This Week in Paper by Joe Masters (TMF Master) Charleston, SC (June 20, 1997) -- It was a rather difficult period for the Paper/Forest sector, especially in a week where a Wall Street Journal article suggested an encouraging outlook for the sector for 1998. However, as eight of the past nine weeks showed tremendous gains in our stock index (the one lone week experienced a loss of 0.05%), it is not surprising to see a bit of profit-taking. Thus, our Paper/Forest index lost 2.45%, compared to gains in the Dow and S&P500 of 0.19% and 0.61%, respectively. The big losers this week were the tissue producers. KIMBERLY-CLARK <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KMB)") else Response.Write("(NYSE: KMB)") end if %> dropped 5.44%, FORT HOWARD <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FORT)") else Response.Write("(Nasdaq: FORT)") end if %> was off 4.78% and JAMES RIVER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: JR)") else Response.Write("(NYSE: JR)") end if %> declined by 4.68%. Of course, these were some of the biggest gainers in the past few months. Also in the tank this week were TEMPLE-INLAND <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TIN)") else Response.Write("(NYSE: TIN)") end if %>, off 5.63%, MEAD CORPORATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MEA)") else Response.Write("(NYSE: MEA)") end if %>, down 3.57%, WILLAMETTE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WLL)") else Response.Write("(NYSE: WLL)") end if %>, dropping 2.94%, and BOISE CASCADE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BCC)") else Response.Write("(NYSE: BCC)") end if %>, slipping 2.93%. Gaining this week were the big pulp and building products producers: GEORGIA-PACIFIC <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GP)") else Response.Write("(NYSE: GP)") end if %>, rising 0.99%, and WEYERHAEUSER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WY)") else Response.Write("(NYSE: WY)") end if %>, up 1.86%. Also doing well were CHAMPION INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CHA)") else Response.Write("(NYSE: CHA)") end if %>, up 1.65%, and POTLATCH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PCH)") else Response.Write("(NYSE: PCH)") end if %>, gaining 0.82%. All the News that Fits the Print: On Monday, Suomen Optioporssi, a Finnish options exchange, put the value of northern bleached softwood pulp at $561.14 per ton, up from $554.90 last week. (Note: This is the highest level since last November.) Also Monday, Interstate/Johnson Lane downgraded CARAUSTAR INDUSTRIES INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CSAR)") else Response.Write("(Nasdaq: CSAR)") end if %> to "neutral" from "buy", saying the share price had moved close to the firm's 12-month target of $34, though they continue to view Caraustar as an attractive long-term investment. And Monday, LOUISIANA-PACIFIC <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LPX)") else Response.Write("(NYSE: LPX)") end if %> and Sealaska Timber Corp. announced they have reached a mutual agreement to explore the feasibility of developing a joint wood products manufacturing complex in the Ketchikan (Alaska) region. On Tuesday, ASIA PULP AND PAPER COMPANY, LTD. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PAP)") else Response.Write("(NYSE: PAP)") end if %> announced first quarter earnings of $65.5 million, or $0.33 per ADR, compared with $34.5 million, or $0.17 per ADR, for the same quarter of 1996. Revenues increased 10.0% to $427.5 million. Note that accounting standards are different, and under U.S. standards the company's net would have been $44.0 million, or $0.22 per ADR, for this quarter. Also Tuesday, Abecel producers (i.e., Aracruz Celulose, Bahia Sul Celulose, Cenibra, Jari Celulose and Riocell) reported a substantial increase in Brazilian pulp exports during the first five months of this year as compared to the same period of 1996. With Europe and Asia being the main consumers, exports rose to 974,000 tons, up 9.2% from 1996. Tuesday it was reported that the Communications, Energy & Paperworkers Union and the Pulp, Paper & Woodworkers Union of Canada will hold a strike vote over the next week, since negotiations with FLETCHER CHALLENGE CANADA (FCC.A) have reached an impasse. Targeting Fletcher, the results will influence arbitrations with other producers in British Columbia, and could have an impact upon wood and paper prices if any ensuing strike becomes prolonged. Also Tuesday, Potlatch Crop. was awarded $95 million in damages resulting from defects with a pulp washer system at the company's Lewiston mill. The manufacturer, Beloit Corp. (a subsidiary of HARNISCHFEGER INDUSTRIES INC., <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HPH)") else Response.Write("(NYSE: HPH)") end if %> said it will vigorously appeal the verdict. And Tuesday, Weyerhauser announced it will close its Plymouth (N.C.) plywood facility as part of the company's long-term strategy to align its wood product manufacturing facilities with changing future sources of raw material. The company will book charges associated with the closure during the second quarter. On Wednesday, LOUISIANA-PACIFIC CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LPX)") else Response.Write("(NYSE: LPX)") end if %> announced it prevailed in a dispute with INTERNATIONAL PAPER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IP)") else Response.Write("(NYSE: IP)") end if %> relating to their 1996 hiring of Mark A. Suwyn as Chairman and CEO of Louisiana-Pacific. Suwyn had worked for IP and there was apparently a disagreement regarding his move to a competitor. On Friday, Daishowa Paper Manufacturing Company announced fiscal year 1997 earnings of 7.61 billion yen, or 34.64 yen per share, compared with a loss of 2.69 billion yen, or 12.26 yen per share, for fiscal year 1996. Sales increased 3.3% to 381 billion yen. The company has forecasted that in fiscal year 1998 they will earn 5.60 billion yen on sales of 382 billion yen, which is really rather interesting considering paper prices are expected to rise yet they predict profits to fall by 26% over the next 12 months. "Model Portfolio" Update: Other than the previously-noted downgrade of Caraustar, whose stock price appreciated following the downgrade, there were no substantial events occurring this week which contributed to the movement of our "holdings". Purchase: IP = $40.50, CDP = $49.13, CSAR = $29.00, TFT = $10.75 Last Trade: IP = $50.25, CDP = $55.00, CSAR = $32.31, TFT = $10.50 This Week: Year-to-Date: Model = + 0.40 % Model = + 36.09 % SP500 = + 0.61 % SP500 = + 21.32 % FSPFX = - 3.38 % FSPFX = + 8.38 % Commentary: If you haven't had the opportunity or availability to examine the First Call area on AOL, you might be interested to note that very few of the upgrades which have occurred in the sector in the past couple months have made their way into substantially increased earnings estimatations for fiscal year 1997 or 1998. For those of you unaware, First Call provides earnings estimates as projected by major industry analysts. If you are on AOL, you might check keyword: "firstcall", or check out the "Industry Numbers" folder on our Paper/Forest page at keyword "sector". Or, you might want to investigate www.firstcall.com on the web and evaluate the trends yourself. I always find it disturbing when analysts issue upgrades without coincidently raising estimates. It's like telling a joke without giving the punchline. As we discussed previously, there are many companies in allied industries which could potentially profit from an increase in paper prices. While the share valuations of primary producers have been driven upward by investors, seemingly to have already taken future price increases into account, there are those less-obvious relateds whose stocks have yet to benefit. While we have already touched upon suppliers and distributors, another of these sectors is the printing business. In general, the fortunes of companies in this area are tied directly into the cycle of the paper industry, although earnings movement for these firms tends to lag that of paper producers due to inventories and contractual obligations. Some fine companies which might be worth your perusal include: BANTA CORPORATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BNTA)") else Response.Write("(Nasdaq: BNTA)") end if %>, BOWNE & COMPANY <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: BNE)") else Response.Write("(AMEX: BNE)") end if %>, DELUXE CORPORATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DLX)") else Response.Write("(NYSE: DLX)") end if %>, R.R. DONNELLEY & SONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DNY)") else Response.Write("(NYSE: DNY)") end if %>, MAIL-WELL, INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MWL)") else Response.Write("(NYSE: MWL)") end if %>, MOORE CORPORATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MCL)") else Response.Write("(NYSE: MCL)") end if %>, STANDARD REGISTER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SR)") else Response.Write("(NYSE: SR)") end if %> and WORLD COLOR PRESS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WRC)") else Response.Write("(NYSE: WRC)") end if %>. Keep them presses rolling !!! TMF Master

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