Georgia-Pacific Corp., maker of Dixie cups and Brawny paper towels, and MeadWestvaco Corp. (MWV) said third-quarter profit fell because of rising costs and a slump in their packaging businesses. Canadian paper maker Domtar Inc. reported a loss and said it may sell assets and close plants.
Atlanta-based Georgia-Pacific said net income fell 40 percent to $145 million, or 55 cents a share, from $240 million, or 91 cents, a year earlier. MeadWestvaco's net fell 48 percent to $55 million. Domtar, North America's third-largest maker of office paper, had a loss of C$52 million ($44.5 million).
Georgia-Pacific said profit in its box business fell 55 percent to $45 million. Box prices industrywide are about 10 percent lower than a year ago, Credit Suisse First Boston analyst Mark Connelly said in an Oct. 10 report. MeadWestvaco's packaging profit fell 38 percent on lower shipments of paperboard and packaging for consumer products and beverages.
``We're going to see these cost pressures for quite some time,'' Fitch Inc. analyst Dennis Ruggles said in an interview.
Lower prices eroded profit at Georgia-Pacific by $25 million, while higher costs reduced earnings by $21 million, Chief Executive Alston ``Pete'' Correll said in a conference call. The company is boosting box prices to make up for the higher costs in the current quarter, Correll said.
Georgia-Pacific's profit was higher than the 70-cent average estimate of 15 analysts in a Thomson Financial survey. The shares rose 71 cents, or 2.2 percent, to $32.35 at 4:16 p.m. in New York Stock Exchange composite trading. Before today, the stock had dropped 16 percent this year.
``We believe the third quarter was a bottom'' in the box industry, Correll said. ``We manage our inventories, refuse to let them grow. We put a lot of pressure on plants to hit their earnings targets.'' Sales fell less than 1 percent to $4.71 billion.
Higher natural-gas costs could hurt fourth-quarter earnings, Correll said. Georgia-Pacific, the largest maker of plywood in North America, was 50 percent hedged on natural gas through October and is not hedged after Nov. 1, he said. Lumber and plywood demand will be down in the fourth quarter because of a seasonal drop in building.
The company spends about $1 billion a year on natural gas, electricity and coal, Correll said. Natural-gas prices have risen this year because of production cuts after Hurricane Katrina hit Louisiana, Alabama and Mississippi in August while oil prices have risen on higher demand from China.
Georgia-Pacific also had a $28 million expense as part of a plan announced Oct. 4 to cut 1,100 jobs in the U.S. and Europe in the company's tissue business.
MeadWestvaco, a maker of packaging and Mead-brand school supplies, said today its third-quarter net income fell to 30 cents a share from $105 million, or 52 cents a share, a year earlier. Results included $7 million of costs, or 4 cents a share, for restructuring costs and a gain of $10 million, or 5 cents a share, from the sale of forestlands.
``We were challenged by the pressures of rising input costs, especially for energy, freight and raw materials, in addition to storm-related business interruptions,'' Chief Executive John A. Luke Jr. said in a statement.
During the quarter, expenses for energy, freight and raw materials increased by $30 million from a year earlier. The company is boosting prices and plans to cut $200 million in costs over two years, he said.
Montreal-based Domtar said today in a statement it will suspend its 6-cent-a-share quarterly dividend to ensure the company's ``long-term profitability and free cash flow availability.'' In the latest period, the payout cost Domtar C$11 million.
Shares of Montreal-based Domtar fell C$1.05, or 17 percent, to C$5.25 ($4.48) in Toronto Stock Exchange trading, the biggest one-day decline in 18 years. The stock has fallen 65 percent in the past year.
Domtar said today its loss in the third quarter was or 23 cents a share, compared with net income of C$29 million, or 13 cents, a year earlier. Sales fell 5.5 percent to C$1.26 billion.
Domtar had losses in paper, packaging and wood. Like other Canadian exporters, the company has been hurt by a rise in the Canadian dollar, which eroded sales denominated in the U.S. currency. Higher energy, transport and fiber costs and lower product prices also eroded earnings, a situation the company said would likely ``prevail'' in coming quarters.
The company ``continues to struggle with higher costs and difficult market conditions,'' Toronto-based UBS AG analyst Jaret Anderson said in a note to investors. He has a ``reduce'' rating on Domtar stock.
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