MeadWestvaco 2nd-quarter profit jumps 75 percent
Friday, July 25, 2008
Press release from the issuing companyRICHMOND, VA – July 24, 2008 – MeadWestvaco Corporation today reported second quarter 2008 income from continuing operations of $58 million, or $0.34 per share. Included in the results from continuing operations are after-tax restructuring charges of $6 million, or $0.03 per share, primarily related to employee separation costs and facility closures, and an after-tax gain of $9 million, or $0.05 per share, related to a sale of corporate real estate. Sales from continuing operations increased 8 percent to $1.71 billion in the second quarter of 2008 compared to sales from continuing operations of $1.58 billion in the second quarter of 2007.
MWV generated solid top-line growth driven by price increases, sales in emerging markets and growth in its global packaging businesses. Margins, however, were adversely impacted by rapid input cost escalation during the quarter. Pre-tax costs for energy, raw materials and freight increased $64 million versus the year-ago quarter.
“MWV's strong sales performance and commercial momentum in our global packaging markets included aggressive actions to combat unprecedented input cost inflation during the second quarter," said John A. Luke, Jr., chairman and chief executive officer. “While we continue to address cost challenges by going after price increases in the marketplace, we are also pressing ahead with our profitable growth strategy – including a focus on innovative solutions, growth in emerging markets and relentless productivity improvement. The overall progress of our global packaging business demonstrates that these strategies are working, and are helping us continue to build a sustainable competitive advantage in the global marketplace.”
In the second quarter of 2007, MWV reported income from continuing operations of $28 million, or $0.15 per share. Included in the results from continuing operations were after-tax restructuring charges of $5 million, or $0.03 per share, primarily related to employee separation costs and facility closures, and after-tax one-time costs of $5 million, or $0.03 per share, related to the company’s cost initiative.
On July 1, 2008, MWV completed the sale of its North Charleston, S.C., kraft paper mill and related assets to KapStone Paper and Packaging Corporation for $485 million, subject to certain post-closing adjustments. For the current and prior year reporting periods, the company is reporting the results of the North Charleston mill and related assets as discontinued operations. The results of the North Charleston mill were previously included in the Packaging Resources segment. Results from discontinued operations were an after-tax loss of $2 million, or $0.01 per share, in the second quarter of 2008 compared to after-tax income of $4 million, or $0.02 per share, in the second quarter of 2007.
In the Packaging Resources business, segment profit from continuing operations was $54 million in the second quarter of 2008 compared to $81 million in the second quarter of 2007. Sales from continuing operations increased 5 percent to $674 million in the second quarter of 2008 compared to $642 million in the second quarter of 2007. Improved pricing and mix was more than offset by higher costs for energy, wood, raw materials and freight of $37 million and by higher maintenance-related expenses of $10 million versus the year-ago quarter. Year-over-year, bleached board shipments increased 2 percent driven by liquid packaging and export markets. Bleached board pricing increased 5 percent in the second quarter of 2008. Year-over-year, coated unbleached kraft (CNK®) pricing increased 3 percent, but shipments declined 2 percent due to longer than expected maintenance downtime at the company’s Mahrt mill. Rigesa, the company’s Brazilian operation, posted strong quarterly sales and earnings growth, reflecting continued solid demand for value-added corrugated packaging solutions in the domestic Brazilian market and the impact from favorable foreign exchange. The Packaging Resources business continues to take pricing actions across its entire volume to combat the unprecedented cost inflation that has negatively impacted margins. In addition, the segment is implementing a new freight policy to limit its exposure to the rising cost of fuel on outbound shipments.
In the Consumer Solutions business, segment profit was $22 million in the second quarter of 2008 compared to $24 million in the second quarter of 2007. Sales increased 10 percent to $656 million in the second quarter of 2008 compared to $595 million in the second quarter of 2007. The segment delivered revenue growth across all lines of business. Growth was particularly strong in beverage, tobacco, personal care and healthcare markets outside North America. The segment also generated improved media packaging results that were driven by strong gains in higher margin video games packaging and productivity improvement. These positive developments were more than offset by higher costs for energy, raw materials and freight. During the quarter, the company continued to consolidate its converting footprint without reducing capacity, resulting in the planned closure of its Warrington, Pa. facility.
In the second quarter, the company purchased assets of Oracle Packaging in North Carolina. This acquisition will strengthen the company’s leading position in North American beverage packaging by adding new business from Coors, Pepsi and Diageo.
In the third quarter, the company jointly acquired pharmaceutical packaging company International Labs of St. Petersburg, Fla. with India-based Bilcare Ltd. The transaction enhances MWV’s ability to provide its innovative Shellpak® compliance packaging solution to leading retailers for their low-cost branded and generic drug programs. The joint acquisition will streamline the supply chain by eliminating several steps in the distribution channel, and will also provide MWV with additional scale and health care packaging capabilities.
Consumer & Office Products
In the Consumer & Office Products business, segment profit increased 13 percent to $27 million in the second quarter of 2008 compared to $24 million in the second quarter of 2007. Sales in the second quarter of 2008 were $270 million compared to $267 million in the second quarter of 2007. Sales increased modestly due to the company’s continued focus on higher value proprietary products. Segment profit growth was due to benefits from an improved mix and productivity. These benefits more than offset higher costs for raw materials, principally uncoated paper. This segment continues to be impacted by Asian-based imported products.
In the Specialty Chemicals business, segment profit was $11 million in the second quarter of 2008, unchanged compared to the second quarter of 2007. Sales grew 15 percent to $146 million in the second quarter of 2008 compared to $127 million in the second quarter of 2007, driven in part by a 41 percent increase in sales from outside North America. Strong exports of performance chemicals and improved pricing was offset by higher costs for energy, raw materials and freight and by incremental costs related to refinery maintenance downtime. Lower automotive carbon sales due to the significant decline in truck sales in North America also negatively impacted segment profit. The segment is aggressively pursuing pricing actions across its entire product line to offset energy and raw materials inflation.
Corporate and Other
Corporate and Other loss was $41 million in the second quarter of 2008 compared to a loss of $98 million in the second quarter of 2007. Improvement in 2008 was due to higher operating profit from land sales generated by the Community Development and Land Management business, a gain from a sale of corporate real estate, lower overall corporate expense, and increased interest income.
Profit from land sales generated by the Community Development and Land Management business was $21 million in the second quarter of 2008 compared to $5 million in the second quarter of 2007. The company sold approximately 7,300 acres in the second quarter of 2008 at an average price per acre of about $3,300 as part of its small-tract sales strategy. The company currently has 170 tracts that it is actively marketing through multiple channels.
In the second quarter of 2008, pre-tax costs for energy, wood, raw materials and freight increased $64 million over the prior-year quarter on a continuing operations basis.
In the second quarter of 2008, the pre-tax impact from favorable foreign exchange was $3 million higher compared to the prior-year quarter on a continuing operations basis.
Cash flow provided by operations was over $150 million in the first half of 2008, compared to $191 million in the first half of 2007. The decline was principally driven by higher working capital.
Capital spending for continuing operations was $142 million in the first half of 2008 compared to $139 million in the first half of 2007.
During the second quarter of 2008, MWV completed its $400 million accelerated share repurchase program. As a result of this program, which began in November 2007, the company retired 14 million shares at an average price of $28.51 per share, representing 7.5 percent of the total shares outstanding when the program commenced.
In the second quarter of 2008, the tax provision attributable to income from continuing operations had an effective rate of approximately 20 percent. The effective rate differed from statutory rates primarily due to changes in the mix of expected income levels between the company’s domestic and foreign operation and certain discrete items. The annual effective tax rate for 2008 excluding discrete items is expected to be about 26 percent.
MWV paid a regular quarterly dividend of $0.23 during the second quarter of 2008, and on June 23, 2008, declared a quarterly dividend payable on September 2, 2008, to stockholders of record at the close of business on August 1, 2008.
In the Packaging Resources business, third quarter segment profit is expected to be similar to prior-year results. Overall demand for the company’s paperboard grades remains solid with backlogs that are at or above the prior year. However, costs for fiber, oil- based materials and freight are expected to continue to increase to historically high levels and pressure segment profits. The company is continuing to execute price increases and limit its exposure to freight-related surcharges to help offset the effects of input cost inflation. Improved productivity in the third quarter is expected to help partially offset the impact of input cost inflation.
In the Consumer Solutions business, third quarter segment profit is expected to be similar to prior-year results. Continued strength in global beverage, home and garden, and healthcare packaging, as well as improvement in global media packaging combined with ongoing pricing and productivity improvement actions are expected to be offset by continued input cost inflation.
In the Consumer & Office Products business, third quarter segment profit is expected to be lower than the prior-year results. Uncertainty in the U.S. economy could result in lower consumer product sell-through during the important back-to-school season. In addition, shipments for the planning products business may also be affected by the uncertain economy, resulting in a potential shift of shipments between the third and fourth quarters.
In the Specialty Chemicals business, third quarter segment profit is expected to be modestly above prior-year results. Continued demand for performance chemicals, higher pricing and increased productivity are expected to more than offset lower market- related demand for automotive emissions carbon and housing-related chemicals as well as higher costs for energy, raw materials and freight.
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