An ambitious plan to invest $30.4 million by Orchids Paper Products Company (TIS), an integrated manufacturer of tissue paper products, failed to cheer markets as shares remained almost flat. The investment aims to upgrade Orchids’ infrastructure for paper manufacturing and converting assets in Pryor, Okla., to improve production capacity and reduce operating costs in order to create long-term value for shareholders.
Orchids intends to replace two existing paper machines and start-up in approximately 20 months. Orchids will buy the new equipment from Italian paper machine manufacturer Recard, S.p.A. The new paper machine is expected to improve the quality of the produce and maximize production outputs for increased manufacturing flexibility by generating a broader range of paper grades that are utilized in value and premium tier products.
The infrastructure upgrade is likely to raise the annual production capacity of the paper mills from 57,000 tons to over 70,000 tons. In addition, the new machines are equipped with superior energy efficiencies to yield higher production rates at lower operating costs.
Consequently, with the completion of the project, annual EBITDA is expected to increase by approximately $6 million to $8 million, thereby augmenting shareholder’s return on investments. The upgrade of the converting line project by the end of 2014 is further expected to yield an additional annual EBITDA of $2.8 million to 3.4 million when fully utilized.
Orchids manufactures bulk tissue paper (known as parent rolls) and converts parent rolls into finished products, such as paper towels, bathroom tissue and paper napkins. The company primarily sells its products to value retailers and discount retail stores due to their high overall market growth, consistent order patterns and low number of stock keeping units.
Orchids presently has a Zacks Rank #2 (Buy). Some other players in the industry worth reckoning include KapStone Paper and Packaging Corp. (KS), UPM-Kymmene Oyj (UPMKY) and Stora Enso Oyj (SEOAY), each carrying a Zacks Rank #2 (Buy).
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