For many containerboard and other paper-based packaging producers, earnings slumped at the onset of the COVID-19 pandemic. While many of them expressed uncertainty about what the second half of the year would bring, almost all have reported improvements. While the pandemic is not yet over, some of the latest earnings reports from these companies showcase a little more confidence and predictability regarding market conditions heading into 2021.
Down but not out
Some companies, such as WestRock and Sonoco, reported that their earnings had declined in the third quarter of the 2020 calendar year compared with the same quarter in 2019; but, when compared with the previous quarter of this year, their earnings increased.
Atlanta-based WestRock wrapped up the fourth quarter of its 2020 fiscal year Sept. 30, with net sales declining compared with the same quarter in 2019. However, net sales rose sequentially by 5.6 percent to $4.5 billion in the fourth quarter of its fiscal year.
WestRock’s sales have been increasing since the second quarter of its fiscal year, which marked the onset of the COVID-19 pandemic, though they are lower on a year-over-year basis. According to its third-quarter earnings report, WestRock’s corrugated shipments declined in April but have increased steadily since then.
“While the environment remains uncertain, we are seeing strong trends in key end markets and continue to successfully partner with our customers to meet their growing needs for sustainable, fiber-based packaging solutions. We have positive momentum for strong performance in fiscal year 2021,” Steve Voorhees, the CEO of WestRock, stated in the company’s Q4 earnings report.
Similarly, Sonoco also reported a decline in sales for the third quarter of the calendar year compared with the same time frame in 2019. Howard Coker, president and CEO of Hartsville, South Carolina-based Sonoco, said the company had “not fully recovered” from the pandemic-induced recession. However, Coker added that Sonoco continued to “see gradual improvement.”
Coker added that industrial-related markets are expected to continue to experience weak year-over-year demand, but he said even those markets are expected to improve sequentially.
Delaware, Ohio-based Greif reported that its third-quarter net sales were down in all its business segments compared with the third quarter of 2019. In Greif’s Paper Packaging & Services segment, net sales declined 13 percent compared with the prior-year’s third quarter. The company attributed that decline to lower year-over-year published containerboard and boxboard prices as well as to about 10,000 tons of containerboard downtime in the start of the third quarter.
“Financial results were weaker as expected, dragged down by soft industrial conditions around much of our global portfolio and by a significant price/cost squeeze in our paper business,” said Pete Watson, president and CEO of Greif.
Some companies, such as Quebec-based Cascades and Atlanta-based Graphic Packaging Holding Co., experienced more positive earnings results in recent months.
For Cascades, sales stayed steady in the third quarter, though they dipped slightly in its second quarter as COVID-19-related demand subsided. The company reported in mid-November that its third-quarter sales were on par sequentially and compared with sales in last year’s third quarter. Cascades’ net earnings for the third quarter of 2020, at CA$49 million ($37.26 million), rose by nearly 14 percent compared with the third quarter of last year but fell by 9 percent compared with the previous quarter.
In mid-October, Graphic Packaging announced that it achieved net organic sales growth of 4 percent in the third quarter of this year compared with the third quarter of 2019. The company said it attributes the sales growth to improved volume and mix related to organic growth and acquisitions as well as $6.9 million in favorable foreign exchange.
Improving packaging demand
Executives from several containerboard and paper-based packaging producers said demand for packaging materials has been strong, spurred by the growth in e-commerce and the pandemic.
International Paper, Memphis, Tennessee, reported lower net sales in its third quarter compared with the same period in 2019, but Chairman and CEO Mark Sutton said the company has experienced strong demand for corrugated packaging materials. “As we enter the fourth quarter, we see continued momentum in demand for corrugated packaging, and we will again leverage the commercial and operating strengths of International Paper with a focus on cash generation and maintaining a strong balance sheet,” he said.
In comments related to its fiscal Q4 results, Voorhees of WestRock said the company was seeing new business as a result of corrugated box demand growth. He said box volumes grew in September. “Our corrugated box backlogs are at record levels, and this signals strong demand growth into the future,” he said. “Our daily box shipments in October were up between 8 percent and 9 percent from the prior year.”
Jeff Chalovich, chief commercial officer and president of corrugated packaging at WestRock, said he expects e-commerce demand to continue to grow. “It’s definitely added share in the corrugated space for us,” Chalovich said of e-commerce.
Voorhees stated in WestRock’s latest earnings results that the pandemic has accelerated its customers’ demand for sustainable fiber-based packaging solutions.
Some of these firms’ executives also predicted growing demand for sustainable packaging. During Graphic Packaging’s third-quarter earnings call, President and CEO Michael Doss said, “Our business pipeline remains robust, and we are uniquely positioned to capture growth with our innovative fiber-based packaging solutions.”