Canton mill slowdown could be tied to union contract negotiations
No layoffs are anticipated for at least 6 months in relation to the curtailment of PM20 at Pactiv-Evergreen's Canton mill, per sources.
Cory Vaillancourt photo
Last week, reports obtained exclusively by The Smoky Mountain News revealed that Canton’s Pactiv-Evergreen Packaging would scale back production by idling one of its four paper-making machines. The company cited a decrease in demand, but as more information becomes available, it appears the “curtailment” of PM20 could be a tactic employed by Evergreen for leverage in a long-simmering contract dispute with the company’s unionized workforce.
“The company is stating that the core cause of the curtailment is a drop in demand,” said Troy Dills, president of the United Steelworkers Smoky Mountain Local 507, which represents 85% of employees at Pactiv-Evergreen’s Canton mill. “We don't have anything to contradict that, but it would make sense to me that if a buyer is seeing that our labor agreement has been expired going on a year now, they might look for another avenue, just to maintain assurances that their orders will be fulfilled.”
CURTAILMENT
On Feb. 8, SMN acquired a leaked, undated internal memo from the mill’s General Manager, John McCarthy, stating that the mill would idle one of its massive machines.
“There has been a sharp downturn in the Uncoated Free Sheet (UFS) market due to reduced customer demand and an increase in UFS imports from other parts of the world,” the memo reads. “As a result of this downturn, our recent UFS manufacturing output has exceeded our sales and our warehouses are now full of product with very little additional space available and no indication of change in market conditions for the foreseeable future. As such, the Company has decided to idle PM20 to more closely match our UFS production to customer demand.”
The PM20 machine, built in 1960, produces fine writing and envelope-grade paper. According to a market report issued by Global Newswire in 2022, total domestic demand is projected to be 7.7 million metric tons in 2026, albeit at an annual growth rate of -1.2% from 2022 to 2026.
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The report names the healthcare sector as the largest consumer of UFS paper and blames an increase in foreign imports, as well as raw materials cost, for the shrinking demand.
Pactiv-Evergreen has ignored multiple requests for comment from SMN. A source within Evergreen told SMN that the PM20 machine had already been idled when they showed up for work in Canton on Feb. 8.
Officially called a curtailment, the idling of PM20 could be temporary and last only a few weeks or months, according to the memo. During that time, workers will make upgrades and mechanical improvements to the machine, preserving its ability to be restarted.
Of the three paper machines — along with a liquid packaging machine — PM20 is the largest, although its output is less than half of the plant’s production by weight.
The memo goes on to state that all PM20 personnel, whether salaried or hourly, will be reassigned in order to avert layoffs and that the company worked with the union to ensure there would be no job loss associated with the curtailment. Dills said around 40 workers would be affected.
Those terms were verified in a signed memorandum of agreement between company officials and the union, dated Feb. 7. The agreement will expire in six months.
A second source within Evergreen reported that workers on the PM20 machine would be reassigned beginning Monday, Feb. 13.
Another undated memo from Pactiv-Evergreen, titled “PM20 Idle Communication Strategy” says that the seniority, pay and vacations of affected workers won’t be impacted.
The memo also states that the company evaluates market conditions regularly, but only made the decision to curtail PM20 “late last week” — probably in early February — due to rapidly shifting demand over the past 60 days.
Other information in the memo suggests PM20 was chosen for curtailment because other machines, PM11 and PM12, are more flexible in terms of output and can also produce the same grade of paper as PM20, even though they are slower.
The mill’s other machine, PM19, makes a special grade of paper used in the packaging of liquids, like milk cartons.
There are currently no plans to idle any other machines in the mill, according to the memo, and the possibility of restarting PM20 remains.
“When/if market dynamics change, we will evaluate our available capacity against the overall demand for Uncoated Freesheet,” it reads.
CONTRACT
Workers in Canton have been operating without a contract since May, 2022. Dills said the members of the Canton local voted down two separate contract offers late last year over wage issues and were to resume negotiations with the company this past January, but those discussions were postponed and haven’t yet been rescheduled.
“We have presented the company reasonable terms in good faith that are proportionate to the changes in the economy,” Dills said. “The company needs to acknowledge that inflation is real and also acknowledge the contributions of these employees, who got them through the COVID crisis. They deserve a fair contract. The request that's been made is reasonable. We're hopeful that they will come back to the table with that understanding.”
The contract impasse puts the timing of the curtailment in a different light, as does the company’s recent financial performance.
A Nov. 7, 2022 report from The Fly, a financial news website focusing on publicly traded companies like Pactiv-Evergreen, quotes CFO Jon Baksht as saying the company was “cautiously optimistic that its strong year to date will continue into the fourth quarter” after a substantial reduction in debt.
The same day, Pactiv-Evergreen announced that on Dec. 15 it would issue a 10-cent dividend per share to holders of common stock as of Nov. 30.
The report also notes that in just one year, Pactiv-Evergreen’s earnings per share went from 8.5 cents to $1.82.
In August, Pactiv-Evergreen adjusted its fiscal year 2022 EBITDA forecast of $705 million to between $750 million and $770 million. Revenues in the third quarter of 2022 topped $1.5 billion, and Pactiv-Evergreen issued another adjusted EBITDA forecast of $780 million, up from $760 million.
“Pactiv Evergreen's earnings per share growth have been climbing higher at an appreciable rate. Just as heartening, insiders both own and are buying more stock,” reads the report.
Company insiders, according to the report, own 78% of shares. Jonathan Rich, Pactiv-Evergreen’s chairman, recently purchased more than $490,000 worth of shares at $9.80 per share.
As of 1 p.m. on Feb. 13, Pactiv-Evergreen’s stock (NASDAQ: PTVE) was trading right at $11 per share. Over the past 52 weeks, the stock reached a low of $8.31 and a high of $12.46 — well off a recent high of $18.50 on Dec. 11, 2020.
Pactiv-Evergreen’s operations in Haywood County make it one of the largest, if not the largest, employers in the county, above county schools, county administration and the Ingles grocery store chain.
Founded as the Champion Fibre Company in 1908, the mill has stood at the center — literally and figuratively — of the lives of generations of Canton residents. Pactiv-Evergreen employees more than 16,000 people worldwide, and the Canton operation is estimated around 1,500.
Rep. Chuck Edwards (R-Henderson) refused multiple requests to be interviewed for this story.
