Aug 14, 2012
As a father of four children, I often get insights about the meaning of life and the future of the printing industry from seemingly innocuous experiences and items that cross my desk. (Sorry, Iâ€™m an analyst. I canâ€™t help myself.) This week it was an update on International Paperâ€™s Franklin Mill and a letter from the principal of my sonâ€™s middle school (donâ€™t worry, heâ€™s not in trouble) that I believe are prescient on the direction of much of the paper and printing industry.
Less Freesheet, More Fluff Pulp
Back in October 2009, during the depth of the economic recession, International Paper (IP) made the difficult decision to close its Franklin, VA mill that produced over 600,000 tons of uncoated freesheet paper used for printing and copying (nearly 20% of IPâ€™s capacity)Â and 140,000 tons of coated paperboard used for book covers, greeting cards, direct mail advertising and other products (7% of IPâ€™s capacity). The closure resulted in over 1,100 job terminations and was extremely painful for the community of Franklin (population 8,600) who’s history was inextricably linked to the Camp family and Union Camp paper mill.Diane Mathews, Daily PressÂ / October 5, 2010
IP’s chief executive John Faraci recently commented to the Wall Street Journal that during the recession, copy paper demand in North America “stopped overnight”. “We had no choice,” he said. “We didn’t have any orders.”
I believe many CEOs in the printing, office equipment, and paper industries were having a similar experience at that time.
But IP is generally recognized as a well-managed, global company that has consistently made difficult decisions about where to invest and divest to insure long-term growth and viability. The company is well aware of technology trends impacting demand for printing and writing grades, as well as global socio-economic trends that are creating new opportunities.
2007 to 2012 Stock Price Change – IP vs. Xerox vs. Lexmark vs. S&P 500Source: Big Charts
One of the biggest socio-economic trends is the rapidly growing middle class in China, India and other emerging economies. This growing middle class is now able to afford all kinds of desirable products including cars, electronics, and â€¦
And it turns out one of the main components in disposable diapers, as well as other feminine hygiene and adult incontinence products, is fluff pulp. Fluff pulp is primarily made from trees that have long, coarse fibers such as the fast-growing Loblolly Pine and slash pine that are native to southeastern U.S.
“With roughly ninety percent of the world’s fluff pulp made from U.S. southern pine, this is a great opportunity to use a distinctively American material to produce a globally competitive product,” noted Mark Sutton, International Paper Senior Vice-President Printing and Communications Papers the Americas.
IP announced in May 2011 that it would invest $83 million to convert a portion of the Franklin mill to produce fluff pulp creating approximately 220 new permanent jobs and 800 construction jobs for the conversion. While the number of jobs is only a fraction of what they used to be, Franklin residents were clearly happy that the mill re-opened last month.
Note: Domtar Corporation made a similar move in 2009 when it converted its Plymouth, North Carolina mill to fluff pulp. Â The impact was a reduction of nearly 500,000 short tons of uncoated freesheet capacity and a tripling of its fluff pulp capacity to nearly 450,000 tons.
More iPads, Fewer Textbooks
Fortunately for me my kids are all out of diapers now, but they are definitely into the latest electronic devices. My youngest, who will be entering the 6th grade this Fall, is particularly excited because he recently found out that the Norwell, Massachusetts school department has decided to issue an Apple iPad to each of the 550+ middle school students.
A letter came to our house last week detailing the 1:1 Technology Initiative that will lavish such wonderful technology on the children. Here are a couple important quotes from the letter:
- â€œNot only will this initiative provide students with greater access to enriching learning experiences, but it also represents a potential savings on textbooks and paper.â€
- â€œAt this time, only the English and math textbooks are on the iPad, so students will still be assigned some paper textbooks. In the future, we hope to be able to provide almost all materials on the device.â€
It is important to note that Norwell is well above average from other Massachusetts towns and cities in per capita income (45th of 351 towns) and standardized test scores (41st of 280 towns taking the SAT test).Â However, I should also note that the town is well below the state average in educational spending per student (235th of 328 towns).
After several failed attempts over the last few years, Norwell residents passed a property tax increase this year to fund additional teachers and spending on education technology. Please queue the children, the iPads are ready.
Find Your Fluff Pulp Opportunity
Now you can argue the merits of iPads in the classroom or the impact of disposable diapers in landfills, but I believe it is quite evident that demand for paper and print has fundamentally and forever changed. Companies that have built their business on traditional print-based equipment, supplies, and services need to find their â€œfluff pulpâ€ opportunity and transform their business.Jeff Hayes President, InfoTrends
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