Sunday, May 17, 2009

NewPage Turning Over a New Page: No More Shutdowns

NewPage sent a message to its competitors in the North American coated paper business this week: Your turn.

NewPage has closed five paper machines in the past year and temporarily idled others, shouldering much of the burden for adjusting supply to a weak market. Those efforts to prevent prices from crashing resulted in the company selling 43% fewer tons of coated paper in the first quarter than it sold a year earlier, NewPage reported Wednesday.

But with a quarterly loss of $114 million and a gross profit margin of only 0.3%, the company has grown weary of giving up market share while competitors keep their machines running -- and markets loose.

"We don't have any high-cost operations remaining that could be candidates for closure," president and CEO Rick Willett said during the company's quarterly earnings conference call. "The more prudent thing for us to do is manage our downtime as cost effectively as we can and really get ready for the recovery in volume."

Downtime is a way to deal with temporarily weak demand but doesn’t address the North American coated-paper industry’s more chronic problem -- more than a million annual tons of excess capacity. NewPage is leaving the task of further shutdowns to Verso, Kruger, et al.

NewPage’s quarterly earnings announcement also had several significant omissions:

  • “Black liquor” revenue: NewPage was a relative latecomer to the black liquor party, not qualifying for the federal-government credits until last month. The $45 million it recently received for using black liquor/diesel mixtures during the first quarter were not booked in the quarter.
  • Unisource deal: The company announced this week that it will supply more than 100,000 tons per year of coated sheets for Unisource’s private-label program, which was formerly supplied by a Chinese manufacturer.
  • The “S” and “D” words: The earnings announcement noted that imports of coated paper, especially from Asia, are increasing. But there was none of the usual bluster about efforts to prevent subsidized Asian mills from unfairly dumping their product in the United States. (OK, class, today’s language lesson: When a foreign pulp mill that fuels its operation with black liquor gets help from its government, that’s called a “subsidy”. When a U.S. mill receives money from the federal government for fueling its operation with black liquor, that’s called an “alternative-energy credit”.)
  • Verso settlement: Verso’s earnings report last week noted the settlement of a patent dispute with NewPage about a process for making high-bulk coated-groundwood paper. NewPage’s report was silent on the litigation and its settlement.
  • Other products: The report did not break out results by category for NewPage’s other products, such as supercalendered paper, newsprint, and market pulp. Revenue for those other products in the aggregate was down “only “ 26%.

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