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. Stock Analysis

    The Biggest Risks of Investing in Pfizer Stock

    Learn the biggest potential risks that may affect the price of Pfizer's stock, complete with a fundamental analysis and review of other external factors.
  2. Stock Analysis

    Allstate: How Being Boring Earns it Billions (ALL)

    A summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
  3. Chart Advisor

    Copper Continues Its Descent

    Copper prices have been under pressure lately and based on these charts it doesn't seem that it will reverse any time soon.
  4. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  5. Markets

    PEG Ratio Nails Down Value Stocks

    Learn how this simple calculation can help you determine a stock's earnings potential.
  6. Stock Analysis

    What Exactly Does Warren Buffett Own?

    Learn about large changes to Berkshire Hathaway's portfolio. See why Warren Buffett has invested in a commodity company even though he does not usually do so.
  7. Investing Basics

    How to Deduct Your Stock Losses

    Held onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
  8. Investing

    What’s the Difference Between Duration & Maturity?

    We look at the meaning of two terms that often get confused, duration and maturity, to set the record straight.
  9. Economics

    Is Wall Street Living in Denial?

    Will remaining calm and staying long present significant risks to your investment health?
  10. Stock Analysis

    When Will Dick's Sporting Goods Bounce Back? (DKS)

    Is DKS a bargain here?
  1. Which mutual funds made money in 2008?

    Out of the 2,800 mutual funds that Morningstar, Inc., the leading provider of independent investment research in North America, ... Read Full Answer >>
  2. Do hedge funds invest in commodities?

    There are several hedge funds that invest in commodities. Many hedge funds have broad macroeconomic strategies and invest ... Read Full Answer >>
  3. What does low working capital say about a company's financial prospects?

    When a company has low working capital, it can mean one of two things. In most cases, low working capital means the business ... Read Full Answer >>
  4. Do nonprofit organizations have working capital?

    Nonprofit organizations continuously face debate over how much money they bring in that is kept in reserve. These financial ... Read Full Answer >>
  5. Can a company's working capital turnover ratio be negative?

    A company's working capital turnover ratio can be negative when a company's current liabilities exceed its current assets. ... Read Full Answer >>
  6. Does working capital measure liquidity?

    Working capital is a commonly used metric, not only for a company’s liquidity but also for its operational efficiency and ... Read Full Answer >>

You May Also Like

Trading Center