This Week in Paper by Joe Masters (MF Master) Charleston, SC (April 18, 1997) -- Earnings, earnings everywhere, they dropped into the drink. However, that didn't stop Paper/Forest stocks from making spectacular gains this week. Though probably influenced to a degree by the general market, the increase in the sector apparently was spurred by the announcement that Weyerhaeuser would soon join in the fight to raise pulp prices (see below). The result was a solid 4.90% gain in our Paper/Forest index, compared to a rise of 4.88% for the Dow and 3.89% for the S&P500 this week. Quick! Someone check the record books! Leading our list of winners were FORT HOWARD <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FORT)") else Response.Write("(Nasdaq: FORT)") end if %>, up 8.48%; CHAMPION INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CHA)") else Response.Write("(NYSE: CHA)") end if %>, up 8.16%; MEAD CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MEA)") else Response.Write("(NYSE: MEA)") end if %>, up 7.88%; TEMPLE-INLAND <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TIN)") else Response.Write("(NYSE: TIN)") end if %>, up 5.69%; and BOWATER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BOW)") else Response.Write("(NYSE: BOW)") end if %>, up 5.66%. Only two of our 20 stocks managed to avoid making gains this week: P.H. GLATFELTER <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: GLT)") else Response.Write("(AMEX: GLT)") end if %> and STONE CONTAINER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: STO)") else Response.Write("(NYSE: STO)") end if %>, both of which were flat. Before we start with the h-u-g-e list of earnings reports, please note that I have changed my AOL screen name and email address from "MF Master" to "TMF Master" to reflect my new position with the reorganized Motley Fool. I can now be reached at "[email protected]". All the News that Fits the Print: Missed one from last week: On Wednesday, SPECIALTY PAPERBOARD <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SPBI)") else Response.Write("(Nasdaq: SPBI)") end if %>, which changed its name to FIBERMARK at the end of March, began trading on the NYSE under the symbol "FMK". On Monday, Suomen Optioporssi, a Finnish options exchange, put the value of northern bleached softwood pulp at $517.71 per ton, down from $518.16 last week. Also Monday, Swedish forestry group Sodra said that North American and Scandinavian (NorScan) pulp stocks fell around 139,000 tons in March, based on preliminary figures. (Editor's note: Total NorScan inventories are now estimated at around 1.92 million tons, down from a revised 2.104 million tons at the end of February, but still ahead of the 1.5 million ton level which is considered "supply/demand balanced". Total world inventories were approximately 4.04 million tons in February, up from 3.97 million in January. Thus, NorScan is only half the picture here.) And Monday, BOISE CASCADE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BCC)") else Response.Write("(NYSE: BCC)") end if %> reported a net loss of $15.2 million, or $0.51 per fully diluted share, for the first quarter of 1997. This compares with a net profit of $25.5 million, or $0.30 per fully diluted share, in the first quarter of 1996 and a net profit of $2.1 million, or a loss of $0.16 per fully diluted share, in the fourth quarter of 1996. Results for the fourth quarter of 1996 included a net gain from nonroutine items of $10.7 million, or $0.22 per fully diluted share. Sales were $1.3 billion for the first quarter of 1997 and $1.2 billion and $1.3 billion for the first quarter of 1996 and the fourth quarter of 1996, respectively. In addition on Monday, BOISE CASCADE OFFICE PRODUCTS CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BOP)") else Response.Write("(NYSE: BOP)") end if %> reported first quarter net income of $14.9 million, or $0.24 per share, on quarterly revenues of $598 million. Revenues were up 30% compared with the first quarter of 1996, including a 12% increase in same-location sales. Net income for the first quarter of 1996 was $15.6 million, or $0.25 per share. And Monday, BOWATER INCORPORATED <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BOW)") else Response.Write("(NYSE: BOW)") end if %> reported a first quarter net loss of $0.3 million, or $0.03 per fully diluted share. This compares to net income of $112.9 million, or $2.53 per fully diluted share in the first quarter of 1996, including a $37 million after tax gain, or $0.84 per fully diluted share, on the sale of timberlands. First quarter 1997 net sales were $348.5 million, compared with $468.9 million for the comparable quarter of 1996. More on Monday: P.H. GLATFELTER <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: GLT)") else Response.Write("(AMEX: GLT)") end if %> reported first quarter earnings of $12.8 million dollars, or $0.30 per share, compared to $14.0 million, or $0.32 per share, for the same quarter of 1996. Sales increased 1.3% to $142.2 million. And Monday, TEMPLE-INLAND INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TIN)") else Response.Write("(NYSE: TIN)") end if %> reported first quarter net income of $13.2 million, or $0.24 per share, a decrease of 72% from first quarter 1996 net income of $46.4 million, or $0.84 per share. Revenues for the quarter were $850.9 million, a decline of 1.2% from the same quarter of 1996. Also Monday, LOUISIANA-PACIFIC CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LPX)") else Response.Write("(NYSE: LPX)") end if %> reported first quarter earnings of $42 million, or $0.39 per share. However, excluding extraordinary gains, the company actually lost $32 million dollars, or $0.29 per share, for the quarter. This compares to a $3.6 million, or $0.03 per share, loss in the first quarter of 1996. Net sales declined 5.1% to $554.6 million. In addition on Monday, RAYONIER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:R YN)") else Response.Write("(NYSE:R YN)") end if %> announced first quarter earnings of $18.4 million, or $0.62 per share, up 12% from fourth quarter 1996 earnings of $16.4 million, $0.55 per share (before significant non-recurring charges). First quarter 1996 earnings were $31.5 million, $1.05 per share. Sales for the period were $260 million, $42 million below the fourth quarter and $34 million below the 1996 first quarter. Finally Monday, Rayonier Forest Resources Company (RFR), the managing general partner of RAYONIER TIMBERLANDS, L.P. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LOG)") else Response.Write("(NYSE: LOG)") end if %>, reported partnership income was $29.7 million, or $1.60 per Class A Unit, which is $4.8 million, or $0.18 per Class A Unit, below the 1996 first quarter. Sales declined 10.8% to $41.8 million. On Tuesday, WEYERHAEUSER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WY)") else Response.Write("(NYSE: WY)") end if %> reported net earnings of $46 million, or $0.22 per share, for the first quarter of 1997 before a special after tax net charge of $25 million or $0.12 per share. First quarter net earnings were $21 million or $0.10 per share compared with net earnings of $142 million, or $0.72 per share, for the same period of 1996. Net sales in the first quarter of 1997 were $2.6 billion, the same as the first quarter of 1996. Also Tuesday, HONEYWELL, INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HON)") else Response.Write("(NYSE: HON)") end if %> reported net income of $75.6 million, or 60 cents per share, up from $65.1 million, or $0.51per share in the first quarter of 1996. Sales in the first quarter were $1.69 billion, compared with $1.62 billion a year earlier. In addition on Tuesday, SLOCAN FOREST PRODUCTS LTD. (SFF.TO) announced sales for the first quarter of 1997 were $204.7 million, compared to $185.8 million for the same period in 1996. Slocan had net earnings of $4.6 million, or $0.15 per share, for the first quarter versus a net loss of $7 million, or $0.23 per share, for the first quarter of 1996. The 1996 net loss included write-downs of pulp and chip inventories aggregating $8.9 million ($4.7 million after tax or $0.15 per share). And Tuesday, BLOUNT INTERNATIONAL, INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BLT.A BLT.B)") else Response.Write("(NYSE: BLT.A BLT.B)") end if %> reported record net income for the first quarter of $13.6 million ($0.70 per share) compared to net income of $13.4 million ($.69 per share) in last year's first quarter. Sales were $170.l million, slightly below the $173.3 million for last year. Also Tuesday, Jensen Securities said it downgraded the rating on BOISE CASCADE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BCC)") else Response.Write("(NYSE: BCC)") end if %> to neutral from outperform, saying it appears that weak pricing may persist for its major product grades longer than previously expected. Finally Tuesday, Finnish paper machine maker VALMET OY (VLMT.HE) said it won an order for a new tissue paper machine from GEORGIA-PACIFIC CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GP)") else Response.Write("(NYSE: GP)") end if %> of the United States, but gave no value for the order. Georgia-Pacific will expand its Crossett (Arkansas) facility and the machine is expected to be delivered in about one year. No capacity figures were available. On Wednesday, ALBANY INTERNATIONAL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AIN)") else Response.Write("(NYSE: AIN)") end if %> announced first quarter net income of $10.9 million, or$0.36 per share, compared with $7.9 million, or $0.26 per share, (after a four-cent extraordinary loss on early extinguishment of debt) in the same quarter last year. Net sales were $171.8 million compared with $168.1 million last year, an increase of 2%. And Wednesday, THE MEAD CORPORATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MEA)") else Response.Write("(NYSE: MEA)") end if %> today first quarter net earnings of $20.2 million, or $0.38 per share, compared to $36.3 million, or $0.68 per share, for the same period in 1996. First quarter 1996 net earnings per share included a 10-cent gain from the sale of a discontinued business. Sales for the quarter were $1.14 billion, an increase of six percent from $1.07 billion in 1996. The increase was attributable to the company's acquisition in November 1996 of a coated and specialty paper mill in Rumford (Maine) from Boise-Cascade. In addition on Wednesday, SONOCO <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SON)") else Response.Write("(NYSE: SON)") end if %> reported first quarter earnings of $96.7 million, or $0.43 per share, compared with $100.4, or $0.43 per share, for the same quarter of 1996. The company's earnings per share were favorably impacted by its 1996 repurchase of 3.44 million common share equivalents. Sonoco's sales for the first quarter of 1997 were $687.6 million, compared with $669.2 million in the first quarter of 1996. Also Wednesday, UNION CAMP CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UCC)") else Response.Write("(NYSE: UCC)") end if %> reported first quarter earnings of $9.6 million ($0.14 a share) compared to $58.5 million ($0.85 a share) for the first quarter of 1996. Net income for the first quarter of 1996 included an after-tax special charge of $28.9 million ($0.42 per share). ales were $1.057 billion, compared with $978.3 million. And Wednesday, FIBREBOARD CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: FBD)") else Response.Write("(AMEX: FBD)") end if %> reported income from continuing operations was $1.2 million, or $0.14 per share, compared to a loss of $0.4 million, or $0.04 per share for the quarter ended March 31, 1996. Revenues for the quarter were $115.9 million, an increase of 45% from $79.8 million for the prior year first quarter. Finally Wednesday, POPE & TALBOT, INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: POP)") else Response.Write("(NYSE: POP)") end if %>, reported improved earnings for the first quarter of $1,378,000, or $0.10 per share, up from the first quarter of 1996 loss from continuing operations of $2,765,000, or $0.20 per share. Earnings included the one time gain from the sale of Paragon Trade Brands stock of $.08 per share. Revenues of $116.9 million for the first quarter increased 3% over last quarter and 6 % over the same period a year ago. On Thursday, JEFFERSON SMURFIT CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: JJSC)") else Response.Write("(Nasdaq: JJSC)") end if %> reported a net loss of $7 million, or $0.06 per share, in the first quarter of 1997, compared with a net profit of $53 million, or $0.48 per share, in the first quarter of 1996. Sales for the first quarter were $778 million compared to $916 million in the first quarter last year. Also Thursday, KIMBERLY-CLARK CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KMB)") else Response.Write("(NYSE: KMB)") end if %> reported earnings for the quarter were a record $0.65 per share, an increase of 16.1% from the prior year's earnings of $0.56 per share (excluding nonoperating items in both years). Sales of $3.2 billion for the first quarter were 1.1% higher than in 1996; however, excluding the revenues from businesses sold during 1996 to meet the regulatory requirements of the company's merger with Scott Paper Company, sales were up approximately 4%. And Thursday, MOSINEE PAPER CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MOSI)") else Response.Write("(Nasdaq: MOSI)") end if %> announced a three-for-two stock split payable May 15 to holders of record on May 1. Directors also approved a 31% increase in their dividend. In addition on Thursday, WAUSAU PAPER MILLS CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WSAU)") else Response.Write("(Nasdaq: WSAU)") end if %> reported its board of directors has approved a $9.4 million pulp mill capacity expansion at its printing and writing mill in Brokaw, Wisconsin. The project, which will increase pulp capacity at the facility by about 15%, is expected to be completed by early summer in 1998. Also Thursday, Lehman Brothers said it downgraded ALBANY INTERNATIONAL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AIN)") else Response.Write("(NYSE: AIN)") end if %> to neutral from outperform and cut 1997 and 1998 year estimates by $0.10 each, citing soft second quarter paper production outlook and weakness in Asia. heir new 12-18 month price target is $23 per share or 12 times 1998 EPS estimate of $1.95, down from $29 or 14 times old estimate of $2.05. Finally Thursday, WEYERHAEUSER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WY)") else Response.Write("(NYSE: WY)") end if %> announced it will raise the price of NBSK pulp back to the list of $580 per ton. This would represent a hike of about 12% over the current discounted levels, and is similar to that proposed by Georgia-Pacific and Stone Container. On Friday, CHAMPION INTERNATIONAL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CHA)") else Response.Write("(NYSE: CHA)") end if %> reported a loss of $0.39 per share for the first quarter of 1997 compared with earnings of $0.88 per share for the same period a year ago and $0.11 for the fourth quarter of 1996. Sales declined 10.9% from year ago levels to $1.337 billion. Also Friday, ROCK-TENN COMPANY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RKT)") else Response.Write("(NYSE: RKT)") end if %> reported financial results for the second fiscal quarter. Net sales for the quarter increased 27.2% to $275.4 million compared to $216.5 million for the same quarter last year. The net loss for the quarter was $7.2 million, or $0.22 per share, which includes an after-tax charge of $12.8 million, or $0.38 per share related to the closing of an Illinois carton plant and the acquisition of Olympic Packaging. New Website: ALBANY INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AIN)") else Response.Write("(NYSE: AIN)") end if %> at www.albint.com. Albany International is the world's leading producer of specialized "fabrics" for use on paper machines, without which paper cannot be made. Upcoming Earnings as per First Call: Monday (after close) Fort Howard --- This Q Est. = $0.56, Last Q = $0.52, Year-Ago Q = $0.43 Thursday James River --- This Q Est. = $0.35, Last Q = $0.33, Year-Ago Q = $0.23 "Model Portfolio" Update: A decent week for the port-faux-lio, but hardly earth-shattering. Bucking the trend of the market and the sector, Caraustar Industries lost some more of its luster this week. However, we believe it will only be a matter of time before this gem is again polished. Consolidated Paper seems to be rising above a price range which it has been stuck within for quite some time, possibly suggesting it is gaining some recognition as a leader in quality coated papers. Consolidated recently started a new paper machine at its Stevens Point (WI) facility, with a production capacity of 64,000 tpy. Purchase: IP = $40.50, FORT = $27.69, CDP = $49.13, CSAR = $29.00 Last Trade: IP = $42.13, FORT = $30.38, CDP = $53.38, CSAR = $24.13 This Week: Year-to-Date: Model = + 1.10 % Model = + 10.49 % SP500 = + 3.89 % SP500 = + 3.46 % FSPFX = + 2.82 % FSPFX = - 5.99 % Commentary: After two years of being a chat host here in the Motley Fool area (on one my other Fool duties -- Sunday evenings from 8-10 pm EST, by the way), it is apparent that the most frequently encountered question regarding any stock is: "Where is it going?" Of course, we're all in this to make money, thus it is a natural question is ask. Unfortunately, it also happens to be the most difficult question to answer. Or is it? Though we continually see and hear the statement "Past performance is no guarantee of future return," history can certainly provide some insight into the fundamental valuation of a stock, especially when looking at the longer run. One method commonly employed in valuation analysis is P/E, or the Price-to-Earnings Ratio. This, of course, is the price-per-share of a stock divided by the company's earnings-per-share achieved over a 12-month period. In general, a low P/E usually equates to a stock with good value since the investor is paying a low price (the numerator, or top number in the equation) for a high amount of earnings (the denominator, or bottom number). However, this is not necessarily the case for stocks of cyclical industries such as paper. This is due to the fact that earnings in this sector are highly variable -- subject to wide, recurrent swings correspondant to periodic economic conditions and capacity factors which affect product prices and thus operating margins. As stock prices do not change as dramatically as earnings (percentagewise), P/E ratios can and do vary greatly over a "cycle". For instance, Weyerhaeuser reported earnings in 1995 of $4.83 per share, but in 1996 they only earned $2.34 per share (about one half). As Weyerhaeuser's stock price was little changed from the end of 1995 to the end of 1996 ($45 to $47), its P/E essentially doubled during the period (45/4.83 versus 47/2.34, or P/E of 9 versus 20). Does this mean that the company's stock was only half as good a value at the end of 1996? Unless you happen to know where in the cycle the industry is, you might be mislead by the P/E ratio. Is there an alternative? Let's look at another method of valuation: P/S, or the Price-to-Sales Ratio. Like P/E, the P/S uses price-per-share in the numerator, which is then compared to sales-per-share over 12 months. Unlike P/E, though, the P/S Ratio is not nearly as variable since revenues are more stable than incomes, and thus this measure can serve as a more reliable indicator of value. Looking back at the previous example, Weyerhaeuser sold $11.788 billion of product in 1995 ($58/share) and $11.114 billion in 1996 ($56/share). Thus, the P/S ratio was hardly changed during the period (45/58 versus 47/56, or P/S of 0.78 versus 0.84). Over the long term, my 25-year database suggests there is a good correlation between price-per-share and sales-per-share. In other words, the value of a stock is directly proportional to a company's revenues, and a stock's appreciation potential is comparable to the company's revenue growth. If a low P/E can represent a good value for a stock in a non-cyclical industry (low price for high earnings), a low P/S Ratio (low price for high sales) should signify good value for a stock in this industry; and the stock with the lowest P/S Ratio is the best bargain, right? Wrong (do not pass Go, do not collect dividends). For whatever reason, different stocks follow different schedules when it comes to the P/S (this is where history comes into play). For instance, our Weyerhauser stock has historically traded at around a 0.69 ratio, but a P/S of 0.44 is more representative for Georgia-Pacific's stock. Thus, if both stocks were priced at a level were their P/S Ratios were comparable to the their respective long-term averages, it would not mean that GP was a better value than WY just because its P/S was lower. However, if the P/S for Weyerhauser was 0.52, for instance, one could conclude that WY stock was trading at only 75% of fair-value (.52/.69) or was undervalued by 25%. In other words, comparisons with a stock are valid, but between stocks they are not. Looking at some other P/S "norms", we have Boise-Cascade at 0.34, Bowater at 0.79, Champion at 0.58, Consolidated at 1.76, International Paper at 0.56, James River at 0.41, Mead at 0.54, Glatfelter at 1.64, Potlatch at 0.77, Stone at 0.31, Temple-Inland at 0.83, Union Camp at 0.98, Westvaco at 0.86 and Willamette at 0.74. The data to compute these figures for other companies is readily-available and nearly free. Most companies provide a 10-year historical data summary page in their annual report (available for the price of a phone call to the company). Accessing the Historical Quotes area on AOL (keyword: company) will provide the other piece of the puzzle. With a calculator and a few spare minutes, you have quite a powerful tool. Be mindful, however, that major acquisitions/divestitures can affect the outcome, and that stocks generally trade on forward expectations, not what happened last year. So go now -- impress your friends and family. Just remember, though, that past performance is no guarantee of future return (?). Keep them presses rolling !!!

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