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.
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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.

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