North American Pulp, Paper Industry Earnings Tumble

Writing in PPI Pulp & Paper Week, Chris Cook explained that North America's pulp and paper industry was not immune to the coronavirus pandemic that set the global economy reeling at the end of the first quarter and, with the industry's operations categorized as essential, most companies scrambled to develop and implement employee safety protocols.

Some sectors of the industry fared better than others, but even those segments faced challenges from the unprecedented shifts in consumption patterns between at-home and away-from-home spending.

Pantry stocking by retail consumers drove panic-buying for packaged food, bathroom tissue, cleaning supplies, and various household products both online and at grocery and Big Box stores. This benefitted packaging and tissue makers and offset the loss of commercial business in hotel, travel, entertainment, and foodservice sectors.

Forced shutdowns were few, but the disruption from huge swaths of the population self-isolating at home in the final month of the quarter had a broad impact on sales and earnings.

Compared with first-quarter 2019, the group's combined earnings, excluding items, shed almost a quarter of their value on essentially flat sales, making the industry's profit margin the worst for a first quarter since 2012. Lack of visibility into supply chains and end markets going forward also led many firms to cancel full year 2020 earnings guidance, delay major capital spending, and either cut or suspend dividend payments.

Ten of the 20 firms in the group reported revenue growth. Increases were mostly single-digit percentages, although double-digit gains were reported by three firms – Greif, Kimberly-Clark's (K-C)consumer tissue unit and Clearwater Paper.

Two other firms also grew sales thanks to acquisitions in the past year – Graphic Packaging and Cascades.

Although combined profits fell dramatically year-over-year, 11 of the firms in the group actually improved earnings, excluding items, in the first quarter, with many reporting double- or triple-digit increases. The biggest percentage gainers for earnings were tissue and paperboard makers Clearwater Paper (233.3 percent) and Cascades (200 percent), which overshadowed otherwise impressive improvements by a number of other companies,

March pantry stocking lifted Clearwater's first-quarter boxboard shipments 4 percent over the prior quarter, but tissue was the firm's real story. Panic buying of at-home tissue products drove adjusted EBITDA to $55 million, 32 percent above the $42 million analysts expected. Of that, $32 million came from the consumer products segment ̶ a 98 percent increase over the first quarter of 2019. RBC Dominion Securities analyst Paul Quinn said that with more than 90 percent of its retail tissue volumes composed of at-home sales, Clearwater was well positioned for working from home.

K-C's consumer tissue segment sales of $1.7 billion rose 13 percent and the firm's operating profit jumped 51 percent to $365 million in the first quarter as consumers stocked up. A 10 percent increase in North American sales volumes included double-digit gains on bathroom tissue and facial tissue.

Cascades attributed its improved first-quarter performance entirely to its tissue segment, while Resolute Forest Products said surging tissue demand was providing "an opportunity to sell to new customers."

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