KapStone to Invest $29M


KapStone Paper and Packaging Corporation’s (KS) Board of Directors has granted its approval for an investment of $29 million in the company’s North Charleston, South Carolina Paper Mill. The investment is expected to boost the production of Ultra High Performance (UPL) lightweight linerboard by replacing the press section. KapStone targets to install the new press section during first quarter of 2014 and plans to start engineering and construction work over the next 18 months.

With this investment, KapStone will perk up both the capability and efficiency of No. 3 Paper Machine to produce UPL lightweight linerboard grades. It would replace the old press section and the new press section would be supplied by Paper Machinery Technology (PMT) Italia.

The investment, apart from increasing the efficiency and capability of No. 3 Paper Machine, also takes care of projects related to fiber and utility areas to support the production of the strategically important grades.

Moreover, the move will help KapStone in countering the growing threats from the leading paper companies like International Paper Company (IP) and Rock-Tenn Co. (RKT) which are taking away its potential customers.

KapStone has a strong balance sheet and healthy cash flows to invest in the growth opportunities. During the second quarter of 2012, the company repaid loans that helped it to reduce the interest burden.

KapStone’s adjusted earnings went up 4% year over year to 42 cents per share in the second quarter, but missed the Zacks Consensus Estimate of 45 cents. Including special items, earnings in the quarter stood at 39 cents per share, up 3% from 38 cents registered a year ago.

Revenues rose 43% to $306 million from $214.8 million in the year-ago quarter but fell behind the Zacks Consensus Estimate of $308 million. The growth in the top line can be attributed to $92.7 million of incremental sales from the acquisition of U.S. Corrugated, Inc.

Based in Northbrook, Illinois, KapStone is a leading North American producer of unbleached kraft paper and corrugated products. It is the parent company of KapStone Kraft Paper Corporation which includes three paper mills and 14 converting plants across the eastern and midwestern U.S.

The company retains a short-term Zacks #3 Rank (Hold). We have a long-term Neutral recommendation on the stock.

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