Driving down any neighborhood street on trash collection day, an observer couldn’t be blamed for assuming that the very boring business of producing boxes would be booming.
Piled high at the curb, unassuming cardboard containers of every size from Amazon (NASDAQ: AMZN), Chewy (NYSE: CHWY), Walmart (NYSE: WMT) and others pay testament to the huge presence of online retailers and their constant stream of deliveries, with nearly every shipment requiring a ho-hum brown box.
Yet, shares of International Paper, (NYSE: IP) — the world’s second-largest paper-based packaging company — struggle to trade at the same level as they did in 2000. That’s the case even though U.S. e-commerce sales have soared to more than five times the amount of online sales in 1999. International Paper stock has dropped 7% year to date, while the S&P 500 has gained 10%.
Despite the dismal share price performance, International Paper has shown investors a few exciting days this year, as CEO Andrew Silvernail, installed in late 2024, attempts to turn the box-maker around. That includes posting a second-quarter profit after two straight quarters of losses and plans to streamline operations.
A bumpy turnaround effort so far
So far the turnaround is far from smooth, with the stock trading in a volatile pattern. International Paper announced a slew of changes Aug. 21.
First, it plans to sell its cellulose fibers business for $1.5 billion, followed by an investment of $250 million in an Alabama plant and the closure of four other facilities. That would eliminate 1,100 jobs and boosted the stock price.
In June International Paper said it would close three plants in Mexico and two in the U.S. Earlier in the year, IP moved to acquired London-based packaging company DS Smith for $7.22 billion to create a leading global sustainable packaging company.
Refocusing on packaging instead of paper
International Paper is shifting from a paper company to one focused on packaging — especially corrugated cardboard and boxes. That pushes the company’s focus from low-margin, long-term contracts, keeping complex and expensive paper mills running around the clock, to focus on the most highly profitable customers and products.
That means dumping some operations, such as one that made absorbent linings for disposable diapers, while emphasizing specialty products, such as a self-contained box and retail display rack for chocolate bars.
The biggest threat to the box-maker’s comeback plan is a potentially weakening economy. Box sales are so closely tied to economic activity that some analysts use cardboard prices as an economic indicator. It’s no accident that IP’s poor first-quarter results came as U.S. GDP contracted in the quarter.
And while the box company wasn’t directly threatened by tariffs, investors worried that businesses hurt by increased import penalties would cut back on box purchases.
Despite the recent ups and downs, shares of International Paper remain up 41% over the past 24 months. With any luck, the turnaround plan will turn International Paper’s boring box business into a boring, predictable stream of positive earnings.
Comments