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RockTenn grows in packaging

Moving his company into a lowcost and expanded market position, RockTenn chairman and CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board.  Jim Rubright was selected as this year's RISI RISI Resource Information Systems Inc.
RISI Residual InterSymbol Interference
 North American North American

named after North America.

North American blastomycosis
see North American blastomycosis.

North American cattle tick
see boophilusannulatus.
 CEO of the Year for the forest products industry.

"The award recognizes Jim Rubright's leadership role in transforming RockTenn into a more diversified, low-cost paperboard packaging producer through two key acquisitions which have paid off in the company's financial performance," RISI said.

Once mainly a player in the declining recycled boxboard box·board  
A firm cardboard used for making boxes.
 market, in the last three years RockTenn has diversified and expanded its product offering by acquiring two lowcost mills (plus related converting plants):

* Gulf States Paper's solid bleached sulfate sulfate, chemical compound containing the sulfate (SO4) radical. Sulfates are salts or esters of sulfuric acid, H2SO4, formed by replacing one or both of the hydrogens with a metal (e.g., sodium) or a radical (e.g., ammonium or ethyl).  (SBS See Small Business Server. ) board mill in Demopolis, AL, in 2005;

* Southern Container's Solvay recycled containerboard mill in Syracuse, NY, in March 2008.

"Jim Rubright's leadership at RockTenn has transitioned the company into a leader in several substrates and outperformed the industry," one analyst commented.

"He reduced debt from the Gulf States acquisition months ahead of schedule. The company's return on assets Return on assets (ROA)

Indicator of profitability. Determined by dividing net income for the past 12 months by total average assets. Result is shown as a percentage. ROA can be decomposed into return on sales (net income/sales) multiplied by asset utilization (sales/assets).
, investment, equity, and EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) A metric used to show a company's profitability, but not its cash flow. EBITDA became popular in the 1980s to show the potential profitability of leveraged buyouts, but has become  margin over the past year and past five years have all exceeded industry averages and those for its peer group," the analyst added.

Focused on 'right things'

During the last three years, RockTenn's net income increased from $17.6 million in fiscal 2005 to $81.7 million for its fiscal year ended last September, while sales rose from $1.7 billion to $2.3 billion over the three-year period.

The company's stock price more than doubled from the end of fiscal 2005, and analysts project higher earnings this year in the face of unprecedented escalation in energy and raw material costs on revenues exceeding $3 billion (including Southern Container on a pro forma As a matter of form or for the sake of form. Used to describe accounting, financial, and other statements or conclusions based upon assumed or anticipated facts.

The phrase pro forma

"He has the company focused on all the right things - lowering costs, cash flow generation, debt reduction, return on invested capital, and profitably growing the business," another analyst noted.

The company operates 2.375 million tons/yr of capacity, all in the US, with 954,000 tons/yr of containerboard; 606,000 tons/yr of coated recycled board (CRB CRB

See: Commodity Research Bureau.
); 380,000 tons/yr of uncoated recycled boxboard (URB URB USB (Universal Serial Bus) Request Block
URB Urbanización (district; postcode use, Puerto Rico)
URB University Radio Bath (UK)
URB Upright Bass
), including tube and coreboard, and gypsum gypsum (jĭp`səm), mineral composed of calcium sulfate (calcium, sulfur, and oxygen) with two molecules of water, CaSO4·2H2O. It is the most common sulfate mineral, occurring in many places in a variety of forms.  wallboard facing paper; 335,000 tons/yr of SBS; and 100,000 tons/yr in market pulp.

Expanding in containerboard

With the $993 million acquisition of Southern Container earlier this year, RockTenn vaulted into seventh place among North American containerboard producers from a being a relatively marginal-sized player with its existing 184,000 ton/yr recycled medium machine in St. Paul St. Paul

as a missionary he fearlessly confronts the “perils of waters, of robbers, in the city, in the wilderness.” [N.T.: II Cor. 11:26]

See : Bravery
, MN.

The 770,000 tons/yr, three-machine Solvay mill is one of the newest and lowest cost containerboard mills in North America North America, third largest continent (1990 est. pop. 365,000,000), c.9,400,000 sq mi (24,346,000 sq km), the northern of the two continents of the Western Hemisphere. . The company has already expanded capacity of the Syracuse mill by 50,000 tons in a project completed since the acquisition.

The deal also added 10 Southern Container corrugated cor·ru·gate  
v. cor·ru·gat·ed, cor·ru·gat·ing, cor·ru·gates
To shape into folds or parallel and alternating ridges and grooves.

 box and preprint pre·print  
Something printed and often distributed in partial or preliminary form in advance of official publication: a preprint of a scientific article.

 plants mainly located in the Northeast to RockTenn's five existing plants mainly in the South.

The company also strengthened its rapidly growing merchandising display business (Alliance Display) and position in high graphic quality corrugated boxes with the addition of Southern Container's three preprint and one graphics corrugated plants. Southern Container was among the largest preprint manufacturers in North America.

Private family-owned Southern Container was one of the most profitable North American integrated box producers and enjoyed an EBITDA margin of nearly 27% for its last fiscal year ended Sept. 8,2007. The Southern Container acquisition has increased RockTenn's adjusted EBITDA margin from 12% pre-acquisition to 14.3% in the company's recently ended third quarter of fiscal 2008.

The three recycled containerboard machines at the Syracuse mill were added in 1994,1999 and 2002. In the company's third quarter conference call, Rubright said that RockTenn would continue "Southern's business model of successful expansion" and noted there is room for another machine on the Syracuse site. He also noted that the St. Paul mill "can significantly improve both cost and productive capacity at the site."

"We were attracted to the containerboard business because of what we viewed as a change in the fundamentals," he noted.

Any future expansion in containerboard, however, would be after the company further reduces debt from the Southern Container acquisition. RockTenn's net debt at the end of June stood at nearly $1.7 billion.

From the time of the Gulf States acquisition, RockTenn aggressively reduced its net debt from $949 million at the end of March 2005 to $703 million by the end of December 2007 before its purchase of Southern Container.

Strong survivor in recycled boxboard

With the $540 million purchase of Gulf States Paper's mill and 11 folding carton The folding carton created the packaging industry as it is known today, beginning in the late 19th century. Basically, a folding carton is made of paperboard, and is cut, folded, laminated and printed for transport to manufacturers.  plants three years ago, RockTenn strengthened its position in the North American folding boxboard market by adding virgin SBS to the company's existing CRB and URB grades.

The former Gulf States Demopolis mill has capacity to produce 335,000 tons/yr of bleached paperboard and 100,000 tons/yr of southern pine market pulp.

RockTenn's recycled boxboard business includes 10 mills, with 986,000 tons of capacity. Five mills produce CRB (606,000 tons/yr) and five mills make URB (380,000 tons).

RockTenn estimates that it is the lowest cost and second largest producer of coated recycled board and is also the second largest North American folding carton producer.

The company has not closed a mill or machine in the last several years while many competitors have gone through major restructuring programs and shutdowns in a shakeout of the recycled boxboard market.

In the past year, competitors have closed 583,000 tons/yr of capacity in the recycled boxboard market. Competitors such as Newark Group, Caraustar, and Sonoco have closed 403,000 of URB capacity, while Cascades this month "indefinitely" closed its 180,000 ton/yr CRB mill in Toronto. Such closures have allowed RockTenn to increase its market share while keeping the market relatively tight.

Rising prices, declining costs

For its third fiscal quarter ended June 30, RockTenn reported a 9.4% increase in adjusted earnings on a 30.4% jump in net sales Net Sales

The amount a seller receives from the buyer after costs associated with the sale are deducted.

This amount is calculated by subtracting the following items from gross sales: merchandise returned for credit, allowances for damaged or missing goods, freight
. Rubright said that earnings accretion from the Southern Container acquisition plus higher earnings from its consumer packaging business "more than offset significantly higher costs for virgin and recycled fiber, natural gas, chemicals and transportation."

He said recently announced price increases on boxboard and containerboard as well as easing costs for recycled and virgin fiber and natural gas "bode well for growth in our fiscal 2009 earnings, to the extent we realize these price increases."

RockTenn and other producers have recendy announced price increases of $65/ton on SBS, $50/ton on CRB and URB, and $55/ton on containerboard.

New Jersey, Ivy League roots

A native of Ship Bottom, NJ, which is about 20 miles north of Atlantic City, Rubright earned his law degree at the University of Virginia and a BA from Yale University.

Rubright joined RockTenn as CEO in 1999. Previously, he served as executive vice-president of Sonat, where he oversaw the Birmingham, AL, company's natural gas pipeline and energy marketing businesses. Prior to joining Sonat, he was a partner in the law firm of King & Spalding in Atlanta.

He served as chairman of the American Forest & Paper Assn in 2007.

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Author:Will Mies
Publication:Pulp & Paper
Date:Sep 1, 2008
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