Analysts see no surprise in Boise Cascade’s plan for 700 layoffs

Similar companies expected to face similar problems

Monday´s news that Boise Cascade Corp. would lay off 700 workers and go back into the red after a profitable year came as no surprise to analysts who follow the wood and paper products industry.

Ken Dey
The Idaho Statesman

Those analysts said dramatically higher natural-gas prices have hurt many of the nation´s leading wood and paper companies.

During the past year, Boise Cascade Corp.’s stock price has dropped steadily after its highest close of $38.51 a share on March 19, 2002. The stock hit a low closing price of $19.61 on Oct. 10, 2002. Monday, the company’s stock closed at $21.56 a share after company officials announced larger-than- expected losses for the first quarter of 2003.

“I don´t think it´s any great surprise,” said Steve Chercover, an analyst with D.A. Davidson Co. in Portland. “They´re not alone, and there is going to be a lot more of this.”

Citing a $10 million increase in energy costs and a $12 million increase in pension costs, Boise Cascade leaders said Monday that the company could lose 28 cents to 38 cents a share, well above the 7-cent-a-share loss predicted by analysts polled by Thomson Financial/First Call.

“Most of us have been aware of the energy prices that have been spiking higher, and that´s certainly a portion of the problem,” Chercover said.

Several of Boise Cascade´s competitors — including Louisiana-Pacific Corp. and Smurfit-Stone Container Corp. — have already warned that energy prices would affect earnings, but Boise Cascade was the first one to give specific numbers.

Last month, wholesale natural gas prices in many parts of the country were at near record highs.

Company spokesman Ralph Poore said the spikes in natural gas prices have led to increased power costs at many of the company´s paper mills.

Chercover said the “anemic stock market” also has caused Boise Cascade and other companies to contribute more to shore up company pension plans — plans that normally would be funded through investments in the stock market.

In addition to the energy and pension costs, Boise Cascade officials said the company also incurred about $2 million in costs because of bad winter weather that disrupted production of and orders for company products.

The sluggish economy also continues to bring down the company´s bottom line, according to company leaders.

CEO and Chairman George Harad said average prices and profit margins were weaker in all three of the company´s divisions, and those lower margins reduced operating income by $12 million.

Boise Cascade makes and distributes paper, office products and building supplies. Much of the company´s raw material comes from the 2.3 million acres of timberland the company owns in the United States, including nearly 200,000 acres in Idaho. Just last week, company officials announced they would sell 1,600 acres in Idaho to raise additional money.

Harad said the company hopes to cut $45 million in costs by reducing its work force by 700 positions, freezing salaries, restricting hiring and reducing discretionary spending.

But Harad cautioned that those steps still might not be enough if the economy doesn´t pick up.

“Going forward, we will carefully monitor our situation,” Harad said in a statement. “If we have to take further steps to conserve cash and improve operating income, we will.”

In January the company reported net profits of $11.3 million for 2002, up from a loss of $42.5 million in January 2001, but Harad cautioned then that things probably would get worse early this year.

Boise Cascade will report its first-quarter 2003 earnings on April 22.

Bryon Korutz, an equity analyst with Standard & Poor´s, credited Boise Cascade for acting quickly to reduce costs.

“I am pleased they are taking the necessary steps to ensure profit isn´t completely eroded away,” Korutz said.

Korutz, who doesn´t own any Boise Cascade stock, said the Boise company and its competitors all have struggled because the tough economy has caused many businesses to curb spending for office supplies. Higher energy costs, he said, were an additional blow.

Korutz said it´s hard to predict when things will turn around for the industry.

“Hopefully as the the year progresses we will continue to see a firming in paper prices and demand. And if business funding increases and companies start hiring again, we could see office supply sales start to pick up again,” Korutz said.

About 20 of the layoffs announced Monday will come from the company´s Treasure Valley operations, which include its corporate headquarters and two distribution centers. The company also has a corrugated-paper plant in Nampa. All together, the company employs nearly 1,000 people in the Treasure Valley.

Poore said the layoffs will reduce the company´s total work force of 24,000 by about 3 percent. The layoffs will take effect this month and in April.

Although its quarterly losses are more than expected, some of those losses will come from one-time charges related to the layoffs and an accounting change.

Boise Cascade anticipates a charge of $8 million to $10 million, or 9 cents to 11 cents a share, for severance and other costs related to the layoffs. The company also will incur a one-time charge of $4.1 million, or 7 cents a share, for an accounting change for costs related to closures of landfills at company mill sites.

To offer story ideas or comments, contact Ken Dey
[email protected] or 377-6428

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