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Paper and paper product manufacturer Clearwater Paper Corporation (CLW - Snapshot Report) has recently announced the permanent and immediate closure of its manufacturing facility in Long Islands, New York to reduce operating costs. Although the company acknowledged the severity of the decision, which is likely to affect around 155 employees, it maintained that the compromise was the best possible alternative to sustain profitable operations. The stock was up 2.8% on the news to close the trading session on Feb 18 at $67.69.

With the closure of this tissue converting and distribution facility, manufacturing process will be centered on other low-cost facilities. The retrenched employees will be eligible to apply for suitable vacancies at other facilities and will be entitled for severance pay. Clearwater has also pledged its support to the New York Department of Labor’s Rapid Response Unit to assist the displaced employees in receiving vocational training or other benefits for new employment opportunities. In addition, the company will also provide career assistance services to the affected employees.

Clearwater expects to incur total non-recurring exit-related expenses of approximately $12 million to $15 million, of which about $10 million is expected to be incurred in 2014 and the balance in 2015. Through the closure of this non-profitable distribution facility, the company expects to save approximately $6 million in operating costs in 2014 and approximately $12 million in 2015.

Clearwater’s decision comes on the heels of other players in the industry like Memphis, Tenn.-based International Paper Company (IP - Analyst Report) taking the same course. International Paper closed the Courtland, Ala. paper mill manufacturing facility given the decelerating demand for uncoated freesheet across the continent. The mill produced papers for diverse applications like forms, envelopes, labels, copiers, printers and magazines. With increased digitalization, consumers shifted to online publications, electronic billing and filing, due to which demand for uncoated freesheet in North America fell drastically.

Clearwater manufactures and sells pulp-based products such as consumer tissue, away-from-home tissue, parent roll tissue, machine glazed tissue, and bleached paperboard across the globe.

Clearwater currently has a Zacks Rank #2 (Buy). Other players in the industry worth mentioning include Fibria Celulose SA (FBR - Snapshot Report) and Domtar Corporation (UFS - Snapshot Report), both of which carry a similar rank.

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