 Weekly Paper Archive
Airlines |
| This Week in Paper by Joe Masters (TMF Master) Charleston, SC (June 27, 1997) -- It was a lackluster week in the Paper/Forest sector. With only a modicum of news and a mere market-matching performance (which happened to be down), we take a respite while we wait for all the "options expiration", "end-of-quarter window-dressing" and "Greenspan guessing" to end. It will be none too soon. With our Paper/Forest index losing 1.06% this week, compared to losses of 1.40% for the Dow and 1.27% for the S&P 500, we note that the ups and downs were quite varied. Leading the winner's column this week were STONE CONTAINER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: STO)") else Response.Write("(NYSE: STO)") end if %>, up 4.50%, FORT HOWARD <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FORT)") else Response.Write("(Nasdaq: FORT)") end if %>, gaining 2.83%, CHAMPION INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CHA)") else Response.Write("(NYSE: CHA)") end if %>, rising 2.56%, and CONSOLIDATED PAPER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CDP)") else Response.Write("(NYSE: CDP)") end if %>, tacking on 0.91%. On the downside were GAYLORD CONTAINER <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: GCR)") else Response.Write("(AMEX: GCR)") end if %>, dropping 7.65%, BOISE CASCADE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BCC)") else Response.Write("(NYSE: BCC)") end if %>, down 4.36%, WESTVACO <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:W)") else Response.Write("(NYSE:W)") end if %>, off 3.79%, and WEYERHAEUSER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WY)") else Response.Write("(NYSE: WY)") end if %>, declining 3.30%. All the News that Fits the Print: On Monday, Suomen Optioporssi, a Finnish options exchange, put the value of northern bleached softwood pulp at $563.86 per ton, up from $561.14 last week. In May, the PIX mean was $541.51, up from $518.12 in April. The PIX mean was $522.28 in March, $546.59 in February and $556.86 in January. Also Monday, HARNISCHFEGER INDUSTRIES INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HPH)") else Response.Write("(NYSE: HPH)") end if %> said its tender offer for GIDDINGS & LEWIS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GIDL)") else Response.Write("(Nasdaq: GIDL)") end if %> expired on June 20 and will not be extended. And Monday, MOSINEE PAPER CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MOSI)") else Response.Write("(Nasdaq: MOSI)") end if %> said its board of directors has approved a $7 million paper machine capacity expansion at its Sorg Paper facility in Middletown, Ohio. The project is expected to be completed by early summer 1998 and includes equipment modifications on a paper machine that will increase capacity more than 25% and improve the quality of the paper produced. In addition on Monday, FLETCHER CHALLENGE CANADA LTD. (FCC.A) said it has completed the previously announced sale of its 52% interest in TIMBERWEST FOREST LTD. (TFL.TO) to TAL Acquisition Ltd. for C$348 million. And Monday, JAMES RIVER CORPORATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: JR)") else Response.Write("(NYSE: JR)") end if %> announced that its Board of Directors has fixed August 12, 1997, as the date for the special meeting of shareholders of James River in connection with the merger agreement recently signed by James River and FORT HOWARD CORPORATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FORT)") else Response.Write("(Nasdaq: FORT)") end if %>. On Tuesday, Sweden's SODRA, a holdout on raising prices, said it will join in by increasing the price of pulp to $610 per ton. Also Tuesday, Ireland's JEFFERSON SMURFIT GROUP PLC (SMFT.L) announced that it had acquired an 80 % stake two paper companies, Celulosa de Coronel Suarez S.A. and Asindus S.A. of Argentina, for around 17 million Irish pounds. And Tuesday, workers belonging to the Communications, Energy and Paperworkers Union voted by 96% to strike at FLETCHER CHALLENGE CANADA LTD'S (FCC.A) three pulp and paper mills in British Columbia. No strike date has been established. Negotiations between the union and the company will resume next week. With Fletcher serving as the "proving grounds", this could set the stage for further strikes across Canada. Since Canada's main paper product is newsprint, this could create a hastened reduction in inventories which could lead to further price appreciation in this segment. On Wednesday, Merrill Lynch & Co. analyst Sherman Chao downgraded GEORGIA-PACIFIC CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GP)") else Response.Write("(NYSE: GP)") end if %>, BUCKEYE CELLULOSE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BKI)") else Response.Write("(NYSE: BKI)") end if %> and WESTVACO CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: W)") else Response.Write("(NYSE: W)") end if %> to "intermediate-term neutral" from "accumulate". The long-term rating on Buckeye and Westvaco remains at "accumulate" and Georgia-Pacific at "buy". Concerns over price weakness for market pulp this summer were cited as the reason for the downgrade to Georgia-Pacific. The analyst cut his second-quarter earnings estimates to $0.13 per share from $0.30 per share and 1997 estimates to $0.83 per share from $1.00 per share. Buckeye and Westvaco were downgraded because the shares have reached price objectives. Also Wednesday, REPAP ENTERPRISES INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RPAPF)") else Response.Write("(Nasdaq: RPAPF)") end if %> said it was reviewing bids for its operating units and expected to give shareholders more information on the offers in July. And Wednesday, ENRON CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ENE)") else Response.Write("(NYSE: ENE)") end if %> said it formed an alliance with JAMES RIVER CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: JR)") else Response.Write("(NYSE: JR)") end if %> to identify and develop solutions to the paper maker's energy-related needs at 60 manufacturing sites worldwide. The two companies will develop a plan to optimize James River's energy-related assets and reduce total energy costs. James River purchases over $200 million of energy worldwide. On Friday, SCA (SCAb.ST) reported that the company did not think the market would be ready for an increase in pulp prices until the fourth quarter. "Model Portfolio" Update: Purchase: IP = $40.50, CDP = $49.13, CSAR = $29.00, TFT = $10.75 Last Trade: IP = $49.06, CDP = $55.50, CSAR = $33.25, TFT = $10.63 This Week: Year-to-Date: Model = + 0.83 % Model = + 37.22 % SP500 = - 1.27 % SP500 = + 19.79 % FSPFX = + 0.00 % FSPFX = + 8.38 % Commentary: Well, another quarter is almost past and it is again time for earnings announcements. Looking at the estimates posted for our 20 "index" companies and comparing them to the actual earnings reported in the first quarter of this year, I note that earnings for the group are anticipated to rise by about 50%. This is still only about 35% of those earnings achieved in the second quarter of 1996, but at least it is a move in the right direction for a change. Looking at the year 1997, now that we're half way through it, estimates posted for our "index" companies show that analysts are expecting only half of those earnings that were achieved in year 1996. While 1998 looks better, with analysts predicting a huge (about 2.5 times) rise over 1997, it is quite a stretch to provide reasonably accurate estimates given the uncertainties involved over this time frame. Speaking of estimates, I notice Mr. Chao of Merrill Lynch lowered his 1997 estimates for Georgia-Pacific by 17% on concerns regarding pulp price weakness over the summer period. I find this a little curious. To cite some facts, pulp represents only about 6% of revenues for GP, which happens to be the world's second-largest producer of the stuff (around 2.07 million tons annually). Looking at earnings, though they can be quite variable, my best estimate is that pulp contributes approximately 12% to the bottom line. I guess I find it a bit hard to swallow that such price weakness over the summer can lower earnings by 17% for the entire year, especially given that pulp is not a large factor in the equation. I also find it interesting that Georgia-Pacific could be downgraded, yet Weyerhaeuser was left standing. Weyerhaeuser, by the way, is the world's 1st-largest producer of pulp (around 2.13 million tons annually). Pulp accounts for about 9% of Weyerhaeuser's revenues and around 17% of the company's earnings. Would not weakness affect Weyerhaeuser more? Well, there ain't no cure for the summertime blues. A quick, friendly reminder that we do have message boards dedicated to the Paper/Forest sector on both AOL and the Fool website. If you have any questions to ask of me or other investors, I encourage you to post them to the boards. In addition, if anyone would be interested in attending a special Paper/Forest "chat" session on AOL (sorry, no web chats yet), please e-mail me and I will arrange something in the near future.
Keep them presses rolling !!! |
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