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Shares of both International Paper Company (NYSE:IP) and WestRock Company (NYSE:WRK) have dipped in early Tuesday trading after they were downgraded to Neutral by Citi analyst Anthony Pettinari.
The downgrades come after cautious commentary on Friday evening from P&PW and evidence of slowing demand.
“While Containerboard stocks have outperformed YTD (-4.9% vs. S&P -22.9%), we’re less confident the outperformance can continue in 2H,” said Pettinari. Demand for durables & distribution goods (~25% of box demand) is slowing, and we expect Y/Y industry shipments to be negative through year-end. ~1.8mmt of capacity is scheduled to be added in 2H ‘22, which we model pushing op rates 94% in 2023. While our base case is flat kraftliner prices through year-end, we view price erosion as a possibility, and see no real chance for another hike this year.”
The analyst added that they view 2H price/volume risk as skewed to the downside.
“NA industry box shipments were largely flattish from 2000-19, before jumping +3.2% in ‘20 and +2.9% in ‘21 on pandemic-driven demand (with e-commerce, protein, and produce especially strong). So far this year demand has held up relatively well (1Q -1.8% Y/Y, modeling 2Q –LSD, both off tough comps) however we expect weakness in durables & distribution goods (~25% of industry shipments) to challenge vols in 2H.”
