Smurfit-Stone Container (Nasdaq:SSCC) recently emerged from bankruptcy as a publicly traded company, with an improved balance sheet and cost structure, and the opportunity for a fresh start. The new company now must deal with the much predicted double downturn in the economy.
IN PICTURES: Retire A Millionaire In 10 Steps

Smurfit-Stone Container is a paperboard and packaging company with a storied history going back to 1926, when Stone Container was founded. The company is the second largest producer of containerboard, with an 18% share of the market.

The modern incarnation of Smurfit-Stone Container was the result of a merger in November 1998 between Stone Container and Jefferson Smurfit Corporation, the U.S. arm of the larger Jefferson Smurfit Group plc.

Smurfit-Stone Container filed for bankruptcy in January 2009, as the company was unable to deal with a debt load of over $3.5 billion, tight credit markets and falling business due to the recession. (Learn more, see An Overview Of Corporate Bankruptcy.)

Bankruptcy Emergence
Smurfit-Stone Container emerged from bankruptcy at the end of June 2010 after contentious negotiation with its creditors, and started trading again as a public company July 1. The company issued 100 million shares of common stock to satisfy the claims of creditors and others. The new company now appears in a much stronger position to compete, with lower costs and a stronger balance sheet.

Lower Costs
Smurfit-Stone Container now owns 12 mills with a capacity of 6.8 million tons. The company shut its mills at Mizzoula and Ontonagon during its time in bankruptcy, leading to annual cost savings of $64 million annually. Smurfit-Stone Container's average cash cost per ton is at $324, just under the industry average of $328 per ton.

Stronger Balance Sheet
Smurfit-Stone Container has reduced its debt to $1.2 billion, with leverage reduced from nearly eight times EBITDA in 2009, to 2.4 times on a pro forma basis. The company can access a $650 million asset-backed credit line if it needs to.

One issue that Smurfit-Stone Container has to deal with is an under funded pension plan. The company will be required to make an average payment of approximately $260 million annually into the plan over the next five years.

The containerboard industry seems to be acting more rationally than it has historically, and has shut 2.3 million tons of capacity since the recession started in late 2008. Smurfit-Stone Container has shut some of this capacity along with industry leader International Paper (NYSE:IP), which has closed four of its facilities.

The industry has also consolidated over the years, with 77% of capacity controlled by the top five companies, compared to only 42% in 1997. Other containerboard manufacturers include Temple Inland (NYSE:TIN) with 12% of the market, and Packaging Corp. of America (NYSE:PKG) with 7%.

Georgia-Pacific, one of the largest private producers of containerboard, just instituted a price increase of $60 per ton. This is the third price increase this year.

Bottom Line
Many companies entered bankruptcy during the recent recession, with some disappearing forever. Smurfit-Stone Container is getting another chance, and will face the uncertain economic environment with a better balance sheet and a reduced cost structure.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  2. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  3. Mutual Funds & ETFs

    ETF Analysis: iShares Morningstar Small-Cap Value

    Find out about the Shares Morningstar Small-Cap Value ETF, and learn detailed information about this exchange-traded fund that focuses on small-cap equities.
  4. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  5. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  6. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  7. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  8. Professionals

    What to do During a Market Correction

    The market has what? Here's what you should consider rather than panicking.
  9. Mutual Funds & ETFs

    ETF Analysis: WisdomTree SmallCap Earnings

    Discover the WisdomTree Small Cap Earnings ETF, a fund with a special focus on small-cap and micro-cap stocks with positive earnings.
  10. Mutual Funds & ETFs

    ETF Analysis: iShares US Regional Banks

    Obtain information and analysis of the iShares US Regional Banks ETF for investors seeking particular exposure to regional bank stocks.
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Profit Margin

    A category of ratios measuring profitability calculated as net ...
  3. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis ...
  4. Debt Ratio

    A financial ratio that measures the extent of a company’s or ...
  5. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing ...
  6. Net Present Value - NPV

    The difference between the present values of cash inflows and ...
  1. What is the formula for calculating compound annual growth rate (CAGR) in Excel?

    The compound annual growth rate, or CAGR for short, measures the return on an investment over a certain period of time. Below ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. When does the fixed charge coverage ratio suggest that a company should stop borrowing ...

    Since the fixed charge coverage ratio indicates the number of times a company is capable of making its fixed charge payments ... Read Full Answer >>
  4. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  5. What is the difference between the return on total assets and an interest rate?

    Return on total assets (ROTA) represents one of the profitability metrics. It is calculated by taking a company's earnings ... Read Full Answer >>
  6. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>

You May Also Like

Trading Center

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!