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Industry Description
The Zacks Paper and Related Products industry comprises companies that manufacture and sell paper and paper products. The industry is highly diversified in terms of products, ranging from graphic paper and packaging paper to absorbent hygiene products. Graphic papers, which include printing and writing papers, and newsprint, are utilized for communication purposes. The industry provides packaging solutions for liquid, food, pharmaceutical, beauty, household, commercial and industrial products. It also produces fluff and specialty pulps utilized in absorbent hygiene products, tissues and paper products. The industry caters to a wide array of industries, including food and beverage, farming, home and personal care, health, retail, e-commerce, and transport. The industry players meet customers’ shipping, storage and display requirements with sustainable solutions.
Major Trends Shaping the Future of the Paper and Related Products Industry
Weak Demand, High Costs & Tariffs Remain Concerns: The transition to digital media has undermined the demand for the graphic paper market for some time now. Paperless communication, increased use of email, less print advertising, electronic billing and fewer catalogs have dented graphic paper demand. This shift has prompted companies in the industry to convert their production lines to focus on packaging and specialty paper to stay relevant in a digitized economy. However, the packaging demand has also lately been impacted and the companies in the industry have been witnessing volume declines due to lower consumer spending on goods, reflecting the inflationary scenario. They had to cut down production levels to align with customer demand. The industry is witnessing rising costs for transportation, chemicals and fuel. Thus, industry players are increasingly focusing on pricing actions and cost reduction, and resorting to automation in manufacturing to boost productivity and efficiency. The impacts of tariffs and retaliatory tariffs add to the industry’s concerns.
E-commerce & Consumer Products to Support Packaging Demand: Despite the current headwinds, the industry’s exposure to consumer-focused markets, such as food, beverages and healthcare, ensures stable earnings growth. With the rise of e-commerce, packaging has gained the utmost importance as it helps maintain the integrity of the products and withstand the complexities of delivery.According to a Grand View Research report, global e-commerce revenues are expected to see a compound annual growth rate (CAGR) of 18.9% between 2024 and 2030. Over 2024- 2030, the U.S e-commerce market is expected to witness a CAGR of 16.4%. This presents a major growth opportunity for the Paper and Related Products industry.
Increased M&A Activities to Transform the Paper & Packaging Landscape: Increasing demand for sustainable packaging options and eco-friendly packaging solutions will support the paper market in the days ahead. Smurfit Westrock was formed by merging two major paper and packaging industry players — Smurfit Kappa and WestRock — on July 5, 2024. With an unmatched geographic reach spanning 42 countries and the two companies’ highly complementary portfolios and innovative sustainability capabilities, Smurfit Westrock is likely to be the preferred packaging partner for companies and customers across the globe. International Paper IP acquired DS Smith, a strategic move to strengthen its corrugated packaging business in Europe and prioritize sustainable packaging.
Zacks Industry Rank Indicates Dull Prospects
The Zacks Paper and Related Products industry is a nine-stock group within the broader Basic Materials sector. The industry currently carries a Zacks Industry Rank #234, which places it in the bottom 5% of the 246 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates bleak prospects in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
Before we present a few Paper and Related Products stocks that investors can consider, it is worth looking at the industry’s stock-market performance and valuation picture.
Industry Versus Broader Market
The Paper and Related Products industry has outperformed the S&P 500 and the sector over the past year. The stocks in this industry have gained 19.6%, while the Basic Materials sector has inched up 0.8%. The S&P 500 composite has grown 12.2% during this time frame.
Industry's Current Valuation
On the basis of the trailing 12-month EV/EBITDA ratio, a commonly-used multiple for valuing Paper and Related Products companies, we see that the industry is currently trading at 9.38X compared with the S&P 500’s 17.59X and the Basic Material sector’s forward 12-month EV/EBITDA of 13.23X. This is shown in the charts below.
Over the last five years, the industry has traded as high as 12.45X and as low as 4.10X, with the median being 7.57X.
2 Paper and Related Products Stocks to Consider
Klabin: In the first quarter of 2025, revenues increased 10% year over year to R$4.9 billion. The company witnessed higher revenues in pulp, paper and packaging business. Driven by higher revenues, adjusted EBITDA rose 13% year over year to R$1.9 billion in the quarter. Free cash flow improved to R$ 492 million against an outflow of R$454 million in the first quarter of 2024. This performance reflects the higher operational result, the lower CAPEX disbursement and the working capital efficiency initiatives. The ramp-up of Paper Machines 27 and 28 is expected to boost production volumes in 2025. Klabin’s efforts to improve efficiency in its operations and lower costs will also aid earnings.
The Zacks Consensus Estimate for the São Paulo, Brazil-based company’s 2025 earnings has moved up 8% over the past 30 days to 53 cents per share. It shows a 12.5% improvement from the earnings reported in 2024. Klabin has a long-term estimated earnings growth of 3.6% and currently has a Zacks Rank #2 (Buy).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Smurfit Westrock: The company is focused on asset optimization and business improvement initiatives. It has been undergoing significant transformation since 2023, wherein it has closed underperforming facilities, divested non-core assets and streamlined operations to drive efficiency and cost savings. These efforts are expected to position the company for long-term growth and profitability. Backed by the combined potential of Smurfit Kappa and WestRock, Smurfit Westrock has affirmed its $400-million synergy target for the first year of operation and expects second-quarter 2025 adjusted EBITDA of $1.2 billion.
The Zacks Consensus Estimate for 2025 earnings for the Dublin, Ireland-based company has moved up 3.2% in the past 30 days to $2.87 per share. The figure indicates year-over-year growth of around 38%. The company carries a Zacks Rank #3 (Hold).
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This article originally published on Zacks Investment Research (zacks.com).
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