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RockTenn results affected by selling costs

By Joe Whitworth , 24-Jan-2013

Corrugated and consumer packaging had mixed quarters for RockTenn as varying selling costs affected Q1 2013 results.

Corrugated Packaging net sales increased due to higher selling prices but Consumer Packaging net sales decreased due to lower selling prices, with demand for bleach paperboard being the largest issue.

RockTenn said they are also progressing with modernising mills from the buy of Smurfit-Stone in 2011, including upgrades at Hodge and Hopewell and shelving a containerboard mill expansion project that would have created 145,000 tons of additional capacity.

Steve Voorhees, chief financial officer, told analysts in the firms’ conference call: “In particular, we’ve shelved one major containerboard mill expansion project that would’ve created 145,000 tons of additional capacity. And we’ve moved the Hopewell expansion into the 2014 outage.”

Segment depth

Corrugated Packaging segment net sales increased $67m to almost $1.6bn in Q1 2013 compared to the prior year quarter and segment income increased $29m to $138m in the quarter compared to the prior year.

The increased sales and earnings are related to higher selling prices and lower recycled fiber and energy costs, partially offset by $16m of incremental maintenance outage expense and higher virgin fiber and chemical costs.

Consumer Packaging segment net sales decreased $9m in Q1 2013 compared to the prior year quarter due to lower selling prices.

Segment income was $67m in Q1 2013 compared to $80m in the prior year quarter due to lower selling prices, and to lower income from promotional displays that resulted from higher containerboard prices.

Seasonal demand

Jim Rubright, chairman and CEO, said demand in the segment was relatively weaker than expected during the second half of the quarter, after a strong first half of the quarter.

“Continued weakness in global demand for bleach paperboard is the largest issue in the current business climate.

“Although coated recycled paperboard mill operating rates remain healthy…folding carton pricing continues to be under pressure,” he added in the conference call.

“Seasonal demand for folding cartons typically recovers more quickly after the New Year than demand for corrugated packaging, so we’re seeing better sales results month to-date in January, and we expect to see better sales results in the March quarter throughout the segment.”

Recycling segment net sales decreased $78m over the prior year first quarter to $252m primarily as a result of lower selling prices and volume.

Segment income increased $1m to $4m in Q1 2013 compared to the prior year quarter primarily due to cost structure improvements.  Recycling segment EBITDA margin was 3% for Q1 2013.