Sunday, September 17, 2000

New cartons the latest success for International Paper

By Jay Loomis
Westchester Journal News

        PURCHASE, N.Y. — Long sheets of white paper speed off noisy machinery and onto giant rolls in a dizzying whirl of nearly nonstop production at International Paper Co.'s mill in Pine Bluff, Ark.

        In a given year, the mill turns out enough paper for 1.2 billion orange juice, milk and cereal cartons — nearly five for every U.S. man, woman and child.

        The company says carton sales have been good since it came out with a new version last year that allows the beverages to keep 40 percent more flavor, retain more vitamins and extend the shelf life.

        Evidence of that success is on display at supermarkets throughout the nation.

        “The technology has really improved our market position,” said Bruce Thoman, manager of beverage packaging for International Paper in Cincinnati. “It has been a win-win situation for everyone involved.”

        The cartons are one of many coups that the Purchase-based company has pulled off lately.

        Aggressive acquisitions in the past two years — including buying rival Champion International, which had operations in Hamilton — have strengthened the product breadth and market position of a giant that already was the largest paper company in the world with $24.6 billion in 1999 sales. Consumers run into the company's paper nearly everywhere, from milk cartons to cookie boxes, office copy machines to magazines, lollipop wrappers to stationery.

        Operating profits more than tripled to $315 million in the second quarter as the company capitalized on strong overseas sales, higher prices and cost-cutting.

    In June, International Paper bought Champion International, a firm started in Hamilton that still has large operations there.
    In July, IP said it would sell the former Champion North B Street paper mill, which employs 800 along the west bank of the Great Miami River. It also said it would seek a buyer for the 152-year-old former Beckett paper plant, which employs 220 across the river on Dayton Street, as part of a divestiture of its $300 million fine-papers business.
    Sale of the former Champion plant, which was on the block in 1997 but didn't sell, was expected by Hamilton residents; sale of the former Beckett plant was not.
    IP is still evaluating the future of Champion's Knightsbridge Drive administrative complex, which employs 560. IP officials have said jobs will be eliminated as it tries to wring out the projected $425 million in cost savings expected from its purchase of Champion.
        “They clearly have gotten bigger in size and sales dollars,” said Linda E. Lieberman, an analyst with Bear Stearns in New York. “They are committed to being a global player. Now it's a matter of executing and delivering.”

        International Paper, whose operations in 50 countries employ 117,000 people, recently completed its $9.5 billion buyout of Champion. A year earlier, the company bought another competitor, Union Camp Corp. of Wayne, N.J. In most product categories, International Paper has gained since the deals. Its share of the market for uncoated papers, used in office copy machines, has risen from 22 percent to 32 percent this year. Its timber holdings jumped from 8.3 million acres to 14.8 million acres. Its lumber sales are expected to rise from 2.9 million board feet to 4.6 billion board feet a year.

        In the meantime, on supermarket shelves, the company has increased its foothold with the longer-lasting beverage cartons.

        Defying the paper industry's reputation as a slow growth, low-tech, Old Economy plodder, International Paper says its scientists developed cartons that not only keep the orange juice fresher but also retain 15 percent more vitamin C than older packaging.

        Mr. Thoman said stores can keep the juice fresh on the shelves for up to 70 days, up from 63 days in the older packaging. Tests, in which the juices were put in glass beakers in International Paper laboratories, also found that the juice retained the additional flavor longer.

        International Paper said the secret is a complicated manufacturing process in which the company uses 11 layers of paper.

        Another ingredient is a patented coating, it said, that not only keeps the juices from leaking but also keeps them fresher. International Paper makes paper board for the cartons in Pine Bluff and then ships it Plant City, Fla., for final assembly.

        Major food companies are buying cartons in bulk — Tropicana and Welch's for juices; Nestle for milk; and Kellogg's for its Special K cereal. Nabisco, meanwhile, is using the packaging for some cookies and crackers.

        Mr. Thoman said the carton sales have been climbing about 5 to 7 percent a year.

        “We have been able to go after new segments of the market,” he said. “In the past, we haven't been a big player in the cereal business. But we think there is great potential for putting additional cereals into this. ... We have found that you can get a year's shelf life for the (cereal) product.”

        Analysts are generally optimistic about International Paper's outlook because of such successes, despite a stock price that is about 37 percent lower than a year ago.

        Despite its commanding market presence, analysts said, the company needs to sharpen its focus by getting out of noncore businesses such as chemicals and petroleum, closing underperforming mills and reducing debt.

        At the time of the Champion deal, International Paper said it planned to cut $425 million in costs and sell $3 billion in business that weren't a good fit. International Paper says specifics about the cost cuts will be announced later, but the company recently began eliminating about 225 of the 375 jobs at Champion's headquarters in Stamford, Conn. About 50 employees in Stamford were offered transfers to other locations, and the fate of the remaining workers is undetermined.

        Anna Torma, an analyst at Merrill Lynch, said International Paper is to be reaping dividends from its acquisitions. “They are achieving synergies,” she said. “The integration process appears to be on track.”


Joseph-Beth adds a chapter
- New cartons the latest success for International Paper
Change key to CDCI success
Small-business diary
What's the Buzz?