Canton mill idles paper machine

Feb. 15—A glut of warehoused paper product for envelopes, writing paper and even textbooks, along with sagging demand, led Pactiv Evergreen to shut down the #20 paper machine at its Canton mill last week.

Reasons for idling a portion of the production line were outlined in an undated "Communication Strategy" memo provided by Smoky Mountain Local 507, a local affiliate of the United Steelworkers of America.

The #20 paper machine produces uncoated free sheet, a product that is stockpiled in Pactiv Evergreen warehouses waiting to be sold, according to the document.

Meanwhile, the product is seeing demand dwindle in a world where emails, text messages and electronic record storage are displacing the need for paper.

"Unfortunately, the demand for uncoated freesheet has shifted rapidly over the last 60 days, but we did not make the decision to idle PM20 until late last week," the document states.

The document also referenced increased imports from other parts of the world as a factor in unfavorable market conditions for the products that get their start on #20 paper machine.

Earlier in the month, representatives from Pactiv Evergreen and United Steelworkers of America agreed to terms of the curtailment that would avoid layoffs, according to Troy Dills, president of Smoky Mountain Local 507. The document was signed by the mill and the union on Feb. 7.

About 38 employees will be directly affected by the machine's downtime, but all have been assigned to other duties in the mill, averting any layoffs. Those who have worked at the mill the longest got first choice at which of the available positions they would fill.

Dills said he was unsure whether "curtailment" of the #20 machine would have ripple effects elsewhere in the mill. He's been meeting with union members all week regarding the turn of events and said they seem to be taking the news pretty well.

"It's unsettling to have your work schedule change, but at the same time, the reality is the reality," he said. "I think they're handling it pretty well."

On Monday, training was underway in the company building across from the union hall for those who were being displaced.

Joe Jessup of Clyde was one of those workers.

"The machine needs upgrades," he said of the #20 paper machine. "It's old and what was broken they didn't have parts for."

He said estimates were that the machine could be down up to four months for repairs, but said the machine would be run periodically during the down time to prevent long-term damage.

The document agreed upon by the union and the company outlined how personnel would be shifted to avoid layoffs.

"PM (paper machine) 20 team members will be deployed to vacancy replacement positions within the specific lines of progression in mill seniority order," the company document stated. "PM20 team members will be utilized on occasion to re-energize the machine as needed to avoid any long-term impacts on the machine."

All reassigned employees will be trained on new positions, maintain their current pay rate and retain their vacation days previously requested.

Additionally, Pacitv Evergreen has had "now hiring" signs up for months, though recent market data on the company indicates the labor shortage many companies experienced post-Covid has eased.

"When/if market dynamics change, we will evaluate capacity against the overall demand for uncoated freesheet," the document states.

The document correlated with what workers reported about re-energizing the machine "as needed to avoid any long term impacts on the machine."

The document additionally said there are no plans to idle other machines at this time.

While the #20 paper machine is one of the newer machines on the production floor, the document said the #11 and #12 paper machines, though older, have more range in terms of capabilities and grades produced.

"They may be slower, but they are more versatile. We also have the ability to produce most of our PM20 demand on PM11 and PM12," it said.

Stock profile is positive

While Pactiv Evergreen officials could not be reached for comment, ever since the company went public in 2020, market and company information is readily available online.

Pactiv Evergreen Inc. manufactures and distributes food service packaging to customers through its worldwide operations. The coated food-grade paperboard is used in everything from coffee cups to milk cartons.

Several market analysts provided 2023 analyses of Pactiv Evergreen, including Donovan Jones with IPO Edge, who refers to the company as providing "actionable research on next-generation high growth stocks."

"While PTVE has experienced volatility in the past year, management's divestment and deleveraging actions, combined with a modest increase in forward revenue expectations, indicate that the worst may be over for the stock. Accordingly, my outlook on PTVE is a buy at around $11 per share," he wrote in January 2023.

As of this week, the Pactiv Evergreen (PCTV) stock price per share was $11.07.

Jones wrote the global market for food packaging is expected to grow at a compound annual growth rate of 5.2% from 2020 to 2027. The main drivers for this expected growth are an increasing desire for food and beverage convenience, greater performance, improved shelf life and a companies reducing their environmental footprint by moving away from plastic and styrofoam.

In addition, total revenue at Pactiv Evergreen rose 15% year-over-year, setting a record for the company since it went public, though the company has been impacted by inflationary pressures, which impact margins, he wrote. The company sold its Evergreen Asia business, which reduced net debt, but still faces uncertainty if interest rates stay high as the company is heavily indebted.

For the balance sheet, the firm ended the third quarter with $559 million in cash and equivalents and $4.18 billion in total debt, and over the trailing 12 months, free cash flow was $60 million, of which capital expenditures accounted for $252 million. The company paid $18.0 million in stock-based compensation, Jones wrote.

Jack Gilleland with the American Association of Individual Investors, didn't offer a recommendation on buying/selling Pactiv Evergreen stock, but provided key facts to help investors make a decision.

In an article citing Feb. 10, 2023, stats, he provided this overview of the company.

"Currently, Pactiv Evergreen Inc's price-earnings ratio is 6.0. Pactiv Evergreen Inc's trailing 12-month revenue is $6.3 billion with a 5.2% profit margin. Year-over-year quarterly sales growth most recently was 15.4%. Analysts expect adjusted earnings to reach $1.692 per share for the current fiscal year. Pactiv Evergreen Inc currently has a 3.7% dividend yield."

In a letter-grading ranking, he gave Pactiv Evergreen an "A" for value, which revolves around buying low and selling high; a "C" for growth, which uses percent rankings for consistency of annual sales growth, five-year sales growth and consistency of positive annual cash from operations; and a "C" for momentum, which relates to the price change of a stock over a specified period relative to all other stocks.