According to a report this past week by The Daily News, Longview, Wash., USA, in a sternly worded letter, a top KapStone Paper and Packaging Corp. (Northbrook, Ill.) official told mill workers the company must reduce its workforce and freeze hiring across its entire mill system.

"The level of productivity in our paper and board mills is, in general, in the lower quartile of our industry. This means, in effect, that relative to other companies in our industry we have too many people considering the tons (of pulp and paper) we make," Mill Division President Randy Nebel stated in the article.

Nebel noted that the company will begin to assess all positions and that "in the end, there will be fewer people in our facilities in the future." He did not specify the timing or size of the workforce reduction, or whether it would be achieved through layoffs or attrition. The company already has imposed a hiring freeze.

Two of KapStone’s South Carolina mills have already completed the process. KapStone’s other three paper mills — in Longview, Roanoke Rapids, N.C., and Charleston, S.C. — could be the ones most affected, according to the Daily News article. 

The KapStone letter additionally said the company will cut costs through reduced capital spending, more efficient use of energy and chemicals, plus worker retraining programs.

KapStone said net sales for the first quarter were down 1% from the same period last year. Additionally, net income was down 19% from the first quarter last year. "It’s clear we need to step up to a higher level of performance. Our disappointing performance for the first quarter of 2015 is one indication of the need to improve further and faster," Nebel wrote.

However, Paul Latta, a portfolio manager with Glacier Peak Capital (Bellevue, Wash.) said the first quarter was a "throwaway" quarter for everyone in the packaging industry. Nasty winter weather, a strong U.S. dollar, and the residual effects of the West Coast port slowdown dragged down profits for the entire industry, he and several other analysts also pointed out in the article.

In addition, last week the IRS told KapStone and several other papermakers that they would not be eligible for a major tax benefit — called a master limited partnership — they had hoped would boost profits.

"The company reported a shortfall, and the stock of the whole sector was wiped out because of this IRS ruling. It created the impression that there was a problem with (KapStone’s) earnings that was perhaps bigger than what actually happened," Latta said.

KapStone executives could be worried about the potential for prices in the packaging industry to fall, as they have for other commodities, Latta added in the newspaper article. Already "cracks are starting to show" in the containerboard market, he said, citing findings from ERA Forest Products Research showing that export prices have weakened and domestic grades declined.