International Paper Sees Weak Packaging Demand In Brazil Before Olympics
July 28 2016 - 5:44PM
Dow Jones News
By Imani Moise
International Paper Co. isn't seeing a rise in packaging demand
in Brazil ahead of next month's Olympic Games, a marked contrast to
two years ago, when demand surged as the country hosted the World
Cup soccer tournament.
"For the Olympics, we see virtually nothing in terms of
packaging demand, " Chief Executive Mark Sutton told The Wall
Street Journal.
International Paper makes packaging for a wide range of goods
and is an early indicator of consumer spending. Brazil has been
mired in a deep recession and is hoping to get a lift from the
Olympics, which start Aug. 5 in Rio de Janeiro.
Mr. Sutton said demand is easing in China but picking up
momentum slightly in the U.S. He reiterated the company expects to
close its $2.2 billion acquisition of Weyerhaeuser Co.'s pulp
business in the fourth quarter.
The Memphis, Tenn.-based company reported earlier Wednesday its
second-quarter profit fell to $40 million, or 10 cents a share,
from $227 million, or 54 cents a share, a year earlier. Results
were weighed down by pension expenses.
Revenue dropped 6.8% to $5.32 billion from $5.71 billion,
primarily related to the sale of businesses in China and the
U.S.
Mr. Sutton said International Paper saw a significant rise in
Brazilian demand ahead of the World Cup in 2014, when several
cities in the South American country hosted games.
"We joke internally that people just got new TVs a couple of
years ago for the World Cup, so they probably don't need another
one," said Mr. Sutton. "But in reality the economy is in a pretty
deep recession and hopefully it comes out of it as we move into
2017."
Mr. Sutton said demand in China is rising about 5% this year,
down from a 7% to 8% growth. International Paper supplies China's
market from Russia after selling its Chinese joint venture last
year. It says there is no real benefit to having local production
in China because raw materials such as fiber are imported.
Packaging demand in the U.S. is growing around 1.5% this year.
That is at the high-end of a 1% to 1.5% growth range in recent
years, but below 2% growth rates that were more common before the
recession.
"It's a slow, steady improvement," said Mr. Sutton, adding that
demand from e-commerce was up nearly 11% in the second quarter.
International Paper booked an after-tax charge of $270 million
in the second quarter after reaching an agreement to pay a lump sum
to about 25,000 former employees to settle pension obligations. The
company made a separate contribution of $250 million to the pension
plan and will make another $500 million contribution by the end of
the year.
Mr. Sutton said the contributions are voluntary and that it made
more financial sense than paying off other debts. He added the
company probably won't have to make any mandatory contributions
before 2019.
He said International Paper is still seeking antitrust clearance
from regulators including the U.S. Department of Justice to
complete the Weyerhaeuser deal, but that the company hasn't
encountered any roadblocks.
--Mike Esterl contributed to this article.
(END) Dow Jones Newswires
July 28, 2016 17:29 ET (21:29 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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