Mead Reports 3Q Results, Paper Segment Reports Operating Loss
Press release from the issuing company
DAYTON, Ohio, Oct. 17 - The Mead Corporation today announced third quarter 2001 net earnings of $19.2 million or 19 cents per share, declining from $59.8 million or 59 cents per share in the same period in 2000. Excluding the impact of special items, third quarter 2001 earnings were $20.9 million or 21 cents per share versus $63.9 million or 63 cents per share for the prior year. Special items impacting earnings for the third quarter 2001 include a gain on the sale of a unit of Mead Consumer & Office Products offset by charges related to the closure of a Consumer & Office Products facility in Atlanta, Georgia, and costs associated with the proposed merger with Westvaco Corporation. Special items in the third quarter of 2000 included charges related to the closure of Mead facilities in Kalamazoo, Michigan, and Atlanta, Georgia. Net sales for the third quarter of 2001 were $1.15 billion declining from $1.22 billion in 2000.
The slowing economy and lower prices for Mead's commodity-based businesses -- coated paper and corrugating medium -- led to the company's earnings decline. "We continue to face challenging economic conditions, which have negatively affected demand for our commodity-based products. Our value-added businesses in consumer and office products and coated board systems continued to perform well,'' said Jerry Tatar, Mead chairman, president and chief executive officer. "The realities of the marketplace continue to affect the company's results. To remain competitive and meet the present challenges, we must adapt to these conditions aggressively utilizing our strong customer relationships, solid cost structures and technological skills.''
During the third quarter of 2001, Mead announced its intention to merge with Westvaco. The new company, which will be called MeadWestvaco Corporation, will be a merger of equals and create a global company with leading positions in packaging, coated and specialty papers, consumer and office products, and specialty chemicals.
"MeadWestvaco will be a leading company in our industry, uniquely positioned with strong global platforms in targeted markets and the potential to generate superior financial returns,'' said Tatar. "We are excited about the proposed merger, and excellent progress is being made to complete the transaction. In pursuing our global growth strategies, this new enterprisewill maintain a commitment to disciplined productivity improvement and capital spending while nurturing strong customer relationships.''
The Paper segment had an operating loss of $11.7 million in the third quarter of 2001 compared to operating earnings of $54.0 million in the third quarter of 2000. Sales were $445.8 million versus $509.9 million in the same period a year ago. The declines in the segment's sales and earnings were due to lower prices for carbonless paper and lower prices and volume for coated paper, reflecting weaker demand and the impact of high levels of imports. The Paper segment was also affected by higher costs due to poor operations and 10,000 tons of market-related downtime.
In Mead's specialty paper businesses, results were below the third quarter of 2000, reflecting weaker markets for their products in North America and Europe.
Packaging & Paperboard
The Packaging & Paperboard segment's third quarter 2001 operating earnings declined to $38.5 million compared to $52.6 million in the same period in 2000. Sales for the segment decreased to $388.7 million in the third quarter of 2001 versus $413.9 million in the prior year third quarter.
The segment's results were affected by lower prices and weaker mix for corrugating medium, and lower shipments of containers.
Mead's Coated Board System business, which includes the Packaging and Coated Board divisions, had slightly higher sales volume for beverage packaging in the third quarter of 2001 versus a year ago. Pricing remained relatively stable during the quarter despite the pressure of weak market conditions. Lower prices and demand for Mead's solid wood products businessaffected the segment's earnings.
Consumer & Office Products
The Consumer & Office Products segment had improved sales and operating earnings in the third quarter of 2001 compared to the same period in 2000. The segment had earnings of $43.0 million in the third quarter of 2001, up from $27.5 million in the same period in 2000. Of the $15.5 million difference, approximately $6 million was attributable to special items reported in the third quarters of 2000 and 2001. The increase was also a result of higher operating efficiencies achieved through the consolidation of converting facilities, the sale of several non-strategic business units, and the realignment of the organization.
Sales were $310.7 million in the third quarter of 2001 versus $294.4 million in the same period a year ago primarily due to the purchase of selected assets earlier this year.
Mead's share of investees' earnings was $1.9 million in the third quarter of 2001, essentially unchanged for the same period the previous year.
Mead expects the weak economy to continue to affect earnings across the company's commodity-related businesses. Among Mead's businesses, containerboard and coated paper are primarily expected to reflect the impact of these weaker market conditions in the form of lower prices or sales volume versus a year ago. In response to market conditions and to better manage its inventory, Mead plans to continue to take market-related downtime of approximately 70,000 tons of coated paper and 15,000 tons of corrugating medium in the fourth quarter of 2001. Mead's specialty paper businesses are also expected to take market-related downtime during the fourth quarter.
During the third quarter, Mead announced that the Gilbert Paper Company business and selected assets will be acquired by Fox River Paper Company. The sale and related mill closure will result in Mead taking a pretax charge of approximately $24 million at the time the transaction is completed. The sale is expected to close before the end of 2001. Mead expects the transaction to have a positive effect on earnings after allowing for the impact of the charge.
Mead continues to believe the proposed merger with Westvaco will close late in the fourth quarter of 2001.
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