Interview: Price of energy
>> with the price of energy, metal and lumber rising this year, companies have had to adjust. the nation’s largest packaging company is smurfit-stone container. the company’s chief financial officer, charles hinrichs, says it’s had to raise prices to cover the surge in commodities. he explained to erin burnett where the higher prices are coming from.
>> in 2003, our energy costs were up dramatically, up by $70,000 from 2002. in 2002, natural gas costs continued high and they’re up 8% through the end of september. in addition, we’ve had higher recycled fiber costs which impacted our costs in 2003 by $17 million negatively and recycled fiber costs are up about 23% in the first half of 2004 over the 2003 average. so it’s these types of cost pressures that are causing us to increase our prices. we’ve got two price increases in container board that are being implemented. we’re up about 24% year over year. and now we’re implementing prices in corrugated boxes, our packaging products.
>> what sort of push-back have you received from customers on price increases? when we hear about companies that do more plastic packaging, they’ve been cutting forecasts saying raw material costs are rising and they’re not able to pass along price increases. why do you think you’re able to push these price increases through for your box packaging?
>> well, erin, most of this is cost push but we’ve also had price decreases over the past three years as a result of declining demand for corrugated boxes. as manufacturing has moved offshore, corrugated box sales have declined in terms of volume by 6%. since the year 2000. so we’ve been working hard at smurfit stone and as the industry to reducing our high cost capacity and trimming inventory levels. now inventories are in balance, demand has picked up nicely in the second half of 2003 and we’re beginning to push through price increases to recover some of the cost increases. i think our customers expected to see some cost increases in 2004.
>> when do you think you’re going to return to the level of demand that you talked about back in the year 2000?
>> we may, it may take us several years to get there, erin. the loss in demand was caused by manufacturing moving to china and other locations in asia. we’re beginning to see some recovery in demand which is typical in the early phase of economic recovery. some inventory replenishment. so demand for corrugated packaging is up 3.8% to a year-to-date basis through august and continues to be strong in the third quarter. average box shipments were up in july and august by 4% on average.
>> you just talked about some of the issues you’ve been faceing with demand, coming from a shift in demand coming from asia. do you at smurfit-stone have a strategy to start making boxes that perhaps could serve the asian market where you see the biggest increase in demand?
>> yes, we do, erin. we have four box plants in china now that we own through a joint venture. i think our current strategy is best executed by using our packaging solution centers where we have offices in bentonville, arkansas, and in hong kong to help our u.s. and north american-based customers design their packaging, whether it’s produced in asia or north america, so it has a uniform look and performance.
>> that was erin burnett earlier today with the c.f.o. of paper products maker smurfit-stone, charles hinrichs, and shares have gained 32% in the past 12 months. executive search form korn/ferry is experiencing strong demand. we spoke to the c.e.o. earlier and paul riley says he sees recruiting in all industries increase, with managing hiring up 40% to 50%. he said today’sgatinges were a surprise in that he expected a bigger number and he doesn’t know why there’s a disconnect.
>> we’re seeing solid, solid growth. again, in every region of the world. maybe south america is slower. but asia up over 50%, europe over 40%, the u.s. up over 40%, canada. we see it all over the world and i think it’s led by the u.s. expansion which i think is real.
>> he added that some companies are waiting until after the election to add jobs but most of them are not. martha stewart begins serving her five-month prison sentence today. the founder of martha stewart living omnimedia surrendered to authorities at a federal prison in west virginia early this morning. after her release, she’ll serve five months of home detention. she was convicted of obstruction of justice in march. jure jurors found she lied to authorities about why she sold imclone stock. and the braves have won their division for the 13th consecutive year but they haven’t sold out their playoff games.
>> in atlanta, two things remain the same. the braves won the division for the 13th consecutive year and the team hasn’t sold out either of the first two playoff games. that is one of the subjects of this week’s “money & sports” segment. joining us from our atlanta bureau is mike buteau. division titles are nice here. but the attendance problems must concern the team’s front office. if they can’t sell out a couple of postseason games, what’s the point?
>> you would think it would be a big concern but it’s almost become an expected here in atlanta. they make the playoffs 13 years in a row and everybody keeps waiting for the nlcs, the championship series, the second round to roll around and it hasn’t rolled around as often as they would like so people seem to be waiting for the next round, waiting for the championship series and world series but it hasn’t come four out of the past five years so right now the series is tied up and people hope this might be the year they move on and when you’re the braves management, the ticket prices for the first round don’t make that much of a difference. you get to the second round, they jump dramatically and the world series jumps even more but the braves more importantly this year are concerned about their payroll and they slashed that by about $25 million this year, in turn, that will cut their overall losses to $10 million this year from $34 million last year so that’s the biggest news when it comes to the braves and the front office, their concern about the payroll and the loss and the loss this year won’t be as bad as it has been in years past.
>> it’s been a different year for the braves. some have been surprised to see that the braves are even playing there’s four reasons they’re in it―the mets, the expo, the marlins and phillies. what are they doing to try to really boost things over there? try to get more audience in the seats?
>> it’s interesting, they’ve gone about a whole change of the franchise image. in years past, there was glavine, grux greg maddux and gary sheffield. now they have charles thomas and j.d. drew. he’s a hustling player and that’s the image they’re going for, a team that hustles and wants to win and doesn’t rely so much on names and salaries and they’re trying to sell that to the fans in atlanta. it has sold a little bit but it’s only the first year of that remgating effort. we’ll have to wait until next year to get a gauge as to whether or not they’ll buy into it.
>> names like larry, for one. the the super bowl halftime show will be sponsored by ameriquest. has the halftime show become more sought after because of what happened with janet jackson?
>> i’m not sure companies are looking to be sorveted with a wardrobe malfunction but it created more attention on the halftime show. it moved into that realm of, well, this is a break in the action, let’s refill our bowl of chips, and it was becoming a spectacle but now there’s the chance of something unexpected might happen so ameriquest latches on to the halftime show.
>> but won’t it go to the opposite, going from nudity to some kind of “up with people” type thing and be board to death.
>> the nfl is trying to keep it new and interesting. they’ll be involved in the actual production of it and who’s performing. they’ll not go back to “up with people” but they’re not going to push the envelope and let the m tv version as they did in the past.
>> yet another sport has found a reason to institute a five-second delay and that is nascar with dale earnhardt jr.’s expletive on nbc. are we going to look at delays for all sports some day?
>> it seems to be moving that direction. in sports there’s that five-second delay and you don’t even know about it. i was at the braves the other night and i was looking at the espn broadcast and it was five seconds late. now something like this with dale earnhardt, they let you know it will be a five-second delay so you can’t hide it.
>> thank you very much, mike buteau in atlanta. coming up next, we’ll look ahead to a busy week for earnings and the economy. a calendar of events, keep you up to the minute after a quick break.
