It's bad enough when you have to face higher costs for energy, freight, raw materials, and the like. It's even worse when your ability to pass on those higher costs is hamstrung by your customers' own tough times. Today I'm speaking of Canada's Abitibi-Consolidated
Right there, you should pick up on part of the problem -- newsprint. Publishers like Journal Communications
Given all that, it may not be the best time for Abitibi to try for a turnaround. Fourth-quarter revenue sagged a further 3% as slight improvements in newsprint and commercial papers were outweighed by a decline in wood product sales. The good news, such as it was: The operating loss was only about 2% larger, and the adjusted net loss 9% smaller, than in the year-ago period. Heck, Abitibi even squeaked out some positive operating cash flow for the year.
The story here is similar to what's going on in containerboard -- that is, boxes. 2005 wasn't a great year for firms like Packaging Corp.
In Abitibi's case, inventories are lower than last year, and the global market for newsprint demand is a bit better than North America's. What's more, the company has been aggressively targeting higher-cost plants for closure. That should ultimately help firm up pricing while improving the company's cost structure.
I'm not sure that there any more dangerous words in investing than "it can't get any worse." If that's what you're thinking about Abitibi, good luck to you. I'm actually a little optimistic here that a turnaround could work. But I'd rather stake my case upon Abitibi's progress toward its cost- and debt-reduction goals, rather than simply presume that the industry can only go upward from here.
Further Foolish paper cuts:
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).