If BD had, hypothetically, included an oil price of $125 per barrel in its FY09 budget, yet the price had declined to, say, $35 per barrel, what kind of favourable profit would they see in this fiscal year?
This was asked in the last quarter's conference call actually. If you have access to the conference call, the question is asked at about the 24:30 mark. The analyst asking the question specifically noted that BD had conservatively overestimated the price of oil (and hence resin) previously, which apparently led to something of a windfall. According to the analyst, BD had previously used a $90/barrel cost of oil in generating forecasts.
BD responded that the correllation between oil and resin is not one-for-one, but added that they may see an upside benefit if the price of resin stays low or drops lower. They specifically did not want to speculate further as to whether or not a windfall would be achieved, or if so how much. They did not state whether they were still benchmarking the price of oil at $90/barrel or whether that had changed.
So it's a bit murky. Apparently they have a general history of being conservative in their forecasts. If that's the case, the falling cost of resin will bring surprise good news. On the other hand, if they're being murky to cover a distinct possibility of price leveling or increases, then we might be in for bad news. I'm optimistic, personally.
I'm pretty optimistic as I understand that the FY09 budget figure is $125 per barrel. Resin prices have dropped considerably based upon the raw oil cost, processing costs and lower catalyst costs.
A "rough" calculation for an average manufacturing facility with an estiamte of say 600,000,000 moulded parts per annum could yield a positive difference of around $100,000 per month in resin prices against budget. Multiply that by the number of moulding facilities in BD.....
Vanishpointinvestor; I'm assuming a standard resin silo is a few tonnes, which would be used in a few days so price changes would propagate through pretty quickly. I notice that you were also rating RVP a strong buy when the price was around $8.00!!!!
Judging from the last "lawsuit", RVP share price was decimated while BD stock rocketed by a huge percentage.
Large scale injection molders like BD have the raw material (polypropylene) on hand in huge silos already. Before this material was delivered to BD, the raw material manufacturer had to produce it. So the fluctuations in oil prices takes some time to propagate to BD.
It is more likely that the RVP lawsuit will have a major impact on BD. Buying RVP now while it is on sale will prove to be a very wise move.