Plastics Pay Off : Olson Clucking Over Switch From Eggs to Packaging
Olson Industries has discovered it can make more money selling egg cartons than selling eggs.
Until last year, the Sherman Oaks-based company was one of the nation’s biggest distributors of eggs. Since then, it has been paring down its business into a single subsidiary, Dolco Packaging Corp., which makes plastic egg cartons, meat trays and fast-food containers for McDonald’s.
Why quit eggs? Because the business is unpredictable, company officials say. Influenza epidemics, such as one that hit Pennsylvania in 1984, killed hens by the millions and caused violent price swings.
Then there’s all that talk about cholesterol. The American Egg Board in Park Ridge, Ill., says U. S. per-capita egg consumption was 252 last year, down from 330 in 1960.
“We wanted to get off the roller coaster,” said John W. Buffington, chairman and chief executive of Olson. “The egg business has been good to us, but it’s really difficult to keep in control.”
Investors like the new Olson. Its stock has climbed from $14.50 a share in November, 1985, to $26 bid a share Monday.
“There’s a world of opportunity for Olson now,” said James Wilen of Lutherville, Md.-based Wilen Management Corp., an investment advisory firm that owns some Olson stock.
For years, the plastics business has provided most of Olson’s profits. The company entered the business in the 1960s to provide its own egg cartons.
In 1986, plastics accounted for 76% of the company’s operating profits and all of Olson’s operating income the previous two years. The egg business, meanwhile, cost Olson $1.3 million in operating losses in 1985.
Olson began its move out of the egg business in January, 1986, after an out-of-court agreement was reached between the two feuding Olson brothers who had founded the firm more than 50 years before. At issue was whether to continue emphasizing the egg business.
C. Dean Olson, now 79, wanted to stick to eggs. H. Glenn Olson, 81, wanted to unload the egg business and use the cash to expand the plastics business.
According to the settlement, Dean Olson and his family swapped their stock, then worth $5.8 million, for most of the company’s Western egg operations. Glenn Olson and his family were left with a 40% interest in a more-profitable company dominated by plastics, plus an interest in H-O Foods, which sells frozen egg products.
Last December, Olson sold its 50% stake in the Nevada-based H-O Foods for an undisclosed sum to the Newel Howlett family of Las Vegas. And, last month, Olson announced it has agreed to sell its remaining egg business to Sunny Fresh Foods Inc. for about $9 million. The deal is expected to be completed in May.
After the shuffling, Olson reported 1986 net income of $4 million, or $5.67 a share, up from a loss of $2 million, or $1.86 a share, in 1985. But much of that came from selling its other businesses. Sales for the year were down 13%, to $100.5 million.
Olson will use the added cash to expand its plastics business, said Dolco President Larry E. Rembold. Turning raw polystyrene beads into cartons, he said, requires expensive equipment to push the plastic through small holes to form the proper shapes.
Dolco has five plastics plants running on triple shifts, but hopes to build another one in the Northeast to serve the local market and cut shipping costs.
Dolco’s biggest customers are egg companies. McDonald’s also is a major customer, buying the containers for its Quarter Pounders.
Although Olson’s competitors in plastics includes much larger companies--Mobil, W. R. Grace & Co. and Amoco Corp.--thus far Olson’s move from eggs to plastics has paid off, especially for company co-founder Glenn Olson.
His family’s 40% of the firm’s stock is now worth about $7 million, up 79% since it started getting out of the egg business. “I’m not shedding any tears,” he said.
OLSON INDUSTRIES AT A GLANCE Sherman Oaks-based Olson Industries, until last year one of the nation’s biggest distributors of eggs, is now primarily a plastics firm. Its main products are foam plastic egg cartons, fast-food containers and meat trays. Olson has 1,000 employees and 675,306 shares of common stock outstanding.
