Target Report: Paper Industry Transformation Moves Forward

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It didn’t take long. The ink was hardly dry. International Paper’s shareholders had just approved its acquisition of DS Smith, the UK-based manufacturer of corrugated case materials and related fiber-based products. Only days before, DS Smith had obtained its own shareholders’ approval to proceed with the deal. Within the following week, International Paper announced the closure of no fewer than six facilities, spread out from North Carolina to Texas, mostly in the corrugated box segment. The job of rationalizing the total combined production capacity of the merged operations was clearly underway in advance of the deal’s consummation. Unlike many plant closures in the paper manufacturing industry, we view these changes as a signal that the demand for corrugated packaging products will remain strong. Consequently, International Paper is positioning itself as a leading global player in the segment. (For more, see: The Target Report: Paper Manufacturers Shift Grades – April 2024.)

International Paper Gets Lean Before Merger with DS Smith

Five months into the job, new Chairman & CEO Andrew Silvernail continues to shake up things at International Paper as restructuring, cost cutting and workforce reductions continue. The mega US-based pulp and paper company seeks to expand its European presence, cementing its position as the world’s largest paper giant (by revenue) at a time of consolidation in the paper industry. Fiscal-year revenues are expected to exceed $18.8 billion for 2024. When combined with DS Smith, International Paper’s pro-forma annual revenues are projected to be approximately $28.2 billion, with 90% of sales coming from corrugated products.

International Paper is permanently shutting down facilities in six states: two packaging plants in Rockford, Illinois, and Kansas City, Missouri, respectively; two corrugated container plants, one in Statesville, North Carolina, and the other in Cleveland, Tennessee; one corrugated sheet feeder plant in San Antonio, Texas; and a cellulose pulp mill in Georgetown, South Carolina. The combined result of the recently announced mill closures is an expected $230 million improvement in adjusted earnings.

Additionally, some 400 people at its Memphis headquarters are being let go. In all, 989 employees face being without their jobs by mid-December – that number represents about 2.5% of the company’s workers in 35 states and 10 countries worldwide. These moves follow another 900 layoffs announced 13 months ago, when a containerboard mill in Texas was closed and two pulp machines (one North Carolina and the other in Florida) were retired.

No More Fluff?

At the end of October, International Paper announced that it is reviewing strategic options for its global cellulose fibers (GCF) business. The company plans to shutter the aforementioned South Carolina mill by year’s end. The Georgetown, South Carolina, facility produces approximately 300,000 tons of high-quality absorbent pulp, often called “fluff” pulp, designed for a range of consumer applications, from baby diapers and incontinence pads to feminine hygiene products. The specialty pulp is also used as a sustainable raw material used in textiles, construction materials, paints and coatings.

International Paper plans to replace 100% of the mill's fluff pulp capacity by transferring production to other sites. Overall, the GCF business generated $2.9 billion in revenue for International Paper in 2023, and has operations in three countries, with eight mills and two converting facilities.

However, International Paper announced that it is reviewing the strategic options for its GCF business, leading us to believe that it may be spun off. On International Paper’s Q3 earnings call with investors, CEO Silvernail hinted at a harbinger of additional changes to come, previewing plans to reinvest some recent cost savings into new greenfield or brownfield box plants. He revealed the company had “multiple opportunities” to do this and will share more details in 2025.

The Georgetown mill that is closing also produces uncoated freesheet papers that it sells to Sylvamo. Production of non-packaging grades for Sylvamo will end December 31, 2024 when the mill closes. Sylvamo itself was formerly the printing papers division of International Paper, and is the maker of primarily uncoated grades, including the well-known brands Accent, Hammermill, Williamsburg, and white-labeled papers for HP. Sylvamo was spun off in October 2021 and cleaved off approximately $4 billion of revenue and 6,500 employees.

It appears that International Paper will double-down and increase its box and board manufacturing operations. That strategic direction is consistent with the report released in October by Precedence Statistics, which projects that the global corrugated box market will grow at a compound annual growth rate of 5.14% over the next decade. International Paper’s spinoff, closures and purchase of DS Smith are consistent with the overall industry movement we have observed in which mill closures and conversions trend away from printing paper grades, and in favor of packaging grades. (For more, see: The Target Report: Paper Industry in Transition – May 2022.)

Printing Plants Close

October was a high-water mark in our reporting on non-bankruptcy closings, exceeding, in number, every month since we began tracking these closures in 2012. In addition to the aforementioned closures by International Paper, several major printing operations will be shutting down.

Quad, the publicly-traded printing company based in Sussex, Wisconsin, announced it is shutting down its 120,000 square-foot plant in Waukee, Iowa. The plant came into the Quad family via the acquisition of Worldcolor in 2010, and primarily prints directories which have been in secular decline ever since the advent of internet-based online data sources. In October, Quad also announced the sale of most of its European operations to private equity firm Capmont. Joel Quadracci, Chairman, President and CEO of Quad, explained that “the decision to divest the majority of our European operations supports our ongoing strategic focus to optimize our business portfolio for growth as a marketing experience company.” However, Quadracci made clear that print will still be a major business for Quad in the near future, stating “we will maintain state-of-the-art printing operations in locations that best support our ever-evolving MX offering.”

Kodi Collective, the former division of LSC Communications recently acquired by the CJK Group, announced that it would be closing its plant in Danville, Kentucky. The plant produced magazines and catalogs. As run lengths in these segments have decreased, CJK noted that the company will have capacity at its other facilities in Kentucky, Illinois, and Missouri to absorb the work formerly produced at the Danville site. CJK has previously staked out positions upstream and downstream from print. The company made another move that is additive to its core print offerings with its acquisition of Accucoms International. The acquired company, based in the Netherlands, operates globally and provides sales and marketing services to academic and professional publishers. Accucoms will be integrated into CJK’s KnowledgeWorks Global division. (For more, see: The Target Report: CJK Goes Global as Cenveo Unwinds – September 2020.)

SG360°, a portfolio company of private equity firm ICV Partners since 2016, is closing its Broadview, Illinois plant. The direct mail facility was acquired by SG360° with its acquisition of Lehigh Direct in 2014. Earlier this year, the company announced that it would be consolidating its web offset printing operations and increasing its investment in its digital print capacity. The company noted that despite the downsizing, its corporate headquarters in Wheeling, Illinois will be the home of thirteen inline web presses, still a formidable production platform for high-volume direct mail.

Other reported closures included two newspaper printing plants, the St. Louis Post-Dispatch printing facility, owned by Lee Enterprises, and the Star-Ledger printing facility in Montville, New Jersey, a publication of NJ Advance Media. The St. Louis Post-Dispatch will, for now, continue to produce a printed edition on a seven-day schedule, which will be printed at the Columbia Press, owned by Gannett, Lee’s rival in the newspaper publishing business. The New Jersey papers will not fare as well, at least not in printed form, as the plant closure is the death knell for the printed edition of the Star-Ledger, as well as three other New Jersey regional papers. The New Jersey papers, including the Star-Ledger which has been highly acclaimed for its investigative reporting, are moving to an entirely online publishing model.

Each of these printing plant closures is indicative of the inexorable trend: content that can move online will move online. As a result, paper manufacturers will continue to shift away from printing and newsprint paper production and focus on packaging grades.