Paying the price: Pactiv passed up millions in revenue to close Canton paper mill
Corporate leaders from Pactiv Evergreen reported company performance and spoke with industry analysts on a May 3 earnings call. Pactiv Evergreen photo
Amid ongoing restructuring, Pactiv Evergreen presented its first quarter earnings report on May 2, missing earnings targets and revealing flagging revenue at least partially attributable to the closing of its Canton paper mill last year.
“… Q1 was generally as expected. We reported net revenues of $1.3 billion for the quarter which represents a decrease of about 13% compared to last year,” said John Baksht, Pactiv CFO, during a May 3 earnings call. “The decrease was largely due to the closure of our Canton, North Carolina, mill operations during the second quarter of 2023, lower pricing due to the pass-through of lower material costs and lower sales volume.”
For the first quarter of 2023, Pactiv reported net revenues of $1.431 billion. Management made the closing announcement on March 6 of that year and the 115-year-old Canton mill went on to halt production late in the second quarter. By the fourth quarter of 2023, net revenue had slipped to $1.274 billion and continued to decrease slightly through the first quarter of 2024 to $1.252 billion — a difference of $179 million compared to the first quarter of 2023.
“Excluding the impact of the Canton mill closure, our revenue is down approximately $95 million or 7%,” Baksht said.
If that’s true, the Canton mill’s absence was responsible for a 6% decrease in Pactiv’s revenue year-over-year for the first quarter of 2024, amounting to approximately $84 million.
The decrease in revenue accounts for a substantial portion of the $190 million hit Pactiv’s food and beverage merchandising segment took from the first quarter of 2023 to the first quarter of 2024. Net revenues in that segment were down 22% year-over-year, from $850 million to $660 million. According to a Pactiv presentation accompanying the earnings report, sales volume was down 14%, but excluding the effects of the Canton mill closing, sales volume was down only 4%.
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Pactiv stock (NASDAQ: PTVE) dropped sharply on the news. Before the May 2 earnings report was issued, PTVE stock had closed at $15.49 a share, but by 10 a.m. on May 3, after the earnings call had ended, it had dropped more than 15% to $13.16 a share. As of press time on May 8, PTVE was trading at $13.34, off its 52-week high of $15.84 but well above its 52-week low of $6.84 from last June.
When the closing was first announced to employees in a closed-door meeting, management cited market conditions as a big reason for the move. Just eight months after that, Pactiv was being blamed for a milk carton shortage that affected jails, nursing homes and schools. Canton’s production likely could have helped with both the carton shortage and, therefore, the declining revenue in the food and beverage merchandising segment.
Locally, the focus remains on the future of the 185-acre mill site, and to a lesser extent, the futures of additional facilities still operating in Waynesville and in Pine Bluff, Arkansas.
During the May 3 earnings call, no mention was made of what Pactiv plans to do with the Canton mill site, but the company’s form 8K, a commonly used reporting document filed with the Securities and Exchange Commission on May 2, did say that the company “continued to explore strategic alternatives related to its Pine Bluff, Arkansas mill and Waynesville, North Carolina facility” during the first quarter of 2024.
That statement aligns with a press release issued by Pactiv on March 6, 2023 — hours after the closing of the Canton mill was announced — that said the company would explore “strategic alternatives” for Waynesville and Pine Bluff. That press release also cautioned that the company “has not set a timetable in relation to this process.”
Roughly a thousand Western North Carolina workers lost their good-paying union jobs when the mill closed last summer, with some of them ending up in a health care coverage gap because Pactiv failed to notify its insurance carrier of the impending closure. Leaders in state government have been mulling a lawsuit over a 2014 economic development grant, and Pactiv continues to rack up environmental violations at the Canton site, even though it’s now closed. The company’s request for a business personal property tax break on the Canton site was rejected last year, but appeals are ongoing. An agreement dated Feb. 28, 1964 outlines an agreement between Pactiv and Canton for Pactiv to treat Canton’s wastewater at a very minimal cost, but Pactiv could in theory increase those costs at any time. On March 8, 2023, Pactiv filed to terminate that agreement, effective March 9, 2025.
