We use things made of paper every day, from newspapers to writing pads to shipping boxes and more. You probably don't think all that much about the paper you use on a daily basis, but these companies do, because paper is a huge business. Don't believe me? Take a moment to learn about these three paper players: International Paper Co. (NYSE:IP), WestRock Co. (NYSE:WRK), and, from a different angle, Kimberly-Clark Corp. (NYSE:KMB).
A global paper giant
International Paper truly lives up to its name, with manufacturing operations in North America, Latin America, Europe, Russia, Asia, and North Africa. Although the United States accounts for roughly 70% of revenues, the company has been working to build its presence in higher-growth regions such as Asia and clearly has a global reach.
International Paper makes products ranging from printing paper (22% of EBITDA), consumer packaging (9%), and industrial packaging (69%). International Paper is a very different company today from what it was at the turn of the century, as it shed many less profitable businesses so it could refocus around the aforementioned trio, which it believes are better long-term opportunities. It's also been using joint ventures and acquisitions in key growth markets such as China and India to expand its business.
If you're watching the paper market, International Paper has to be one of the companies you look at because of its size and reach -- and because of the still-changing shape of its business as it adapts to competitive and shifting markets around the world.
The new old kid on the block
WestRock is a relatively new name in the paper industry, emerging in the middle of 2015. However, WestRock isn't a new company. It's the combination of old industry hands MeadWestvaco Corporation and Rock-Tenn Company. Like International Paper, WestRock is a global player, with operations in North America, Latin America, Europe, and Asia.
The purpose of the merger was pretty straightforward: scale. Before the combination, Rock-Tenn was the fifth largest paper player and MeadWestvaco was No. 14. Together, however, they jumped to No. 2, behind only International Paper. This size should give the company a better competitive position and at the same time allow for cost savings as the two entities are integrated and redundant functions eliminated. And now that it's No. 2, you'll want to put it on your paper watch list.
A different look at the space
Paper is paper, but paper isn't only used to make boxes and such. It also gets used in a plethora of personal-hygiene products, such as toilet paper, tissues, paper towels, and absorbent products such as diapers. And when it comes to these types of products, one of the biggest players is Kimberly-Clark. The company's well-known name brands include Scott, Huggies, and Kleenex. If you've been in a grocery store in your life, you've at least seen these brands, if not used them yourself.
Kimberly-Clark has been circling the wagons around such core brands of late, particularly in its most profitable markets. For example, it announced plans to shutter its diaper business in Western and Central Europe in late 2012. And it spun off its healthcare business in late 2014, the goal being to become a leaner competitor focused on its best products in its best markets.
While the company is a large player in its core businesses, they also happen to be highly competitive. So the decision to slim down appears both good and risky in some ways. On one hand, Kimberly-Clark will be able to focus all of its attention where it counts, and on the other it will be less diversified going forward. Still, if you're thinking about paper, you should make sure you widen your scope enough to include a company like Kimberly-Clark.
When it comes to paper, you can view it through the narrow lens of International Paper or WestRock. And there's plenty of reason to watch these two paper giants, not the least of which is their leading positions in the industry. But don't get so hung up on paper that you miss some of the other businesses that use paper in a different way -- Kimberly-Clark is only one example. It's a pretty pure play on the consumer paper product space, which actually could be a nice benefit as demand for toilet paper and the like tends to be pretty consistent.
Reuben Brewer has no position in any stocks mentioned. The Motley Fool recommends Kimberly-Clark. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.