US packaging group blames weak demand for profit dip

By Jane Byrne

- Last updated on GMT

A sharp cut in production due to less demand for packaged goods in a soft economy coupled with higher input costs resulted in reduced fourth quarter earnings, claims Packaging Corporation of America (PCA).

The company has reported fourth quarter 2008 net income of $30m, compared to $44m for the same period in 2007.

PCA is the fifth largest producer of containerboard and corrugated packaging products in the US with overall sales of nearly $2.4bn in 2008. In 2007, 46 per cent of the company's corrugated products were sold into the food, beverage and agricultural markets.

The manufacturer claimed that higher costs for energy, chemicals, and labour impacted negatively on earnings; however, it said that these items were partially offset by higher prices for containerboard and corrugated products.

Paul Stecko, chief executive of the company, said that “the past quarter was the most difficult quarter PCA has ever faced operationally, with box volume down almost 10 per cent and mill downtime and slow backs amounting to 90,000 tons.”

However, he said despite these conditions and the unusually high cost inflation during the first half of the year, PCA's full year 2008 earnings were the second best since it became a stand-alone company in 1999.

Looking ahead to the first quarter of 2009, the company said it expects to earn 20 cents a share, rather than the 21 cents a share predicted by analysts.


Meanwhile reductions in orders and raw material prices have been affecting some of the leading global packaging suppliers.

Australian packaging company, Amcor, is reportedly restructuring its Australian operations, which could result in the closure of a flexibles plant in Sydney.

The flexibles business has been highly profitable for the company, but in the past year it has been hit by Asian imports and higher raw material costs.

And, earlier this month, the chief financial officer at Krones told German newspaper, Euro am Sonntag, that it will not reach its 2008 sales growth target due to weaker orders.

Recession impact

However, packaging companies, according to analysts, generally perform better than other types of manufacturers during a recession, and should benefit from the reduction in commodity prices going forward.

Researchers at BMO Capital Markets, in their third annual report on mergers and acquisitions activity in the packaging sector, said they expect the challenging conditions to persist in 2009, but that the packaging industry fundamentals remain attractive over the medium-to-long term: “Strong rationale for consolidation in the packaging sector continues to exist."

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