Some companies have a bad day or two, but some get hit from all sides.One such company saw a mill shut down due to labor issues, lower tonnage prices, restarting plant issues (after the strike was over), lower productivity from another plant, and a big spike in one of their major input costs.That is why KapStone Paper and Packaging Corp. (KS - Snapshot Report) is the Zacks Bear of the Day.  

This Zacks Ranked #5 (Strong Sell) company was formed to effect a business combination with a suitable operating business in the paper, packaging, forest products and related industries. Headquartered in Northbrook, IL, KapStone Paper and Packaging Corporation is a leading North American producer of kraft paper and inflatable dunnage bags. The Company is the parent corporation of KapStone Kraft Paper Corporation which includes a paper mill in Roanoke Rapids, NC, and RideRite, an inflatable dunnage bag manufacturer in Fordyce, AR.

In their most recent earnings report, the company saw quarterly declines in Net Income (-65%), Diluted EPS (-66%), Adjusted EBITDA (-20%), Adjusted Net Income (-60%), and Adjusted Diluted EPS (-59%).The company also saw yearly declines in Net Income (-38%), Diluted EPS (-38%), Adjusted EBITDA (-11%), Adjusted Net Income (-28%), and Adjusted diluted EPS (-27%). This indicates that their earnings issues are not just in the most recent quarter, but have been around for the past 4 quarters.  

According to Roger Stone, Chairman and CEO, “Fourth quarter was particularly disappointing due primarily to December's results.Seasonally weaker demand resulted in an eight-day market shutdown at our Longview mill and box plant, and product mix deteriorated.Our results were further negatively impacted by poor start-ups after Longview's outage and at Charleston after completion of a machine upgrade. Together, the market and maintenance downtimes resulted in a loss of 41,000 tons in the fourth quarter with an estimated EBITDA impact of $10 to $12 million. Although operationally our Charleston mill weathered the 1,000-year storm very well, fiber prices in the region soared but are expected to gradually be reduced as the region dries out.”

As you can see from the graph below, actual performance and estimated future performance has been declining for the past year.

Declining Estimates

After KapStone’s recent earnings report, estimates for Q1 16, Q2 16, FY 16, and FY 17 have all seen significant negative adjustments over the past 30 days; Q1 16 fell from $0.38 to $0.26, Q2 16 dropped from $0.52 to $0.37, FY 16 plummeted from $1.92 to $1.29, and FY 17 dipped from $2.25 to $1.48.

Bottom Line

This company is the smallest publically traded containerboard producer, which helps when the economy is running well, but it is a big negative when the economy is stuck in the mud.Further, with increased input costs, and declining tonnage returns, their margins will see pressure in the near term.