Foamex adopts plan to boost profits
By David Perry -- Furniture Today, January 6, 2002
LINWOOD, Pa. — Industry supplier Foamex International is implementing a comprehensive profit enhancement plan that it says will cut costs, boost revenues and drive increased long-term profitability and shareholder value.
The company, a producer of polyurethane and advanced polymer foam products, said it would make these moves:
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It will leverage its proprietary Variable Pressure Foaming, or VPF, technology to consolidate its manufacturing operations.
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It will close eight of its 67 facilities this year.
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It will streamline and reorganize its supply chain and shared services functions, while increasing investment in new product development and support efforts.
Foamex said these initiatives, which it calls "Project Transformation," will reduce its total workforce by approximately 10% by year's end and will achieve pretax cost savings of about $20 million in 2002, increasing to about $30 million in 2003.
"By leveraging our proprietary foaming technology, Project Transformation will allow us to invest more in our most promising new products, continue deleveraging our balance sheet, and enhance our profitability across the organization," said Peter Johnson, recently named president and chief operating officer.
Foamex currently operates four VPF plants, which have more than twice the capacity of its traditional plants. Over the next several years, Foamex expects to convert additional production capacity to VPF production, increasing VPF to one-third of total capacity.
The company also said it would "maintain existing business" from the eight facilities to be closed this year. Foamex will take a $38 million pretax charge against earnings in the fourth quarter of 2001 for plant closings and consolidation, severance and related expenses. The company's bank lenders have agreed to ease year-end 2001 loan covenants to accommodate the fourth-quarter charge. Loan covenants also have been loosened for 2002, the company said.
The company plans to double investment in research and development from $3 million in 2001 to $6 million in 2002 "to take advantage of market opportunities and maintain the company's strong pipeline of differentiated new products."
It also will increase investment in its sales and marketing programs "to develop strong proprietary brands and support sales of its high-margin products to new and existing customers."
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