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| This Week in Paper by Joe Masters (MF Master) Charleston, SC (Mar. 21, 1997) -- Will he or won't he? Will it create a positive or negative condition for the stock and bond markets? Of course, we're referring to Mr. Greenspan and the upcoming FOMC meeting to decide whether or not to raise short-term interest rates to keep inflation in check. With so much short-sighted preoccupation upon this event, and with the debate centered around whether or not a possible, slight raise is already factored into the markets, it sounds very much like the same type of speculation we see around the time certain major companies make quarterly earnings announcements. Not that the Fed's policies are irrelevant in the broader sense, but the volatility created by this short-term perspective can sure be gut-wrenching. Gee, I wonder what Mr. Greenspan's "whisper numbers" are. Speaking of gut-wrenching, this week saw both the Dow and S&P 500 indices lose ground by declining 1.88 and 1.14%, respectively. Equally as poor was the performance of our paper/forest index, which lost 1.60% for the week. In fact, only three of our 20 index companies managed to finish in positive territory: CHAMPION INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CHA)") else Response.Write("(NYSE: CHA)") end if %>, up 6.23%, GAYLORD CONTAINER <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: GCR)") else Response.Write("(AMEX: GCR)") end if %>, rising 4.80% and WEYERHAEUSER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WY)") else Response.Write("(NYSE: WY)") end if %>, gaining 0.79%. Leading the losers were WESTVACO <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: W)") else Response.Write("(NYSE: W)") end if %>, off 7.46%, JAMES RIVER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: JR)") else Response.Write("(NYSE: JR)") end if %>, down 5.95% and STONE CONTAINER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: STO)") else Response.Write("(NYSE: STO)") end if %>, losing 5.83%. The declines were quite curious as there were no news items of significance to account for the poor action. For the year thus far, nine of our 20 stocks are in negative territory. All the News that Fits the Print: No news from Suomen Optioporssi this week in regards to pulp futures pricing. On Monday, PaineWebber Inc. analyst Richard Schneider lowered his investment rating of CARAUSTAR INDUSTRIES INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CSAR)") else Response.Write("(Nasdaq: CSAR)") end if %> to neutral from buy. Also Monday, DOMTAR INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DTC)") else Response.Write("(NYSE: DTC)") end if %> said it has agreed to enter into a coating technology and know-how transfer agreement with UPM-KYMMENE CORP. (UPM1V.HE). This agreement will allow both companies to explore areas of mutual interest and exchanges in technology and know-how. Brazilian pulp and paper company ARACRUZ CELULOSE SA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:ARA)") else Response.Write("(NYSE:ARA)") end if %> said Monday it has doubled the ratio of shares to its American Depositary Receipts. Each ADR now represented 10 class B shares of Aracruz. The ADRs were trading at $18 1/2 and closed on Friday at $9 3/8. On Tuesday, WAUSAU PAPER <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WSAU)") else Response.Write("(Nasdaq: WSAU)") end if %> reported quarterly earnings of $0.27 per share compared with $0.18 per share for the same quarter of 1996. Sales declined 2.0%. For the first six months, earnings were $0.57 per share compared to $0.38 per share for the first two quarters of their 1996 fiscal year. Sales were down 1.8% for the period. Also Tuesday, INTERNATIONAL PAPER CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IP)") else Response.Write("(NYSE: IP)") end if %> said it would unload its 13% stake in SCITEX CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SCIXF)") else Response.Write("(Nasdaq: SCIXF)") end if %> at the right price. However, the paper products giant said it is not in active discussions to sell Scitex nor is it disappointed with Scitex's management. In 1992, IP acquired 4.75 million shares of Scitex, based in Herzlia, Israel, for $209 million, or $44 a share. Scitex, which makes graphic arts, digital printing and video products, closed Tuesday at $9.38 per share. On Wednesday, AVENOR INC.'s common stock began trading on the New York Stock Exchange under the symbol "ANR." Paul E. Gagne, President and Chief Executive Officer of Avenor, rang the ceremonial opening bell to usher in the day's trading. Avenor also trades on the Toronto and Montreal exchanges under the symbol AVR. Also Wednesday, THERMO FIBERTEK INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: TFT)") else Response.Write("(AMEX: TFT)") end if %> said its board of directors has authorized the repurchase through March 19, 1998, of up to $5 million of securities of its Thermo Fibergen subsidiary in the open market, or in negotiated transactions. Thermo Fibertek makes and sells products for the papermaking and paper-recycling industries. And Wednesday, POTLATCH CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PCH)") else Response.Write("(NYSE: PCH)") end if %> said it expects first quarter earnings to be under the consensus of analyst estimates. It blamed the shortfall on depressed prices for panel products, especially oriented strand board, as well as continued low prices for most of its pulp-based products. On Thursday, the Canadian Pulp & Paper Association (CPPA) reported that Canadian market pulp shipments reached 661,000 tons in February, an increase of 24% compared to the same month one year earlier. In the first two months of 1997, shipments were up by 23% with gains. The strongest gains were registered in Asia/Africa (up 102%), the U.S. (up 18%), and Western Europe (up 14%). Production was 711,000 tons in February, and mills stocks rose by 50,000 tons to end the month at 962,000. Based on current shipments, it is estimated that Canadian producers held 42 days of supply at the end of February, unchanged from one month earlier, but two weeks lower than the 57 days registered one year ago. Also Thursday, Goldman Sachs said it initiated coverage of FLETCHER CHALLENGE CANADA LTD. (FLC.NZ) with a market perform recommendation, DONOHUE INC. (DHC/B.TO) as a market perform and ALLIANCE FOREST PRODUCTS INC. (ALP.TO) as a market outperform. The analyst said his 12-month price targets are: Alliance Forest, C$33; Donohue, C$26; and Fletcher, C$23. And Thursday, CHAMPION INTERNATIONAL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CHA)") else Response.Write("(NYSE: CHA)") end if %> said it hired Marakon Associates, a consulting firm, to help the company increase shareholder value. Champion International said the move will include an assessment of the value-creation potential of all its businesses, facilities, organizational structure and management and a review of markets in which it participates. Champion said it hopes to improve profitability, increase free cash flow, and achieve greater use of its assets. The company said it is making several changes to help accomplish these goals, including requiring key managers to attain designated levels of common stock ownership within a specific period of time and paying part of directors' compensation in company stock units. Finally on Thursday, PACIFIC FOREST PRODUCTS LTD. (PFF.TO,ME) of Vancouver, and Avenor Inc. of Montreal, announced today that they have agreed to undertake a search for potential purchasers of all of Pacific's common shares. Other alternatives to maximize shareholder value, including the possible creation of a timberland income fund, will also be considered. Avenor currently owns approximately 53% of Pacific's outstanding common shares. The agreement follows Avenor's announcement Jan. 28 that it intends to focus on core businesses and will proceed with the divestiture of its assets in British Columbia in connection with the proposed acquisition of REPAP ENTERPRISES INC. (RPP.TO,Nasdaq: RPAPF). On Friday, Brown Brothers Harriman & Co. analyst Kathryn McAuley said she downgraded CHAMPION INTERNATIONAL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CHA)") else Response.Write("(NYSE: CHA)") end if %> to hold from buy for a short-term, three-month rating. However, she maintained her long-term, 12-month rating at outperform. McAuley said that was good news of Champion hiring Marakon Associates to increase shareholder value which ''will take several years to play out.'' Also Friday, DONOHUE, INC. (DHC/B.TO) said it has put its Manitoulin land holdings in northern Ontario up for sale. The company said the asking price for the property is C$21.5 million. The land holdings, which comprise nearly 75,000 acres, and some 55 miles of Lake Huron shoreline, represent one of the largest private land holdings in Ontario. It appears as through the recent $75/ton increase in the price of newsprint is holding reasonably well. This represents an approximate 15% gain. Current transaction prices are averaging around $535/ton, versus $500/ton for February, but this is due a transitional phase issue and I believe we will see the price climb to the full $575/ton level soon. If this hike can be maintained, uncoated groundwood and SC producers should also benefit. "Model Portfolio" Update: As reported earlier in this report, Caraustar Industries was downgraded this week. The stock, subsequently, was creamed. However, we note the following projections for the future: 1997 = $2.30/share, 1998 = $2.62/share. Based upon the current trailing P/E of 9.9, and a projected growth rate of 15%, we estimate the "fair value" on this stock is somewhere in the vicinity of $34 a share. Though paper company stocks should not normally be valuated with techniques like PEG and YPEG as we've used here, Caraustar's product mix and recent expansion efforts warrants this company to be treated almost as a non-cyclical. Thus, we believe the approach to be a reasonably valid one and look forward to a return to equitability in the near future, especially as the mill acquisitions from Tenneco become accretive to earnings. Though disappointed in this short-term drop, what disturbs us most is Mr. Schneider's lack of explanation for the downgrade. This deficiency we find to be deplorable and somewhat suspect, as we would for any analyst who cannot justify and make public his or her rationale. Boos and hisses to you, sir. Purchase: IP = $40.50, FORT = $27.69, CDP = $49.13, CSAR = $29.00 Last Trade: IP = $41.88, FORT = $32.00, CDP = $52.00, CSAR = $22.50
This Week: Year-to-Date: Model = - 6.41% Model = + 9.09% SP500 = - 1.14% SP500 = + 5.85% FSPFX = - 2.63% FSPFX = - 1.31% Commentary: Two weeks ago we posed a question to our audience with regards to contemplations on the future of paper products as the computer age proliferates. We'd like thank everyone for their excellent submissions, which we now share with you. "A newcomer to the computer--about 8 months--& I'd never imagined that I'd be buying paper by the case for the printer.... I can't tell if this is some sort of addiction that will pass...." "I am amazed that computer users print out their email, the contents of their computer screens, etc., when I find it increasingly unnecessary. I also clip fewer articles from newspapers to send to friends.... I have to vote for a more paperless trend." "...I would like to point out that no one hase ever reclined into his or her favorite chair to look at a computer screen." "I operate an independent drugstore with a Hallmark Cards dept. I believe we are seeing softness is this product as more and more of our customers are online. A quick E-mail instead of a card for a holiday, birthday, or illness, may be eating into our sales.... I know I read fewer magazines now." "The more computers sit on desktops, the more people are given to print a page at the click of a mouse. With a computer at home I now consume a 500 page ream of paper every couple of months. Never did that before...." "In short, I think it's unarguable that less actual paper is used. But there are mitigating factors to consider. There is an excess of information available in electronic format - much more than is available to those who are not online. Therefore, in many cases, you will find that the information is being read online in addition to the traditional medium of papers, magazines, etc. A second factor is that the transference of the information is through relatively bulky hardware.... To really combat the personal desire to stay outside and the balky medium the existence of PDA's - whether connected to the Internet or able to download information (such as all the Weekly Industry Reports) to its local storage - will have to become reality. Today I print out any reports and earnings reports and SEC documents and carry them with me to get outside.... For these reasons I believe that in the forseeable future - I count that about three to five years out - the electronic mediums will only add to, not limit or decrease, the consumption of paper products. After that time it is quite possible that PDA's connected to wireless technology (AT&T's new announcements are laying groundwork for this with their 'one phone any location' concept) will begin to really have a chance to hurt the paper industry. But not today." "...I made a commitment in December to cut my paper usage down by 30% in 1997. I feel that I can do this easily by eliminating one of the 3 previously printed invoices I send out; I send all of my faxes through my modem now and file them in a subdirectory; I fax all of my purchase orders and acknowledgements to my suppliers and customers; when I do need to print something that is for office use only, I print it on the back of a sheet that was misprinted. I save information gathered from the Internet into word processing files and read them from the monitor. I email as much as I can and can't wait until my customers will accept E mail invoices and manifests, etc." I find that my paper usage has increased significantly. I think that there are three reasons for this: -as I become more adept at using the Internet, I find more and more information that interests me, and I download and print it for my files and so I can re-read it in the future to refresh my memory and verify (or change) my thinking and understanding -except for fairly short items, I find reading from paper in a comfortable chair easier and more conducive to thoughtfulness that reading from a screen, as well as easier on the eyes -I often want to compare material from different sources and doing so is much easier using paper than clicking back and forth between electronic files. The Internet is great for information gathering, email, etc. but not so hot for thinking at length and in depth." [email protected] (Director of Finance and Business Issues for the Candian Pulp & Paper Assn.) "In response to your recent query, I direct you to piece I wrote last summer, adapted from a presentation I gave at a pulp and paper conference in Lodz, Poland, in June 1996..... As an avid user of the Internet, my views have continued to evolve since I wrote the piece. Nevertheless, I still think paper's place in our culture is assured well into the next century, with the Internet likely to act more as a complement, rather than a substitute, to paper. The ease with which new information technologies enable us to create and access increasing amounts of information will more than offset the impact of the rise of the new media on paper-based communication for the foreseeable future." (Editor's note: This very informative and insightful piece is a "must read." The direct url is http://pages.infinit.net/sws/forest/future.html) "I work in the containerboard papermill, so your questions do bring some interesting insights to the mind. As for using more containboard paper in the future, it should only increase as the future goes on. More people should start ordering goods due to online transactions. But to your real question about book or newspaper stock. I see no change in the short term. People still like to be able to hold their reading materials in there hands and be able to transport it anyplace they wish to go. Its just convenient to be able to read anywhere you want to, instead of in front of your computer. Of course you could have a laptop, but its still not the same. As for the long term, maybe 10 years down the road, I see this changing. At some time some company is going to develop a personal reading device that people can carry around with them. They will simply just download there newspapers and magazines into this device. Of course the big key will be to have a view screen that is easily readable. So you could see a dropoff in this type paper stock in the future if such a device is developed. And you will also see reverberations into the other paper fields. Once these book stock type mills start on the decline, some will close and some will be converted to other types of paper stocks, probably containerboard. So the whole industry could wind up in a total uproar. Just my opinion for long range forecasting." "Computer images may be wonderful and the wealth of information available through CD ROMs, the Internet, etc. is simply amazing but it is just to hard to get the terminal in bed for the nightly read as I would with a book or magazine. I find that I end up printing out (on paper) almost anything that I care to really read. Paper is far from dead. I work in a Information Technology company with significant information resources available to me. Yes, I and my coworkers use the electronic media to transmit information (documents, images, and spreadsheets) constantly. However, many, many of these get converted to paper copies and frequently by multiple individuals. Now many of us are from another era and like having the copy in front of us to annotate etc, but I still amazes me how many reams of paper go through the printer outside my office. Although I do not have the numbers, I suspect our use of paper has actually gone up as we added more capability to do our work electronically." "Remember the promise of the paperless office? How Foolish! Although our office LAN has messaging ability, most staffers still distribute memos on paper, and more of them. Also, the more information we produce, the thicker the packages we send to our Board, most of whom do not have nor want electronic communications ability. I still prefer The Wall Street Journal's old-fashioned paper edition, and spend time almost every day copying interesting investment ideas to file...." "As a University librarian, I see paper usage continuing to increase; students are using the newer computerized research technologies and high speed copiers to inundate themselves in self-inflicted waves of processed pulp. Why? My best guess is that printouts and photocopies are the security blanket of the 90s; if you can't do GOOD research, generate huge quantities of output, and maybe there will be something of value somewhere in it? This seems to be borne out by the sight of students carrying around masses of printout that never seem to be opened, then appear magically in the recycling box. Maybe there is a Karmic lesson here: bad research never dies, it recycles itself for next year's student?" "I don't know about everyone else, but I still find paper copies useful. Even when looking at stock charts, there is more flexibility and easier comparison when they are looked at besides each other in full scale. You can do it on computer, but the size decreases. My personal use of paper has increased. As a result I don't expect any negative impact for the next decade." "...I use more because of my computer. I write and therefore I print. I often am printing out things I find on the web for future reading. I do not find it enjoyable to read a lot off the computer screen... catalogs have changed the way we shop. Do all shop this way? No, but many do. I know for I worked for a cataloger. I see this industry continuing to grow. There is an ease about not going to the mall and going through the aisles and through the racks. And it's something to add to your mailbox. (Oh! I got some mail!). It is the post-modern correspondence. And because I was a paper buyer I saw how much paper we were buying. We were mid-sized in our mailings but we were still buying 5 million dollars in paper. Do you know how much 5 million dollars of paper is? A lot. And our mailings were increasing by 10% a year and our pages by 20%. I see no end in site. And is the Internet commerce to change this? No. We still need something to hold when shopping. Touch and Feel. Images are not enough.... " Keep them presses rolling !!! |
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