IP in for the long-term with its Russia JV despite government sanctions, says CEO John Faraci during Fox interview, noting that US economy is 'choppy,' will take consumer spending to spur growth but jobs, wages basically where they were during recession
Debra Garcia
NEW YORK
,
June 8, 2014
(CEO Wire)
–
But the economy is still slogging along. One reason, the critical manufacturing industry is still in a downturn, with only 12 million employed today as opposed to 17 million Americans back in -- in manufacturing back in the year 2000.
So how do we move the needle on manufacturing and the overall jobs picture?
John Faraci is with me.
He's the CEO of International Paper Company.
John, it's good to have you on the program.
JOHN FARACI, CEO, INTERNATIONAL PAPER COMPANY: It's nice to be here, Maria.
BARTIROMO: You have been moving your company more and more toward industrial packaging.
FARACI: Right.
BARTIROMO: Is that right?
So 95 percent of all of the shipping and...
FARACI: Right.
BARTIROMO: -- and packaging in the world -- in the United States comes in a corrugated package, in -- in a box.
FARACI: You're right. You know, at some time in the supply chain, it travels in a box. And we're the ultimate short cycle, I think, barometer on the economy for that reason.
BARTIROMO: So what are you seeing right now in the economy?
How do you characterize things?
FARACI: Well, a big difference between the first quarter, which obviously had a big impact, the weather, in GDP, it was negative. And our box shipments -- the industry box shipments -- the industry box shipments are down 1.5 percent. We won't see the industry until the end of June. But looking at International Paper, April and May, we're probably up 1.5 percent. And that -- that reflects an economy that's doing a whole lot better than it did in the first quarter.
BARTIROMO: It's doing a whole lot better and yet still debate on what it's going to take to move things forward faster.
What do you think it's going to take?
FARACI: I think it's going to take the consumer. I mean, 70 percent of the U.S. economy is consumer spending driven. And I kind of look at it this way. Balance sheets are in much better shape. Housing prices are getting better. 401(k)s are up. But income statements are still weak. I mean you saw the article, I think it was in one of the newspapers over the weekend, you know, real wages are -- are basically where they were at the recession.
BARTIROMO: A very slow crawl.
FARACI: Yes. And so until more money gets into consumers' pockets and the quality of the job growth -- you've seen this -- has been, you know, not nearly as -- as good as we expected, lots of part-time jobs, lots of service jobs. And you pointed out manufacturing. Manufacturing was down, I think, 1.5 -- 1.6 million jobs from the recession level.
BARTIROMO: Now some manufacturing will not come back.
FARACI: Right.
BARTIROMO: Because they're sending jobs overseas because it's cheaper. And then you've got the technology component there.
But how do you move, you know, really get manufacturing jobs back here with higher skill set workers?
FARACI: Well, a great example at International Paper, we respond to demand. We're expanding our food service cup plant in Ohio. We'll be adding, you know, not a lot, but over 100 jobs there. We're going to start construction in August. It's one of the first organic for U.S. -- for the U.S. consumer investments we have made in several -- since the recession.
And that's what it's going to take. It's going to take a demand signal, because, you know, we also export 20 percent of what we make -- what we make in the U.S. elsewhere and we -- in 2010, we spent $100 million to build a plant in Virginia that's 100 percent for export.
BARTIROMO: (INAUDIBLE).
FARACI: So we can do it.
BARTIROMO: Yes. You can do it. We just -- we've got to see that -- that consumer demand.
Let me ask you this. You've got a big catalyst coming up for your company July 1st.
FARACI: Right.
BARTIROMO: You're expected to complete a spin-off of one of your important businesses.
What does that do for the company in terms of shifting you more toward packaging and shipping as opposed to just paper products?
FARACI: Well, it makes us a more focused manufacturing company. The business we're spinning off and then combining with another like business is in distribution. So it distributes paper and packaging, but it's really a distribution business.
So as a result, our revenues will go down, but our margins will go up. And it's good for our shoos because these two businesses together can do more to improve that -- their value than they can do on their own.
BARTIROMO: All right, let me switch gears and ask you about Russia.
FARACI: Sure.
BARTIROMO: You've got a big business in Russia.
How has the Ukraine-Russia conflict impacted things?
FARACI: You know, not as much as you might assume by reading the newspapers. I mean trey has been slowing since, really, over the last couple of quarters. I mean this hasn't helped. And, you know, it's a bit contrarian, actually, as the Russian currency has gotten weaker, it's helped us export, because a -- a big portion of what we produce is exported into China.
But, you know, that's a weaker currency for the wrong reasons.
BARTIROMO: Are you expecting to make any changes to your joint venture in Russia given these sanctions?
FARACI: No, it's a -- it's, you know, business as usual. We've got a great joint venture. It's good governance. It's a solid business that's generating a lot of cash. We just completed a $1.5 billion investment program, so we like Russia and we're there for the long-term.
BARTIROMO: I guess that's the question. I mean you're one of many companies, American companies, that do business with Russia and have been making a lot of money on it. And yet the government is putting these sanctions.
I mean how deep is deep that is going to impact what you're doing there?
FARACI: Sure. Well, we're obviously watching it closely and it just -- it, you know, would like to see this, you know, issue, if you want to call it that, resolved. And I think, you know, the Europeans need to be at the table, the Americans, the Ukrainians and the Russians to solve a foreign policy issue that hasn't yet spilled over into business in a big way.
BARTIROMO: Yes.
FARACI: The Russian economy has slowed.
BARTIROMO: Yes. And -- and the ruble, of course, getting impacted.
OK, broadly speaking on the economy, what kind of a 2014 are you looking for, rest of the year?
FARACI: Well, it's been frustrating. It's difficult to call. You know, we had one quarter of good growth and one quarter where it kind of falls back. And I think we're going to be closer to 3 percent GDP growth in the second quarter. But we've only averaged 2 percent since 2009 and we've had, you know, just -- it's so choppy.
So I'm a realistic optimist.
BARTIROMO: Yes.
FARACI: You know, I'm -- I'm optimistic that the U.S. economy can grow at 3 to 4 percent a year and it should be seven years -- five years now after the recession is over.
BARTIROMO: Yes, whereas -- where -- I think that's the right word, choppy.
FARACI: But we're ready.
BARTIROMO: Yes.
FARACI: We're ready.
BARTIROMO: Stand ready.
We've got to get that gut -- that demand going.
John, good to have you on the program.
FARACI: Thank you.
BARTIROMO: Thanks so much.
FARACI: Thank you, Maria.
BARTIROMO: John Faraci is CEO at International Paper.
END
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