No Boom Boxes (Carton Converter Profiles)
Though some negative factors are afoot, carton converters continue to eke out profits.
by Susan Friedman, Editor
The slowing economy, coupled with board price pressures and rising energy costs, have prompted many bigger players in the folding carton market--Caraustar, International Paper, and Mead among them--to issue decreased end-of-2000 earnings projections in recent months.
In December, Mead revised its fourth quarter earnings estimates for its paper and containerboard businesses due in part to unfavorable pricing conditions, and announced its Packaging Division had been negatively affected by soft market conditions and weak foreign currency. International Paper's revised projections announcement cited energy costs, particularly natural gas prices, as a major debilitating factor in profits.
First quarter 2001 projections, thus far, harbor the same cautionary tone. Westvaco expects returns to be 30 to 35 percent lower than first quarter 2000 earnings--a decrease that is partly related to weakness in the folding carton markets served by its bleached board mills.
Projections may be down—particularly among integrated converters contending with board production pressures--but profits aren't completely out. Rock-Tenn's first fiscal quarter report (for the period ending December 31, 2000) noted a significant increase in its Folding Carton Division's operating income due to plant consolidations in 2000.
In addition, respondents to packagePRINTING's Folding Carton Converters Survey report an average profit margin of 7.8 percent in 2000. Returns range from 0.9 percent to 25 percent. Annual growth rates average 12 percent, with a low of 0 percent and a high of 30 percent reported.
Inside carton converter mind-sets
Based on converter responses to pP's survey, there is little doubt folding carton capacity will be on a definitive upswing in 2001. Sixty-two percent of survey respondents expect to be turning out more product in the coming year, while 24 percent predict output levels to be flat. None indicate plans for decreased capacity.