Corrugated: US majors mostly upbeat on box demand, report record EBITDA margins

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Corrugated: US majors mostly upbeat on box demand, report record EBITDA margins

November 21, 2014 - 09:50

OAKLAND, Nov. 21, 2014 (PPI Pulp & Paper Week) -Major North American integrated producers were mostly upbeat on future box demand and reported high EBITDA margins despite a lack of "tailwinds" in their recent conference calls with analysts.

The two industry leaders International Paper (IP) and RockTenn also indicated they were growing more in line with overall industry box shipments, ending market share losses since their major acquisitions of Temple-Inland and Smurfit-Stone Container, respectively, in 2011-2012.

Drought hurts IP.IP said its box shipments "East of the Rockies" were up 2.3% for the third quarter compared with a year ago. Overall US box shipments grew by 1.9% in the third quarter, according to the Fibre Box Assn. (FBA). But IP officials said the company's box shipments "West of the Rockies" were down 3.7% compared with a 0.9% increase for the industry.

IP's total US box shipments in the third quarter were up 1.1% on an actual basis, while the industry's increased 1.7% .

IP CFO Carol Roberts that even though IP "outperformed the industry" in the US East for the quarter, the company "trailed" the industry in the West mainly due to "weakness associated with the agricultural business affected by the drought and other weather circumstances."

About 81% of IP's box volume is in the East and 19% in the West. The company has a "significant position" in the ag box business in California with about a dozen box plants in the Central Valley and other rural areas.

IP reported that its overall US box prices increased $1/ton in the third quarter compared with the second quarter and were up $17/ton compared with a year ago.

RKT 'picking up momentum.'RockTenn executives told analysts that its box shipments were down 2.5% in the September quarter, better than the 3-4% decline it estimated during a second quarter earnings call.

The company said its box shipments turned positive in October and were up 2.4% from a year ago, compared with the 2.9% increase reported for total US shipments by the FBA.

"We're optimistic that the positive comparisons year-over-year will continue going forward," said RKT Packaging Solutions pres Mike Kiepura.

He said RKT was "picking up momentum" after closing 21 box plants after the Smurfit-Stone acquisition, which resulted in "inefficiencies and movement of accounts ... that are pretty much behind us."

He said the stronger growth in shipments was also due to operational improvements and the company's reorganization into mill and converting divisions, which "bring more of an enterprise-wide solution set to our customers of both boxes, folding cartons, and displays."

PCA still outpacing industry.Packaging Corp of America (PCA) continued to grow faster than the industry in the third quarter.

Box shipments (excluding Boise mills and plants acquired last year) were up 6.2% on an actual basis in the third quarter and 4.5% on a per workday basis. About 1.5% of the shipment increase was from the April acquisition of Crockett Packaging in Southern California.

High EBITDA margins.All three of the largest public US producers showed EBITDA margins in excess of 20% for third quarter, which was about the same or higher than the previous quarter despite relatively flat shipments and prices.

IP said EBITDA improved to a record 25.5% in the third quarter from 23.7% in the second quarter and 24.4% a year ago.

RockTenn margins in the September quarter improved to 20.8% from 17.4% in the previous quarter and were the same as a year ago. PCA's margins edged down slightly to 21.3% from 21.5% in the prior quarter and 22.5% from a year ago, based on IP's estimates of its two competitors.

Fruit Growers Supply(FGS) plans to double capacity from installing a new 110-in corrugator at its existing Ontario, CA, box plant, according to a recent trade report. The new BHS corrugator is to increase production from about 1 billion ft2/yr to 2 billion ft2 when the project is completed in mid-2015. FGS works with Sunkist Growers and other customers in the agricultural industry. It operates seven operations centers throughout California and in Arizona.

Wax coating usage drops.US box makers continue to "dramatically" decrease the use of wax coatings, allowing more corrugated boxes to be recycled, according to a new study by the Corrugated Packaging Alliance (CPA). Total waxed corrugated volume dropped to below 3% of total corrugated volume in 2013, down from 5% in 2002 (the first year wax usage was measured). The US corrugated industry shipped 9.9 billion ft2 of boxes using recyclable wax alternative coatings in 2013, up from only 1.3 billion ft2 in 2002. Wax treated boxes (cascaded, impregnated, and curtain coated) have been replaced with recyclable treated boxes, according to the report. About 47 recyclable wax alternatives passed certification for repulpability and recyclability, and are registered with the FBA, according to CPA exec dir Dennis Colley.