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Dear Friend,
Rock Tenn commented on their 9 am
conference call this morning that exports "fell off a cliff," and it stands
to reason that European producers might compete more aggressively for
exports into the Mideast, North Africa, the Caribbean or Latin America after
the economic declines in much of Europe. We believe the most recent November
export data summarizes transactions negotiated in September or October, and
that first-quarter exports will be up to one-third below 2011 second-half
levels. We estimate that a second-half 2012 partial rebound in exports
improves the full year decline to just 20%. Lower exports probably will
shave 3.5% off the U.S. containerboard industry operating rate in 2012 to
cut it to 91.9%.
We cut our Packaging Corp. of America earnings estimates by 11% in 2012 improving to just a 6% reduction in 2014 and 2015. Increased share repurchases at lower than previously estimated prices, however, benefit our financial models and DCF valuation, where we cut our price target by just $1 to $34 from $35 per share and maintained our Overweight investment rating. These same dynamics could influence some other industries, where U.S. exports of steel recently were as high as 1.2 million tons or a similar nearly 15% of output like containerboard. We estimate that world steel output and demand fall about 2% in 2012 and that world aluminum output rises 3.16% with a 4.3% demand gain. Slow or stagnant growth erodes pricing power. We will be distributing our roster for our March 27-28, 2012 metals conference at the Boston Harbour Hotel in Boston, and are working towards an October 2-3, 2012 New York conference in the fall at the Westin Hotel (renamed from New York Helmsley after a buyout) at 212 East 42nd Street. We are pleased to report that Matt Van Cleve passed CFA Level 1 on his first try in December and Joe Reagor passed CFA Level 1 as well as Joe's third try was his "good luck charm." Charles Tumazos will be retaking it. Our four young men, including Michael Foley, continue to work diligently. Faithfully,
John C. Tumazos, CFA
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Copyright © 2008 John Tumazos Very Independent Research,
LLC
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