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.

The new year's profits picture appears a little more murky, with just over one third of respondents anticipating greater folding carton profits in 2001 than in the past year, and another third foreseeing flat returns. Twelve percent predict lower profits than in 2000.

Business issues pressing most fervently on carton converters' consciences include maintaining profit margins (cited by 52 percent); controlling operating costs (cited by 50 percent); and finding/retaining skilled labor (cited by 48 percent). Threat of consolidation generated the least concern (cited by 21 percent). Indeed, 2000's merger activity seemed concentrated in the larger integrated players, such as Caraustar's acquisition of Milpak, Arrow Paper Products and Crane Carton; Westvaco's purchase of Mebane and IMPAC Group; and International Paper's merger with Shorewood Packaging.

Top 10 U.S. Folding Carton Companies -- 2000 Forecast

(in alphabetical order)

Caraustar

Field Container Co., LP

Graphic Packaging

Gulf States Paper

International Paper/Shorewood Packaging

Mead Packaging

Riverwood International

Rock-Tenn

Smurfit-Stone Container

Westvaco Corp./Mebane/IMPAC Group

Download a PDF chart containing complete ranking and company profile information.