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International Paper Mulls Alabama Mill Closure

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Leading packaging and paper manufacturer International Paper Company (IP - Free Report) recently announced its plans to shutdown the Courtland, Ala., paper mill manufacturing facility owing to decelerating demand for uncoated freesheet across the continent. The phased closure is likely to be completed by the end of first quarter 2014.

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.

With the permanent shutdown of the facility, International Paper’s North American uncoated and coated freesheet paper production capacity will reduce by 950,000 tons, including 765,000 tons of uncoated freesheet.

Going forward, International Paper’s Printing and Communications Papers Business, of which the Courtland mill used to be a part, will comprise four paper mills focused on uncoated freesheet, bristols and specialty papers markets. These include two uncoated freesheet paper mills in Eastover, S.C. and Riverdale, Ala., and two specialty paper mills in Georgetown, S.C. and Ticonderoga, N.Y.

The strategic decision is likely to affect the livelihood of 1,100 mill employees, both contractual and salaried. International Paper will work in unison with the union officials to fairly compensate the employees through severance packages, outplacement assistance, benefits and other assistance programs.

Related to the planned closure, International Paper will record $550 million in pre-tax non-cash asset write-off and accelerated depreciation charges and $125 million in pre-tax cash severance and other shutdown charges during the remainder of 2013 and in 2014.

Headquartered in Memphis, Tenn., International Paper has manufacturing operations in North America, Europe, Latin America, Russia, Asia, and North Africa. The company employs approximately 70,000 people and is strategically located in more than 24 countries serving customers worldwide.

International Paper is currently working toward transforming and improving the profitability of its distribution business, xpedx. Improvements are expected in procurement, replenishment orders, reduced stock keeping Units (SKU), and supply chain (including fewer/larger warehouses). The company is also mulling to integrate the entire platform into a single operating system. All these initiatives are expected to double profits. Started in 2011, the company is at the initial stages of this multi-year program. We believe that these initiatives will boost results and be accretive to earnings going forward.

International Paper presently has a Zacks Rank #3 (Hold). Other players in the market worth mentioning include KapStone Paper and Packaging Corporation (KS - Free Report) , carrying Zacks Rank #1 (Strong Buy), and Rock-Tenn Company and PH Glatfelter Co. (GLT - Free Report) , both carrying a Zacks Rank #2 (Buy).

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