These Companies Can Box Their Way Out of a Corner
COVID-19 has taken a toll on containerboard producers, but we see opportunity.
Containerboard profit margins surged amid limited supply and robust demand growth from 2016 to 2018, and management teams seized the opportunity to convert a host of mothballed paper mills to containerboard production, as we expected. The industry is now staring down a wall of capacity growth not seen in decades. Meanwhile, the coronavirus pandemic has ravaged box demand. Opportunity has turned into threat, and the containerboard companies have a fight on their hands.
Hard decisions lie ahead, but we believe the companies we cover will rise to the challenge: All three generate plenty of cash and have wisely avoided overindulging in debt during good times. Furthermore, all three possess low-cost assets that should weather the storm to see brighter days and wider margins.
Charles Gross does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.