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WIKI ANALYSIS
Temple-Inland Corp. (NYSE:TIN) is a cardboard and timber company based in the American South. The majority of its sales come from selling Corrugated Packaging, or cardboard, used to make cardboard boxes. The smaller Building Products segment produces materials used in residential construction, such as lumber, particleboard, and various grades of fiberboard. The company earned $3.6 billion in revenue and $206 million in net income in 2009.[1]
Demand for the company’s product is mostly driven by consumer use of non-durable goods, things that don’t last a long time or need to be replenished on a regular basis, such as food or pharmaceuticals. A sluggish U.S. economy has had negative impacts on Temple-Inland's bottom line. When spending on goods that use Temple-Inland's packaging goes down, the company's revenues suffer.
Company Overview
Business Segments[2]
Corrugated Packaging
The Corrugated Packaging segment is vertically integrated, owning and operating both mills and facilities for converting wood pulp into finished products. This segment manufactures corrugated goods, which are typically used for packaging, and has customers in nearly every manufacturing industry. All of Temple-Inland's orders are customized according to customers' specifications, unlike most of its chief competitors. The company also produces more intermediate product than it needs for its own production (such as extra containerboard), and it sells this surplus stock to other companies.
Building Products
The Building Products segment produces various intermediate and finished materials used in the construction industry, primarily in residential structures. Chief products include lumber, gypsum wallboard, particleboard, and fiberboard.
Business Growth
FY 2009 (ended January 2, 2010)[1]
- Net revenue fell % to $3.6 billion. The company attributes the loss to lower prices and volume.
- Net income improved to $206 million compared to a net loss of $8 million in the prior year quarter. The company benefited from $213 million in alternative fuel mixture tax credits.
Trends and Forces
Exposure to volatile commodities markets for vital inputs potentially shrinks operating margins
The largest input to Temple-Inland's production process is wood fiber, much of which was previously provided through the company's timberlands holdings. While the company reports that it has enough long-term contracts to supply approximately 43% of its wood fiber needs, the rest must be purchased on the open market. Higher commodities prices translate into high production costs for the company, which forces the company to either raise the prices of its products by placing the burden on the consumer or to take the burden itself by absorbing the higher costs and decreasing profit margins.[3]
In addition to wood fiber costs, the Temple-Inland has limited exposure to energy costs. Much of Temple-Inland's energy needs are taken care of through the burning of excess wood fiber to create steam and electricity; some mills and facilities were able to produce 81% of their energy needs using this economical, in-house process. However, the rest of the company's energy needs must be purchased on the open market. The problem with the increasing price of energy is that it adds to production costs. Production plants and its machines are powered by oil and natural gas, 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.
Growing Asian packaging industry poses threat to domestic producers' market shares
In the past few decades, Asia has witnessed strong growth in both its consumption and production of packaging materials, becoming the second-largest market for packaged goods in the world by 2003.[4] In order to satisfy this strong demand, the region's packaging producers have been increasing production, with regional annual output growing at a rate of approximately 6% since the beginning of the new millennium.[5] Most of this growth has been used to meet the equally strong demand, which has grown at an annual rate of approximately 8% since 2003.[6] While Temple-Inland's products are sold only in the North American market, the rapid growth of Asian packaging producers poses a potential threat to domestic producers if U.S. consumers begin to import foreign packaging material instead of buying from domestic firms. The magnitude of this potential threat depends mainly on two factors: the difference between production and consumption growth in Asia (if production growth outpaces demand, the excess will be free for export), and the exchange rates between the U.S. and Asian countries (a strong U.S. dollar encourages exporting to the U.S., and vice versa).
The growth of Internet-based shopping offers new opportunities for packaging use
Internet retail has grown strongly since the beginning of the new millennium, with Nielsen reporting that over 85% of internet users worldwide had purchased at least one item through the internet.[7] The growth in Internet usage and technology in the 1990s opened up a new marketing tool for all kinds of retailers and merchants, making it possible to reach interested consumers in all parts of the world without the need to invest in physical retail space but with more rapidly and efficiently than with catalogs or mail-order. Customers who use the Internet to purchase goods usually have their orders shipped to them, which opens up new opportunities for packaging to be used in the retail industry. With approximately half of Internet users not falling within Nielsen's category of "regular online shoppers" (making online purchases at least once a month), an increase in the amount of such online shoppers increases demand for packaging as well.
Competition
Key competitors to Temple-Inland's Corrugated Packaging segment (the largest business segment by revenue within the company, as well as where most of its resources are concentrated) are Smurfit-Stone Container (SSCC), International Paper (IP), Packaging Corporation of America (PKG) and Meadwestvaco (MWV).
The chief competitors to TIN's Building Products segment are Weyerhaeuser (WY) and Plum Creek Timber Company (PCL).
References
- ↑ 1.0 1.1 TIN 2009 10-K "Selected Financial Data" pg. 17
- ↑ TIN 2009 10-K "Narrative Description of the Business" pg. 1-2
- ↑ TIN 2009 10-K "Raw Materials" pg. 2-3
- ↑ 'Market Statistics and Future Trends in Global Packaging,' World Packaging Organisation
- ↑ 'Market Statistics and Future Trends in Global Packaging,' World Packaging Organisation
- ↑ 'Market Statistics and Future Trends in Global Packaging,' World Packaging Organisation
- ↑ 'Trends In Online Shopping: A Global Nielsen Consumer Report,' Nielsen Consumer Reports
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