Locally based firm will cut 2,000 jobs

The frugal buying habits of worried consumers are translating into more job losses in the Richmond area.

Now, the industry that makes packaging for products ranging from DVDs to cosmetics is taking a hit -- and that's a bad signal for the economy at large this year, economists say.

MeadWestvaco Corp., a Fortune 500 packaging and paper-products company, announced yesterday that it would cut 2,000 jobs -- 10 percent of its worldwide work force -- by the end of the year to save money as it contends with the recession. About 800 of the cuts will come in the first quarter.

About 75 jobs of the total will be eliminated at the company's headquarters on West Broad Street in Henrico County, company spokeswoman Alison von Puschendorf said. The company has about 750 headquarters employees and nearly 2,500 workers in Virginia.

The company also plans to close or restructure 12 to 14 of its 53 manufacturing plants worldwide, including the already announced Grover, N.C., facility; in Drunen and Uden, Netherlands; and job reductions at its Sidney, N.Y., consumerand office-products plant.

In Virginia, MeadWestvaco has a paper mill in Covington that employs 1,371 people; a folding-carton plant in Louisa County that employs about 170 people; and a paper-converting plant in Low Moor, near Covington, with about 180 employees. The company provided no information about whether job cuts or plant changes would affect those operations.

MeadWestvaco said the reductions are part of a longer-term strategic plan to reduce costs and improve profitability, but the company is accelerating those plans because of economic conditions.

"We have been taking aggressive steps over the past several months to help ensure we perform in today's uncertain environment and are poised to take advantage of the stronger, more stable periods that are sure to come," John A. Luke Jr., the company's chairman and chief executive officer, said in a statement.

Economists long have watched packaging companies for early signals about where the economy is headed.

"Obviously ours is an industry that is closely linked to the health of the economy at large," said Scott Milburn, communications director for the American Forest and Paper Association, a trade group.

"Paper products are closely linked to consumer spending. Almost everything you buy comes in a box."

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But consumers worried about keeping their jobs and falling stock portfolios have cut back on spending. Sales at U.S. retailers fell 2.7 percent in December, the government reported Wednesday.

Christine Chmura, president of Chmura Economics & Analytics, a Richmond-based economic forecasting firm, said paper and packaging companies usually are among the first to cut back when the economy slows, and the first to hire when things start looking up.

"It's like how some people have a wrapping-paper index around Christmas," she said. "If that's up, Christmas sales should be, too."

Other factors such as high costs for raw materials have hurt packaging companies. Higher energy and freight costs hit MeadWestvaco in 2008, squeezing profit margins for its two big lines of business -- the paper and cardboard used in packaging as well as plastic packaging for a range of consumer products, according to the company's filings with the Securities and Exchange Commission.

Demand for plastic packaging for beverages and personal-care items such as cosmetics, both major lines of business, also weakened late last year. So, too, did demand for paper and office products, as businesses moved to trim costs.

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The cutbacks don't change MeadWestvaco's plans to move its headquarters next year from a leased office in Henrico to an office under construction in downtown Richmond. MeadWestvaco is planning to lease the building from NewMarket Corp., which is developing the site.

"We remain committed to moving downtown, and we're looking forward to being a part of the Richmond community," von Puschendorf said.

But with the reductions announced yesterday, MeadWestvaco is considering subleasing two floors in its present nine-story building.

The company said it expects to save about $250 million to $300 million by mid-2010 through cost reductions, with $125 million in savings in 2009, including $100 million in overhead expenses and $25 million through plant closings or restructurings.

At the Covington and Low Moor plants yesterday, union officers said they had not heard from the company about any job cuts among hourly staff.

"We realize it is a serious situation," said Bobby Harrison, president of the United Steelworkers Local 8-675, which represents about 970 hourly employees at the Covington plant. "We feel like this facility is a top producer, and we make a good product."

Any employment losses at the Covington plant would have a significant impact on the city of 6,000, said John Hull, regional economic-resources planner for the Roanoke Valley-Alleghany Regional Planning Commission.

The MeadWestvaco plant is one of the five biggest employers in the four-county district, employing many of Covington's labor force of 2,758 workers.

The city, which had an unemployment rate of 7.4 percent in November, has suffered a series of economic setbacks, including the loss of 220 jobs at the Lear Corp. plant in 2006 and the loss of 126 jobs when the Applied Extrusion Technologies plant shut down last year.

"Covington's unemployment rate has been tracking a percentage point above the national average for a year and a half now," Hull said.

Contact John Reid Blackwell at (804) 775-8123 or .

Contact David Ress at (804) 649-6051 or .

Staff writers Joe Macenka and Rex Bowman contributed to this report.