Paper & Paper Products

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Benzinga  Jul 3  Comment 
Below are the top paper & paper products stocks on the NYSE in terms of dividend yield. Domtar (NYSE: UFS) has a dividend yield of 3.40%. Domtar's shares closed at $42.20 on Wednesday. Schweitzer-Mauduit International (NYSE: SWM) has a...
Benzinga  Feb 27  Comment 
Below are the top small-cap paper & paper products stocks on the NYSE and the NASDAQ in terms of PEG ratio. Mercer International (NASDAQ: MERC) has a PEG ratio of 0.81. Mercer's trailing-twelve-month revenue is $1.09 billion. PH Glatfelter...
Benzinga  Feb 6  Comment 
Below are the top paper & paper products stocks on the NYSE in terms of dividend yield. Schweitzer-Mauduit International (NYSE: SWM) has a dividend yield of 3.10%. Schweitzer-Mauduit's shares closed at $47.25 yesterday. Neenah Paper (NYSE:...
Benzinga  Apr 26  Comment 
Below are the top small-cap paper & paper products stocks on the NYSE and the NASDAQ in terms of earnings estimate for the next year. Schweitzer-Mauduit International (NYSE: SWM) is likely to earn $4.15 per share in the next year ending...
Benzinga  Feb 25  Comment 
Below are the top small-cap paper & paper products stocks on the NYSE and the NASDAQ in terms of dividend yield. Schweitzer-Mauduit International (NYSE: SWM) has a dividend yield of 3.20%. Schweitzer-Mauduit's shares closed at $37.40 on...
Benzinga  Dec 27  Comment 
Below are the top paper & paper products stocks on the NYSE in terms of revenue estimate for the current year. Analysts expect International Paper Company (NYSE: IP) to post revenue of $27.81 billion for the year ending December, 2012....
Benzinga  Sep 24  Comment 
Below are the top paper & paper products stocks on the NYSE in terms of PEG ratio. Fibria Celulose SA (NYSE: FBR) has a PEG ratio of 0.13. Fibria Celulose's trailing-twelve-month revenue is $2.79 billion. Boise (NYSE: BZ) has a PEG ratio of...
Benzinga  Aug 21  Comment 
Below are the top paper & paper products stocks on the NYSE in terms of cash. Fibria Celulose SA (NYSE: FBR) had $1.84 billion in total cash and $5.89 billion in total debt for the latest quarter. International Paper Company (NYSE: IP) had...
Benzinga  May 16  Comment 
Below are the top small-cap paper & paper products stocks the NYSE, the NASDAQ and the AMEX in terms of return on equity. The trailing-twelve-month return on equity at KapStone Paper and Packaging Corporation (NYSE: KS) is 24.85%. KS's revenue...
Benzinga  Jan 12  Comment 
Below are the top paper & paper products stocks on the NYSE in terms of return on equity. The trailing-twelve-month return on equity at AbitibiBowater Inc (NYSE: ABH) is 7,687.93%. ABH's revenue for the same period is $4.88 billion. The...




 
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The Paper and Paper Products Industry makes everything from printing paper, to “peel to stick” labels, to cardboard boxes. A trip to a grocery store provides a glimpse into this industry's influence over daily life: the items on the shelves were transported in corrugated boxes from the producer to the store, the cereal is in a paperboard box made from wood pulp, the “on sale” sign is made from a coated specialty paper, the price sticker is a “peel to stick” label, and the receipt is mad from "thin rolled material."

Paper products are made by large conglomerates and small companies that specialize in a single type of paper. For example, industry leader International Paper Company (IP) makes paper, packaging products, and even has its own distribution service, whereas the smaller Neenah Paper (NP) makes only writing paper. Companies in this industry are facing rising energy and commodities prices, which are driving up production costs and cutting into profit margins. Hardwood and softwood, essential inputs when making paper, have increased in price 64% and 67% respectively in the from 2002-2007.[1] As a result, operating margins for major paper producer Avery Dennison (AVY) fell from 7.8% in 2006 to 5.9% in 2007.[2] Also, a slowing US economy impacts demand for consumer goods like toys and certain foods. This adversely affects the paper and paper products industry because when spending on these goods goes down, the revenues of companies that make packaging products also goes down.

==Companies in the Paper and Paper Products Industry==hello how are u doing

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Paper companies produce uncoated writing and printing papers. These include industry giants such as International Paper Company (IP) and Domtar (UFS) as well as small companies that produce specialty papers. Specialty paper ranges from the production of the coated paper that is used to make greeting cards, by companies like Nashua (NSHA), to the production of pressure-sensitive material, by Avery Dennison (AVY) used by other corporations to make labels.

Uncoated Paper

  • International Paper Company (IP): International Paper is the world’s leading producer of printing and writing paper. The company also does business making products for consumer and industrial packaging and even has its own distribution business. In 2007, the company generated $21.9B in net sales. [3]
  • Domtar (UFS): Domtar is the second largest producer of uncoated freesheet paper in the world. The company also produces specialty paper, pulp, and has commercial printing and publication business. In 2007, the company generated $6.2B in net sales. [4]
  • Neenah Paper (NP): Neenah’s main business is making premium writing, text, and cover paper. The company also makes specialty paper, filtration media (used in tape and premask), and kraft pulp. In 2007, the company generated $990M in net sales. [5]

Specialty Paper

  • Avery Dennison (AVY): Avery’s main business is the production of pressure-sensitive materials and adhesives which are used by other corporations to make labels. Avery also does business making office supplies and has a retail information services business that makes barcodes, price tags, and security devices. In 2007, the company generated $6.3B in net sales. [6]
  • Glatfelter (GLT): Glatfelter makes specialty paper for markets such as book publishing, credit card receipts, multi-part forms, and shopping bags. The company also has a composite fibers business which makes paper for tea bags and the labeling of bottles. In 2007, the company generated $1.1B in net sales. [7]
  • Wausau-Mosinee Paper (WPP): Wausau’s main specialty paper business deals with the production of the backing paper from which “peel and stick” labels are dispensed. Wausau also makes printing and writing paper as well as tissues and towels. In 2007, the company generated $1.2B in net sales. [8]
  • Schweitzer-Mauduit International (SWM): Schweitzer is the world’s largest supplier of fine papers to the tobacco industry. Its paper is used to make cigarette paper, binders for cigars, and cigarette packaging. In 2007, the company generated $715M in net sales. [9]

Consumer and Industrial Packaging

All items need to be packaged when going from point A to point B in order to protect the item. Consumer goods such as food and cosmetics need to be packaged not only when going from the producer to the distributor, but also need to be packaged by unit to be put on store shelves. Industrial goods like machines and machine parts need to be safely packaged before ending up at their final destination. Packaging can be broken down into two items: paperboard and corrugated fiberboard. Paperboard is a thin cardboard (think cereal box) that can be used as folding cartons and set-up boxes. Corrugated fiberboard (fancy name for a box) is made out of containerboard, which is just multiple layers of paperboard. The multiple layers of paperboard give the corrugated packaging its strength and allow for big and heavy items to be packaged in it.

Paperboard

  • Meadwestvaco (MWV): Meadwestvaco primarily makes bleached paperboard – used for high-value consumer products, CNK paperboard – used in multi-pack beverage packaging, and kraft paperboard – used in folding carton applications. The company also provides plastic packaging for DVDs and games as well as office and school supplies. In 2007, the company generated $6.9B in net sales. [10]
  • Sonoco Products Company (SON): Sonoco’s largest business is making paperboard tubes and cores which are used for products that range from Pringles to construction material. Sonoco also provides other types of paper and plastic packaging. In 2007, the company generated $4.0B in net sales. [11]
  • Rock-Tenn Company (RKT): Rock-Tenn is one of North America’s largest producers of folding cartons which can be used for food, beverages, and just about anything else. The company also makes other kind of paperboard, merchandising displays, and corrugated packaging. In 2007, the company generated $2.3B in net sales. [12]

Corrugated Packaging

  • Temple-Inland (TIN): Temple-Inland primarily makes containerboard and corrugated packaging. The company produces so much containerboard that extra is sold to other companies. In 2007, the company divested away from its timber operations to focus on its corrugated packaging business. In 2007, the company generated $3.9B in net sales. [13]
  • Smurfit-Stone Container (SSCC): Smurfit-Stone’s only business is to make containerboard and corrugated packaging. The company also has an integrated reclamation business as well, which collect fiber needed to make containerboard. In 2007, the company generated $7.4B in net sales. [14]

Pulp & Cellulose

Pulp is a dry fibrous material that is used to make paper and can be made chemically or by separating the fibers of wood. Pulp sold in thick sheets and often used at a paper mill is called “market pulp”. Another kind of pulp, “kraft pulp”, is chemically produced pulp using sulfate. Cellulose is a natural fiber from trees and plants that can be used to make a variety of products including paper and packaging products.

Market Pulp

  • Aracruz Celulose S.A. (ARA): Aracruz is the world's largest producer of bleached eucalyptus pulp which is used to make products such as tissue, printing and writing paper, liquid packaging board, and specialty paper. In 2007, the company generated $2.1B in net sales. [15]
  • Votorantim Celulose e Papel SA (VCP): Half of Votorantim’s business is devoted to the production of bleached eucalyptus craft pulp, in which 80% was sold to third parties in 2007. The other half of the company’s business is domestic paper production. In 2007, the company generated $1.3B in net sales. [16]

Kraft Pulp

  • Mercer International (MERC): Mercer is the second largest producer of northern bleached softwood kraft pulp in the world. The company is the sole kraft pulp provider to Germany, which has the largest pulp import in Europe. In 2007, the company generated $1.0B in net sales. [17]

Cellulose

  • Buckeye Technologies (BKI): Buckeye makes cellulose based specialty products. The company focuses on producing specialty cellulose because it is used to make unique chemical and physical characteristics to different products. In 2007, the company generated $769M in net sales. [18]

Timber

The timber business provides forest products, such as wood and pulp, to third party companies. By managing their own timberland, these business are able to make their products straight from the trees they grow. As of 2008, the only major timber based company was Potlatch (PCH). Prior, companies like International Paper Company (IP) and Temple-Inland (TIN) were major competitors in this business, but decided to divest away from the business in 2006-2007.

  • Potlatch (PCH): Potlatch is a forest products company that makes commodity wood products and bleached pulp products. The company owns 1.7 million acres of timberland in the US. In 2006, the company went through a restructuring where it became a Real Estate Investment Trust (REIT). In 2007, the company generated $1.7B in net sales. [19]

Trends and Forces

Rising Commodities and Energy Prices are Forcing the Industry to Make Difficult Choices

Rising cost of raw materials and commodities has forced many companies in the industry to implement several price increases on its products. Sonoco (SON) for example, raised the prices on its paper tubes and cores by 8% in January 2008. [20] Other companies, such as Smurfit-Stone (SSCC), have been forced to shut down facilities to cut costs; Smurfit-Stone shut down its containerboard operations at two facilities in 2008. [21][22]

The ability to obtain raw materials such as wood fiber, reclaimed fiber, paper, steel, aluminum, and caustic soda, at favorable prices is an essential part of the industry’s success. Paperboard prices saw a $50/ton price increase in the summer of 2008 [23] and recovered paper costs have reached record highs.[24] Higher commodities prices translate into higher production costs for companies, which forces them to either raise the prices of its products by placing the burden on the consumer, or to take the burden themselves by absorbing the higher costs and decreasing profit margins. For example, International Paper’s operating margins fell from 14.5% in 2006 to 7.6% in 2007. [25]

Higher energy costs are also putting companies in the same predicament as production costs continue to increase. Production plants and its machines are powered by oil and natural gas[26], both of which are seeing record prices. Higher energy costs translates into higher production costs and once again the company is forced to either pass the burden to consumers by raising prices or take the burden itself and suffer decreasing profit margins.

A Slowing Economy Means Less Demand for the Industry’s Packaging Material Products

A decrease in the demand for products has forced companies like Sonoco (SON) to shut down mills due to “decline in demand for cores and subsequently in coreboard”. [27] The paper and paper products industry is dependent on the average consumer buying typical goods such as food and electronics but a slowing economy spells trouble for the industry. As consumers cut back on spending, [28] it leads to a decrease in the demand for these typical goods. The industry, especially the consumer and industrial packaging businesses, is dependent on a high demand for non-durable goods (goods that are replenished and replaced often) and durable goods to make money. As the demand for these goods drops, so do the industry’s net sales as there are fewer items that need packaging. Durable goods saw a 0.3% and 0.5% decline in orders during March and April of 2008. [29]

In addition, FedEx (FDX) can serve as in indicator to how well the packaging products business is doing. In a slow economy, business and people cut back on the amount of shipping they do in order to cut costs. Less shipping means a lower demand for boxes and paper envelopes that the paper and paper product industry make. In May 2008, FedEx reported that U.S. packaging volume fell by 3.4%. [30]

Electronics Decreasing Global Paper Demand

As the world becomes friendlier to technological change, the global demand for paper has taken a slight hit. Paper consumption per person grew annually in the 1980's and 90's, but has plateaued and fallen in the 2000's; consumption per person in the world's richest countries fell by 6% from 2000 to 2005. [31] For the companies in the paper industry, this simply means that there is less revenue to earn in the paper market. The United States is already seeing some affects of this technological switch-over. Major newspapers such as the Chicago Tribune and L.A. Times are cutting hundreds of staff positions because they simply can’t afford to pay their employees with the declining demand for paper newspapers [32]. The United Postal service has continually increased the price of sending first-class mail as a result of steady quarterly losses[33]. Although the demand for paper is still very high and the average person still consumes more than 500 pounds of paper annually, [31] people are starting to make the switch-over to electronics which is starting to bring those consumption numbers down; in a shrinking paper market, paper companies have less opportunity for growth.

Increased Online Shopping Helping the Paper and Paper Products Industry

As gas prices flirt with all time highs, [34] families are cutting back on the amount of driving they do. So when it comes to shopping more people are turning to the internet to buy all the things they need. J.C. Penney (JCP) reported that online sales increased 8.7% at the beginning of 2008 while Gap (GPS) had a 21% increase; both stores also showed a decrease in same store sales – J.C. Penney’s were down 7.4% and Gap’s 11%. [35] As the amount of online shopping increases, so do the demand for boxes that companies use to ship out their products. Higher demand for boxes translates into higher revenues for corrugated packaging businesses.

References

  1. "Global wood prices surging due to increased competition and higher freight costs" 3 Sept 2008
  2. Google Finance: AVY Financial Statements
  3. IP 2007 Annual Report pg. 10
  4. UFS 2007 Annual Report pg. 6
  5. NP 2007 Annual Report pg. 7
  6. AVY 2007 Annual Report pg. 20
  7. GLT 2007 Annual Report pg. 1
  8. WPP 2007 Annual Report pg. 21
  9. SWM 2007 Annual Report pg. 23
  10. MWV 2007 Annual Report pg. 12
  11. SON 2007 Annual Report pg. F-3
  12. RKT 2007 Annual Report pg. 15
  13. TIN 2007 Annual Report pg. 17
  14. SSCC 2007 Annual Report pg. 14
  15. ARA 2007 Annual Report pg. 6
  16. VCP 2007 Annual Report pg. 4
  17. MERC 2007 Annual Report pg. 35
  18. BKI 2007 Annual Report pg. 16
  19. PCH 2007 Annual Report pg. 31
  20. Reuters “Sonoco Announces North American Tube and Core Price Increase” 15 Jan 2008
  21. Los Angeles Business “Smurfit to Close Los Angeles Mill” 27 April 2007
  22. Phoenix Business Journal “Smurfit-Stone to Shut Down Containerboard Operation” 27 June 2008
  23. MSN Money "Caraustar raises coated recycled paperboard prices" 9 July 2008
  24. International Business Times "Recovered Paper Prices Expected to Hit Record High" 18 June 2008
  25. Google Finance: IP Financial Statements
  26. Yahoo! Finance “Sector Snap: Paper Product Makers Set for Rally?” 18 July 2008
  27. Press Release “Sonoco to Close Montreal, Quebec, Canada, Paperboard Mill” 3 July 2008
  28. New York Times “Americans Cut Back Sharply on Spending” 14 Jan 2008
  29. New York Times "Durable Goods Show a Smaller Dip Than Was Forecast" 29 May 2008
  30. Seeking Alpha “FedEx and UPS: Indicators of a Weak Economy?” 25 June 2008
  31. 31.0 31.1 New York Times "Pushing Paper Out the Door" 10 Feb 2008
  32. New York Times “More Staff Cuts Expected at Chicago Tribune and Los Angeles Times” 23 April 2007
  33. Market Watch “U.S. first-class-mail rate to rise 1 cent to 42 cents” 11 May 2008
  34. CNN Money “Gas Price Record Reaches $4 a Gallon” 8 June 2008
  35. New York Times “To Save Gas, Shoppers Stay Home and Click” 19 July 2008


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