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Packaging Corporation to Idle Paper Plant Due to Weak Demand

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Zacks Equity Research
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Packaging Corporation of America PKG recently announced that it plans to temporarily idle both paper machines and the sheet-converting operation at its Jackson, AL mill to match supply with demand. Notably, demand has been down for paper in schools, offices and businesses on account of the restrictions imposed to curb the spread of the coronavirus.

The operations will stay suspended in May and June 2020. The operations will be resumed on Jul 6, 2020. The idling of operations will result in the layoff of about 340 employees and lower paper production by approximately 70,000 tons. Packaging Corporation stated during this period, the paper mill in International Falls, MN will continue to operate fully. The company assured that it has sufficient inventory to meet customer demand in the meantime.

Packaging Corporation’s Paper segment, which contributed around 15% to revenues in 2019, operates under the trade name Boise Paper. It manufactures and sells white papers, including both commodity and specialty papers, at the abovementioned two paper mills.

The company’s packaging segment that contributed around 85% of 2019 revenues produces linerboard and semi-chemical corrugating medium, which are primarily utilized in the production of corrugated products. Containerboard and corrugated products are essential for the distribution of food, beverage and pharmaceutical products. Therefore, the company falls under critical infrastructure industry, as defined by the Department of Homeland Security. The company continues to operate while taking precautionary steps to ensure health and safety of employees and customers, and contain the potential spread of the virus while adhering to the government’s guidelines.

As of Dec 31, 2019, the company is the third largest producer of containerboard products in North America. It competes with the likes of International Paper Company IP and WestRock Company WRK.



Packaging Corporation’s shares have gone down 17.4% over the past year compared with the industry’s decline of 47.4%.

Zacks Rank & a Stock to Consider

Packaging Corporation currently carries a Zacks Rank #3 (Hold)

A better-ranked stock in the Industrial Products sector is Sharps Compliance Corp SMED which sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

Sharps Compliance has an estimated earnings growth rate of 800% for 2020. In a year’s time, the company’s shares have gained 118%.

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International Paper Company (IP) : Free Stock Analysis Report
 
Packaging Corporation of America (PKG) : Free Stock Analysis Report
 
Sharps Compliance Corp (SMED) : Free Stock Analysis Report
 
WestRock Company (WRK) : Free Stock Analysis Report
 
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