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Stock Strategist

Is Paper Dead?

Can the paper industry turn the page on its poor past performance?

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A few months ago, we attended International Pulp Week, an annual gathering of pulp and paper industry players from around the globe. Jim Lopez, CEO of Tembec, a Canadian forest products company, delivered the event's keynote address. Like many who've seen their share of industry conferences, we had expected to hear a fairly standard keynote speech: an uplifting talk filled with industry promotion and pie-in-the-sky projections for the future.

Lopez's speech included none of this standard fare. Those hoping for the usual "rah-rah" boilerplate must have realized they were in for a disappointment by the time Lopez's first presentation slide hit the screen, bearing the title Forest Products: A Broken Model. The slides that followed read like a litany of failures: poor stock performance, feeble returns on capital, and general inability to post consistently positive margins. Reaching the end of his list and appearing somewhat exasperated, Lopez summed things up by saying, "The industry has destroyed value, and the equity markets have punished us for it." Take a look at a five- or 10-year stock chart for any of the major North American paper companies, and you'll see what Lopez was pointing out.

Daniel Rohr does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.