. Fiscal 1991 revenues were $11.6 million, more than double the 1990 figure. Wall Street took note, and Ultra Pac’s stock price began rising.

With the recording industry moving away from oversized CD packaging, Ultra Pac phased out its first product: CD packaging had contributed just 6.4 percent of fiscal 1992 net sales. In line with environmental concerns of the time, Ultra Pac actively promoted the recycling of its food packaging products. The polyethylene terephthalate (PETE) used in production was a high-quality material which was the most widely recycled plastic in the world. Ultra Pac also used post-consumer PETE in the production of some of its containers—federal government regulated the use of recycled plastic for food items.

Plastic packaging companies used generally the same technology, so companies attempted to distinguish themselves from competitors with product design which was granted some limited patent protection. According to Youngblood, “Thus, the Ultra Pac line now includes some 300 items ranging from party platters for supermarket delis, buckets for McGlynn’s cookies and hinged clamshells for berries to compartmentalized tubs for candy, casserole lookalikes for carryout chicken, even a platter molded in the shape of a sombrero for nachos and salsa.” In addition to the bakery, supermarket, and deli products, Ultra Pac was expanding their product line to include packaging for fruit and produce distributors and florists.

According to Youngblood, Ultra Pac had 18 production lines mid-year 1992 and was adding two more. The equipment cost about $300,000 per line. Molds were $50,000 to $100,000, and mold inserts used to vary designs could run up to $10,000. Three private placements and a secondary offering, all made during the previous five years, raised $7 million to help finance the growth.

Krupa received recognition for his entrepreneurship in 1992, and Ultra Pac was ranked 23rd among the 100 best small companies in the nation by Business Week. Richard S. Teitelbaum wrote in an August 1992 Fortune article, “When its competitors are the mammoth plastic container units of Mobil and Tenneco, a bantamweight like Ultra Pac (fiscal 1992 sales: $18.3 million) had better bring something special to the deli counter.” Teitelbaum said Ultra Pac set themselves apart with their PETE products which kept foods fresher than the less flexible oriented polystyrene (OPS) typically used by the big plastic container makers. In addition, the big manufacturers offered pre-made packaging while Ultra Pac emphasized its custom-made capabilities and customer service.

But the banner year ended with a big drop in earnings: $270,000 in 1993 versus $1.3 million in 1992. The drop was due to costs related to the new packaging lines and a second plastic extruder, plus the introduction of new products. Net sales, on the other hand, continued to rise. For a second year in a row, Ultra Pac exceeded a 50 percent growth rate. Fiscal year 1993 revenues reached $27.6 million.

Ultra Pac entered the international marketplace through a joint venture with Minneapolis-based floral retailer Bachman’s Inc. to sell and market plastic containers in 17 countries in the Middle East. In a November 1993 Twin Cities Business Monthly article by Kane Webb, Krupa said the company was “laying the ground work for the future.” He went on to say, “We’re growing like crazy, and I don’t refuse many offers.” Although sales continued to grow, earnings fell again in fiscal 1994.

Ultra Pac introduced products made from oven and microwave tolerant plastic, cellular PETE or C-PET, in fiscal 1995. The company also entered into a licensing agreement with a New Zealand company for the manufacturing and marketing of PETE packaging. Net earnings for the year rebounded back above the million mark.

Increased Competition and Costs: Mid-1990s

Fiscal 1996 marked Ultra Pac’s first unprofitable year since 1987. Losses were $3.2 million. The company said significantly higher raw material costs, higher fixed overhead costs, and higher labor costs were major contributors to the deficit. Prices on PETE resin, which accounted for about 50 percent of total manufacturing costs, were driven up by increased demand in the market. New sales did not keep pace with Ultra Pac’s expanded production capacity; increased competition, especially from companies making lower cost non-PETE products, hurt the important bakery and deli sales. Other factors such as the trend toward low-fat food items and adverse weather conditions in California’s berry producing region added to the pressure on the company. Ultra Pac responded by trimming its 600-person work force and strengthening the management team. The company moved to improve efficiencies and reduce costs in the thermo-forming and extrusion operations and in distribution. Long-term debt that had been in default during the year was restructured. Aided by lower raw material costs, reduced labor costs, and improved manufacturing efficiencies, Ultra Pac returned to profitability in fiscal 1997. Capital expenditures had been cut to about $500,000, down from about $9 million the previous year. The number of stock products was trimmed to 230 from more than 600. Net earnings were $1.8 million, but net sales for the year declined due to the emphasis on margin improvements rather than growth and the continuing pressure from competition. Ultra Pac introduced a dual-ovenable product line named the RESERVATIONS Series for the home meal replacement and kitchen-ready food segments of the market in February 1997. With Americans spending more and more money on take-home prepared food, grocers began offering products in direct competition with chains such as Boston Market. Ultra Pac tapped into the trend with sturdy, attractive packaging which could also be used to reheat food in the microwave or oven. According to the Wall Street Transcript interview with Krupa in April 1997, in addition to developing products for the home meal replacement market, the company planned to concentrate more on bakeable type containers for bakery and deli use. Ultra Pac said the baking industry was demanding more bakeable plastic trays which they used in place of aluminum or solid metal baking pans. In September 1997, Ultra Pac announced plans for distribution facilities in California and Florida in order to serve the produce markets there more efficiently. Third quarter earnings, announced in November, were at a record pace for the first nine months of fiscal 1998; analysts expressed optimism about the company’s short-term future. But when the company announced fiscal year figures were to be moderately below estimates, Ultra Pac’s stock price dropped 20 percent.

Future Plans for Plastic Packaging

The huge U.S. market produced most of Ultra Pac’s sales, but the company continued to develop its international market. Ultra Pac held a 49 percent interest in a produce container manufacturing operation in Chile in addition to licensing and distribution agreements in New Zealand and Australia. The company wanted to expand its southern hemisphere markets to help balance out the seasonality of fruit and produce production. A European market was also being developed. Future capital expenditures over the next year or two were expected to be $1 million or less and earmarked for introducing new products and improving manufacturing efficiencies. Ultra Pac’s aggressive expansion had allowed the company to produce all of its PETE plastic sheets, despite periodically operating the extrusion equipment at less than full capacity. Krupa and Ultra Pac were banking on greater use of plastic food packaging due to advantages in presentation, sanitation, and labor saving when compared to other containers on the market.