Starting the year "firing on all cylinders,"Graphic Packaging(GPK) CEO David Scheible said every key operating metric was trending positively as the quarter began.
"Then the extraordinary weather conditions hit the Southeast, causing our two virgin fiber mills to unexpectedly lose power, creating a number of operational issues on the production side of the business and an elevated level of unplanned costs," he said.
Those two big virgin mills -- in West Monroe, LA, and Macon, GA -- account for all of GPK's unbleached kraft boxboard capacity, with the only other US mill being MeadWestvaco's Mahrt mill in Alabama. The outages pushed down the overall unbleached kraft folding operating rate to a still-respectable 96.5% in the quarter from 98.2% a year earlier. GPK also produces coated recycled board.
"You just cannot unexpectedly shut down a large chemical process and bring it back online with the flip of a switch," Scheible told analysts on the company's conference call. "It's a very complicated, time-consuming, and expensive process to get a mill safely back to optimal levels after an unplanned outage. By the time you have to shut down, ramp up, you lose production tons, running efficiencies, and of course, you experience increased costs."
Overall, the weather negatively impacted GPK by almost $15 million in the quarter while planned performance improvement of $8 million fell short of the target. Paperboard production declined 4.4% to 611,900 tons in the period.
Total net sales were up 1.7% to $1.07 billion in the quarter, excluding the sales of its uncoated recycled board and flexible plastic packaging businesses last year. GPK sold its small label business in first quarter.
Operating income declined 6% to $79.7 million.
"The good news is that none of this was demand-related," Scheible added, according to a Seeking Alpha transcript of the call.
He said the disruptions were "really unfortunate" given good beer packaging markets, and pickups in pizza, frozen food, and away-from-home markets. Soft drinks remained challenged.
The company benefited from higher pricing for both kraft and recycled board in 2013 due to reset mechanisms for contracts this year.
Other mill outages cited in the quarter included a maintenance shut at RockTenn's Demopolis, AL, bleached mill in March, and a cold shut at International Paper's bleached mill in Augusta, GA. The overall bleached folding operating rate dipped to 89.1% in the first quarter from 91.4% a year earlier, including an 85% rate in February.
With "record cup demand" in the quarter, according to one producer, bleached food service grades operated at 97.7% in the quarter from 94.3% in 2013.
MeadWestaco, in both bleached and unbleached markets , said the extreme weather, which led to shipping and logistics challenges, hurt its food and beverage sales volumes by 12% and 9% in January and February, respectively. March rebounded by 17% as the weather improved and customers replenished inventories.
Food and beverage sales at $763 million were up from $760 million in 2013 with segment profit up at $55 million from $40 million.
The company saw a 6% improvement in price/mix in unbleached kraft and 3% in bleached in the quarter, compared with 2013, with 4% sales growth in global beverage, 14% in aseptic packaging, and 10% in food service. Tobacco packaging fell 10% on inventory adjustments in Asia.
Unbleached shipments declined 7% in the quarter while bleached increased 1%.
International Paper(IP) said its earnings shortfall in North America was driven primarily by severe weather and related operational issues, along with higher than anticipated input costs, mainly wood and energy. The company took a total $60 million hit from weather related costs.
"However, industry backlogs in North America continue to remain strong and pricing is improving across most product lines," the company said.
IP's North American consumer packaging sales of $464 million were up from $460 million a year ago. Operating loss was $6 million from a $22 million profit in 2013.
Coated paperboard pricing was $29/ton better in the quarter but volume declined 5%.
- Lollicup USAsaid it has begun production of disposable paper and plastic foodservice packaging products at its 300,300 ft2headquarters and production facility in Chino, CA. Disposable plastic cups started at the end of April while paper cold cups will go into production in June. "Manufacturing in the US is gaining traction. More and more companies are bringing manufacturing back, and more and more consumers are looking for American-made products," Lollicup said.
- FiberMarkrevealed a new portfolio of folding carton, turned-edge, and bag stock products targeted to the "upscale health & beauty packaging market," according to the company. FiberMark said its substrates are enhanced by "deep, rich" color saturation throughout the sheet, "eliminating glaring white edges and ensuring color consistency from lot to lot."
- Ox Paper Tube and Core, a division of Ox Industries, installed its third Zenith 300 in line core cutting machine at its Hanover, PA, facility. The additional machine allows increased capacity in high speed tube winding for film and flexible packaging, paper mill cores as well as tapes and labels, the company said. Ox Industries pres Kevin Hayward said "more equipment will be added in the coming months that will allow Ox to gain market share and expand its reach."