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Differing factors produce positive results for paper packaging heavyweights

By Joe Whitworth , 26-Oct-2012

International Paper and Graphic Packaging have cited strategic expansion and product innovation as the drivers behind strong Q3 results.

International Paper said growth will be driven by cost savings projects and initiatives in Brazil, Russia, China and North America and the entry into the corrugated packaging market in Brazil through a JV 75% stake costing $470m.

Graphic Packaging noted product innovation for their positive quarter such as glass bottle packs for the beer market, the CUK carton in the juice pouch sector and a coffee chain launching a food product in the firm’s Paperboard design.

IP segment outlook

International Paper’s Industrial Packaging segment posted earnings of $255m after special items in the third quarter of 2012, versus $260m in the second quarter of 2012 and $293m in the three months ending September 2011.

Lower planned maintenance downtime costs, solid manufacturing performance and decreased input costs, were offset by lower sales volumes, the operational impact of divesting three containerboard mills during the quarter and an unfavorable inventory valuation adjustment.

Consumer Packaging operating profit was $67m before and after special items, compared with $57m in Q2 2012 and $30m in Q3 2011 after special items, including restructuring.

Slow demand and pricing pressure were offset by lower planned maintenance expenses.

John Faraci, chairman and CEO of International Paper, said: "Looking ahead to next year, many of our key strategic projects will be ramping up around the globe.

“This, along with our earnings trajectory in North America Industrial Packaging, will allow us to deliver significant progress on our earnings and cash flow runway as we head into 2013.”

International Paper also announced it would form a JV, of which it would have 75% control, in a Brazilian corrugated packaging producer for $470m.

The packaging assets of Jari Celulose, Embalagens e Papel S/A, a Grupo Orsa, including three containerboard mills and four box plants, will be separated from its pulp and forestry businesses and transferred to a newly formed company.

Faraci added: "We are excited about Brazil's growing market and this investment provides us with an attractive position with a strong return on investment."

The companies expect to finalize the transaction early in the first quarter of 2013 with IP having the option to expand their stake or exit the JV after three years.

Graphic Packaging analysis

Graphic Packaging’s Paperboard Packaging sales, which comprised 84.1% of total third quarter net sales, increased 1.7% compared to the third quarter of 2011. 

Net sales in the Flexible Packaging segment increased 9.9% compared to Q3 2011 due to the addition of Delta Natural Kraft, LLC and Mid-America Packaging, LLC on 8 December, 2011. 

The firm will begin to integrate flexible packaging mill production in early 2013 which will drive synergies.

Folding carton sales up over 4% versus last year with new business wins and end market share gains in areas like juice pouch cartons, pasta, food service and frozen foods but the company warned end market trends remain somewhat sluggish.

Graphic Packaging said the seasonality in business would affect Q4 results as it is historically weaker than Q2 and Q3.

Planned mill maintenance outage at West Monroe, LA $13m expense in Q4, $7m greater than Q4 2011 with recovery boiler maintenance and special equipment upgrades every other year.

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