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Msg  5387 of 5560  at  2/7/2023 4:52:14 PM  by


Graphic Packaging Boosts Paperboard Bet With $1 Billion Texas Mill

Graphic Packaging Boosts Paperboard Bet With $1 Billion Texas Mill
Dow Jones
By Ryan Dezember
Graphic Packaging Holding Co. said it will spend $1 billion to build a new plant to turn old cardboard into new boxboard, doubling down on its bet that the concerns about plastic waste have created opportunities for paper packaging.

The paperboard mill in Waco, Texas, will follow the opening early last year of a similar plant in Kalamazoo, Mich., which was the first new coated-recycled paperboard line to be built in the U.S. in decades. Construction is expected to begin later this quarter and startup is slated for late 2025.

Prices for containerboard, used to make corrugated shipping boxes, have dropped from their highs during the pandemic e-commerce boom. But prices for paperboard -- single-sheet cardboard used for consumer goods such as beer and cereal -- have held up.

Graphic, which sells to consumer goods companies such as Coca-Cola Co., General Mills Inc., Anheuser-Busch InBev and Procter & Gamble Co., shared the news about the Texas mill Tuesday along with fourth-quarter earnings that were in line with analysts' expectations.

The Sandy Springs, Ga., firm's 2022 sales rose 32% to $9.44 billion and net income more than doubled year-over-year to $522 million.

Still, shares dropped 6.8% on Tuesday. The stock also fell in 2019 when Graphic announced it would spend $600 million on the Kalamazoo mill. Overcapacity is a constant concern for investors in fiber packaging firms.

"Our customers are under increasing pressure because of the public proclamations they're making around sustainability," Chief Executive Michael Doss said. "We have to have the ability to service them."

The production line in Kalamazoo was part of an enormous bet by the company on a future without foam cups, plastic clamshell containers and plastic six-pack rings.

It was built alongside decades-old machines that take bales of recycled cardboard, soak and blend them into a mash, remove tape, staples and other impurities, and bake the slurry into miles-long sheets of new paperboard that is sent to box plants and consumer goods firms. After it opened, Graphic closed four older and less efficient mills.

Graphic said the Kalamazoo plant added $47 million of earnings before interest, tax, depreciation and amortization last year, and is expected to generate another $50 million this year in additional profit beyond what it would have expected from the less efficient machines.

Once the Texas plant opens, the company plans to close three smaller recycled board mills in Iowa, Ohio and Quebec, where production costs are much higher than in Kalamazoo and what is expected in Waco. Overall, recycled board production capacity will increase 5%.

Besides its recycled cardboard plants, Graphic pulps loblolly pine and sawmill scraps at four Southern mills to make other varieties of paperboard, for uses such as making the 13 billion paper cups it sells each year.

Mr. Doss said the company chose Waco because it offers closer access to markets in the West and in Mexico and is within 200 miles of about 80% of Texas' population, which means plenty of old boxes to feed the mill.

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