ROCK on. jim rubright

Transcription

1 ROCK on At RockTenn it s not simply about gross revenue or pushing tonnage out the door. It s about gaining the ability to make quality products at less cost than that of your competition. By John O Brien, managing editor Low cost wins. Call it a credo, a motto, a rallying cry, whatever; but at RockTenn it s not just talk, it s a business philosophy that has become an operational way of life one that the maker of paperboard packaging has come to thrive on. The person most responsible for hammering this mindset home: Jim Rubright, RockTenn s chairman and chief executive officer. Rubright joined RockTenn in October 1999 with no background or experience in the paper industry or packaging. But it was that freshness that the company s then CEO, Brad Currey, figured would work to the advantage of Rubright and RockTenn. He couldn t have been more right. Over the next eight years, Rubright would focus RockTenn on becoming much better at what it did, along with making a few very selective acquisitions at times when the company was genuinely ready to manage them. The deals played key roles in expanding RockTenn s product portfolio. In 2005, RockTenn bought substantially all the assets of Gulf States Paper, including its bleached board mill in Demopolis, Alabama which was considered one of the lowest cost mills in North America. The deal was a homerun. 20 MARCH/APRIL 2009 PaperAge

2 RockTenn purchased the 435,000 ton per year Demopolis bleached paperboard and SBHK mill and 11 folding carton plants from Gulf States Paper Corporation in Then, last March, RockTenn bought Southern Container, a privately-held company with low cost operations and modern equipment the Solvay containerboard mill in Syracuse, NY being the main component in that deal. Although it s been less than a year since closing on Southern, overall results to-date have been nothing short of remarkable. Over the past three years, RockTenn s net income increased from $18 million in fiscal 2005 (end-sept) to $106 million for its fiscal year Most recently, and defying the stumbling economy, the company finished its first quarter 2009 (three months ended Dec. 31, 2008) with net income of $30.6 million compared to $17.5 million in the corresponding quarter one year ago. In light of the hard work and successful long-term strategies he brought to RockTenn, PaperAge has selected Jim Rubright as our Executive Papermaker of the Year. You came to RockTenn in 2000 from outside the paper industry. How did that come about? Brad Currey, then the CEO of RockTenn, and several other members of the Board of Directors had known me well from my King & Spalding law firm days and had followed my career at Sonat. When Brad decided to retire, the Board recruited me to join RockTenn. Being an outsider, what did you bring to RockTenn? By nature, I am a realist and very independent minded. My focus tends to be on strategic decisions. When I make one, I look for fast action and great execution. I would also only work for a company committed to being the best in its business. The Board knew what to expect from me, and at the time they understood that the Company needed a new strategy to deal with a changing marketplace. PaperAge MARCH/APRIL

3 In March 2008, RockTenn acquired Southern Container and the 770,000 ton per year Solvay recycled containerboard mill. After joining the company and getting a feel for the operation, was there a point when you decided, We need to be doing this or we should be focusing on that. And what was the this or that? After about four months of intense immersion in the business, it was time to attack the most pressing problems and to lay the groundwork for the future. I knew it would be a multiyear building process, but I believed we would be successful. First, we could not look for the next acquisition to make us great; we had to become great at what we did. We had to run all of our businesses for margin and ROIC and let the businesses right-size themselves. We had to deliver great, consistent quality and great customer service. We had to be low cost. What did that involve? To be low cost we had to invest in technology, systems and people, and achieve greater scale in our folding carton plants. We had to flatten the team and speed up decision making. We had to improve decision making by using richer data and disciplined data analysis to inform our judgments. We had to anticipate shrinking markets for uncoated recycled board and converted products, then very important businesses for RockTenn, which meant we would have to reposition RockTenn. We had to anticipate higher fiber and energy costs, including periods of severe price spikes, which meant further investment in our mills. We also had no room to make a big mistake. There were many other specific action items on our list, but this will give you the sense of the things we needed to do. You ve been called conservative by some industry analysts. Do you agree with them? How would you describe your style of management? People may see me as conservative because our strategy starts with intense focus on execution, the blocking and tackling basics of our business. This focus is not about who I am as a person; it is a result of what it takes to be successful in our business. Consistent with what I mentioned before, we also passed on a number of acquisitions in the early years, resisting the temptation to do something, where the something entailed too much risk or failed to make us a clearly better company. 22 MARCH/APRIL 2009 PaperAge

4 On the other hand, throughout the recession, our capital expenditures exceeded our depreciation. That did not feel like a conservative approach at the time, but we believed it was the right approach and it has paid dividends ever since. Similarly, the Gulf States and Southern Container acquisitions were large step-out transactions, but investors have accepted the apparent risks associated with the transactions. I believe that is because we very carefully set out compelling strategic rationales for the acquisitions, and we were conservative in the valuations we paid for superb companies. Low cost wins and I don t have to tell you who stresses that point. Did you bring this approach with you or was it adopted after you had spent some time at the company? My background is in revenue businesses, not cost businesses. However, once at RockTenn it only took a few meetings with our customers to become convinced that we had to be their lowest cost alternative by a wide margin to be profitable. RockTenn bought Southern Container in the first quarter of What made that operation so attractive? In 2006, the success of our Gulf States acquisition led us to believe that we could achieve the same success by acquiring a low cost containerboard mill and box plant system. Southern Container was beyond our highest aspirations due to their very low cost assets, great team of employees and leadership, their 15-year track record of strong growth in sales and earnings, and their diverse customer base. Were there any cultural hurdles to get past? The cultures of our two companies were very similar. Like RockTenn, Southern is committed to being the lowest cost supplier, to providing outstanding customer satisfaction, and they are a disciplined team focused on profitability and ROIC. RockTenn produces the SBS paperboard and folding cartons for this Nestlé Stouffer s brand at its Demopolis, AL mill and the Claremont, NC folding plant. Are Southern Container s operations manufacturing and administrative now fully integrated into RockTenn s? If not, what s left to do? The integration of Southern Container and RockTenn is essentially complete. We are ahead of our initial synergy target and the business is performing very well. As 2008 came to a close, I wondered if the Southern Container deal might have brought too much capacity into RockTenn s portfolio at the wrong time. Yet, your company emerges from that last quarter of 2008 (RockTenn s first fiscal quarter) with positive results record results, in fact. How do you explain this? RockTenn s record earnings resulted from the very low cost positions we have achieved in all our businesses, our business positioning with the vast majority of our products serving food and personal care end markets, and to the large benefit we experienced from lower recycled fiber and energy costs. RockTenn operates four business segments: Consumer Packaging, Corrugated Packaging, Merchandising Displays, and Specialty Paperboard Products. In a tough economy, where do you see the most opportunity for growth? We believe that our merchandising display and corrugated packaging businesses will continue to grow at rates exceeding their industries growth rates, because of their great people and low cost assets. We see GDP minus growth for folding cartons and coated paperboard and fewer likely acquisition opportunities in those businesses. RockTenn s Alliance division is directly responsible for dealing with displays, merchandising systems and packaging programs. Could you tell us a little about this division and what today s customers are looking for? Our merchandising display business provides display solutions for consumer products companies launching new 24 MARCH/APRIL 2009 PaperAge

5 products and in-store promotions primarily of cosmetics, health and beauty, and personal care products. We position ourselves as the leader in innovation and high impact displays for consumer products companies. Our strategy today is to work with our customers to change their in-store marketing strategies to market to the shopper who makes the purchase, but who may not be the consumer or user of the product. Our customers want us to provide innovative displays and marketing ideas and flawless execution of their programs. We are also working with a number of customers to reduce the total supply chain costs of display programs. On the recycling front, capacity cuts around the world have created a drop-off in demand for recovered paper. Processors inventories are high and they say prices have fallen to the point of not covering their cost to do business, which could lead to a decline in paper recycling efforts. Can the U.S. sustain the current rate of paper recovery and utilization? I believe the U.S. will sustain recycling rates sufficient to meet domestic demand. Although supply will likely contract as the recession continues, at the point of economic recovery we expect some period of supply constraint as demand recovers faster than supply can respond. How involved is RockTenn in collecting recovered fiber? Does your company only collect what it needs for its own operations or is it more involved than that? We recover approximately 280,000 tons per year in our recycling plants and we sell approximately 765,000 tons in our brokerage and trading operations. Environmental sustainability today more than ever plays a key role for the paper industry when it comes to consumer perception about the products the industry produces. From an environmental standpoint, what is RockTenn doing in terms of sustainability? Since our business was founded on recycling, which is a core tenant of sustainability, RockTenn has always been at the forefront of sustainable business practices. Our principal efforts currently are working with customers to reduce packaging content, streamline supply chain costs and maximize the use of recycled fiber, and reducing our own waste and energy consumption. As an example, we have reduced the energy we use to make a ton of coated recycled paperboard by 14% since fiscal year RockTenn s Alliance division created the Post-it Notes Brand Shop to establish a permanent home for 3M at 2,000 Staples stores. The economy is expected to continue its struggle through As we move forward, how do you see RockTenn weathering this? We believe we have the right people working with our great assets, and that they will continue to outperform our industry over this downturn. We expect to generate strong free cash flow even if the current market conditions continue. 26 MARCH/APRIL 2009 PaperAge