ATLANTA -- A year after a $5 billion acquisition made it the world's largest paper and wood products manufacturer, the nation's home building slump has put the squeeze on Georgia-Pacific Corp.
Company Chairman T. Marshall Hahn told shareholders last month that things will get worse before they get better. "Both of our core businesses are experiencing the pressures of deteriorating economic conditions," he said.
"It's like when you get the flu, and you can't do anything about it but wait for the flu to be over," said Nelson Noel, who follows the company for Moody's Investors Service in New York.
But Noel and other analysts say Georgia-Pacific's building products business, accustomed to economic cycles, is strong enough to weather the current slump, and the company's other divisions provide a cushion for the tough times.
Top Georgia-Pacific officials refused to be interviewed for this story. Hahn, however, acknowledged the company's problems last month when G-P released its latest earnings report.
That report showed that profits from the company's building products division were down more than $100 million in 1990. In the last three months of the year, building products earnings fell to $38 million from $131 million in the fourth quarter of 1989.
Overall, Georgia-Pacific's 1990 earnings were down 44.7 percent from 1989.
In a prepared statement, Hahn blamed sagging demand and prices on the housing slump. He said plywood was about 30 percent cheaper in the fourth quarter.
The decline in the company's building products business dragged down overall earnings in the first year since G-P bought paper maker Great Northern Nekoosa Corp. in 1990.
"This company, more so than other paper and forest products companies, is very sensitive to housing starts because of the large size of its building products division," said Mary O'Neill, an analyst at Duff & Phelps in Chicago.
Fluctuations in the home construction business are a fact of life in the building products industry. When fewer houses are being built, fewer building supplies are being sold.
"The housing slump is about as bad as other recent slumps," said R. Doug Moffat, a G-P analyst at Robinson Humphrey Co. in Atlanta. "It's been longer in unfolding, but it's about the same in magnitude and the impact is about the same."
The current housing slump, which saw starts fall last year to the lowest level since the 1982 recession, came as Georgia-Pacific was trying to pare its debt from the Great Northern deal with a flurry of asset sales.
Georgia-Pacific has a number of buffers to help it through the current downturn, particularly its paper products business and building products distribution operation.
Sales and profits from the pulp and paper division, which now includes Great Northern, were up in 1990. The company's product line includes linerboard, printing and writing papers, tissues and sanitary paper.
"On the paper side of the business they're making money, plus they've picked up the paper business from Great Northern. That's an asset they didn't have before," O'Neill said.
The company's distribution of building materials, which includes G-P products as well as other brands, has prospered even during the housing slump by emphasizing home-improvement markets.
"That really sets them apart" from other building products companies, Moffat said.
"They're a major distributor of other companies' products, so they're still making money," O'Neill said.