Litigating circumstances
the third quarter of 2003, topping off a year that the company
would most likely wish to forget. A major factor in the firm's
reversal of fortunes has undoubtedly been a litigation charge.
For many packaging firms, 2003 has not proved to be a great year in terms of profitability. Numerous global operations have reported poor third quarter results, and have often been scraping the barrel to say something positive. It would seem that US-based firm Smurfit-Stone fits this description a little too well for its own liking.
The company has reported a whopping net loss of $47 million for the third quarter of 2003, reversing a profit of $43 million for the third quarter of 2002. Sales for the three month period remained flat at $1.94 billion, comparable to sales in the year-ago third quarter.
The company has experienced the same sluggish demand and decline in prices that have affected many of its competitors. But a major factor in the firm's reversal of fortunes has undoubtedly been a litigation charge of 15 cents per share taken in the third quarter.
Smurfit-Stone, along with a number of other containerboard manufacturers, is facing lawsuits alleging a conspiracy during 1993 to 1995 that they violated antitrust laws. The company says it will defend the charges.
In terms of the third quarter financial results, there is bad news everywhere. Profits in the containerboard and corrugated container segment were substantially lower in the third quarter compared to year-ago levels, primarily as a result of lower prices on open market board sales, higher energy and employee benefit costs, and lower operating rates. Segment results were also negatively affected by production disruptions and cleanup costs from hurricane damage at the company's two Virginia mills.
Comparing the third quarter to the second quarter, the company's domestic container shipments on a per day basis were stable. Box pricing remained relatively flat. The company's containerboard mill operating rate for the third quarter was 85.9 per cent, compared to 90.4 per cent for the second quarter and 93.2 per cent for the prior year period. And consumer packaging profits for the third quarter fell below year-ago levels.
The third quarter interest expense was $85 million, down $2 million from year-ago levels. Capital spending was $41 million in the three month period and total debt at the end of the quarter was $4,827 million, up slightly from the second quarter but below year-end 2002 levels.
Several rationalisation steps to reduce costs have been announced. The company is to permanently close its Canadian recycled medium mill; idle one of two paper machines at its Florida containerboard mill and permanently shut down one of two machines at its Philadelphia boxboard mill. The company hopes that these actions will reduce the company's production capacity.
Smurfit Stone chairman Patrick Moore, while trying to find some good news buried within all the disappointing results, remains realistic. "We've begun to see seasonal pickup in demand, although the overall economic recovery has yet to have a significant impact on our business," he said. "In the months ahead, we will continue to contend with modest pricing pressures, the impact of a stronger Canadian dollar and seasonally lower volumes. These factors will likely result in a larger loss from operations in the fourth quarter."
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