MeadWestvaco Reports Q1 Results: $76 Million Net Loss
Press release from the issuing company
STAMFORD, Conn., April 21 -- MeadWestvaco Corporation reported today a net loss of $76 million, or 38 cents per share in the first quarter of 2003. Results include a cumulative effect charge of 2 cents per share related to the adoption of Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations. The loss from continuing operations was $72 million, or 36 cents per share. Included in the loss from continuing operations are charges for termination benefits and asset writedowns of 5 cents per share related to facility closures, costs related to the early retirement of debt of 3 cents per share, gains on the sales of forestlands of 1 cent per share and pension income of 6 cents per share. Net sales for the first quarter were $1.69 billion.
Demand in most of the company's markets was weak during the quarter, reflecting uncertain economic conditions compounded by the war and global tensions. Revenues in the company's largest segment, Packaging, were $932 million, up compared to last year, due to higher shipments and marginally improved pricing. Last year's first quarter also reflected a weak environment, including market and maintenance-related downtime. In the first quarter of 2003, results for the Packaging segment were impacted by higher costs for wood and energy, as well as production challenges which are now largely resolved. Markets for coated papers remained challenging during the quarter, and the paper operations also experienced higher wood and energy costs. Early signs of improving demand in advertising diminished as the quarter progressed, leading to some erosion of earlier price increases. Results in the Consumer and Office Products and Specialty Chemicals segments reflected somewhat weaker demand.
"We are responding to the current economic uncertainty by reducing our planned capital expenditures from $500 million to $400 million, well below depreciation, accelerating additional cost reduction initiatives, continuing our planned synergy capture and maintaining our commitment to a strong balance sheet," said John A. Luke, Jr., chairman and chief executive officer.
During the first quarter of 2003, costs for energy, maintenance and wood were higher compared to the first three months of last year. Energy costs were $17 million higher than for the first quarter last year. Maintenance costs were $10 million higher, primarily due to the acceleration of planned activities in the coated paper operations. Wood costs were $14 million higher due to unusually wet weather and heavy snow which limited timber harvesting and transportation at several mills.
Due to the timing of the Mead and Westvaco merger, reported financial results for the first quarter of 2002 are based on three months of operations for Westvaco Corporation and two months for The Mead Corporation. In the first quarter of 2002, results from continuing operations were a loss of $56 million, or 33 cents per share, which reflects the company's U.S. containerboard business as a discontinued operation. That business was sold in the third quarter of 2002. Included in the loss from continuing operations are restructuring and merger-related charges of 20 cents per share, gains on the sales of forestlands of 5 cents per share and pension income of 11 cents per share.
In the Packaging segment, sales increased to $932 million during the first quarter of 2003 compared to pro forma sales of $845 million a year ago. Higher volume in most paperboard grades from prior year levels reflects the absence of downtime and stable demand for the company's paperboard and converted products across key end-use markets, as well as an increase in bleached board exports. Operating profit for the first quarter was $49 million compared to prior year pro forma operating profit of $32 million, and down from fourth quarter 2002 operating profit due to seasonal weakness and higher costs related to energy, wood and operating inefficiencies.
In consumer packaging, results improved compared to the prior year due to higher sales, enhanced product mix and lower costs. Sales increased from last year reflecting improvement in each key consumer packaging market served in the U.S. and Europe, including media, pharmaceutical, healthcare, cosmetics and other general consumer markets. Sales were down seasonally from the fourth quarter of 2002. The beverage packaging systems business is moving ahead with a nationwide rollout of the new FridgeMaster(TM) carton. Results for this business were favorable to last year and seasonally lower than the fourth quarter of 2002.
Rigesa, Ltda., the company's Brazilian packaging operation, recorded improved operating results compared to last year due to higher shipment volume, improved pricing and cost control.
In the Paper segment, sales were $512 million for the first quarter of 2003 compared to pro forma 2002 sales of $526 million. Compared to fourth quarter of 2002, coated paper pricing improved as a portion of last year's announced price increases was realized; however, shipments declined during the first quarter. Coated paper pricing was down from first quarter 2002, but shipments were in line with prior year levels.
The Paper segment reported an operating loss of $16 million, compared to a 2002 pro forma loss of $18 million. Higher costs, including for energy and wood, accelerated planned maintenance and weaker product mix offset the benefits of synergy savings achieved during the quarter.
In the Consumer and Office Products segment, sales were $168 million compared to pro forma 2002 sales of $177 million. The first quarter is typically a slow period for this segment as the company builds inventory for seasonally stronger sales of office, school and calendar products later in the year. The Consumer and Office Products segment reported a loss of $4 million compared to a pro forma 2002 profit of $3 million principally due to lower sales and higher manufacturing costs.
In the Specialty Chemicals segment, sales were $82 million for the first quarter of 2003 compared to 2002 sales of $77 million. Sales were higher than the prior year for carbon products, asphalt and dye dispersants. Segment operating profit for the first quarter was $8 million compared to an operating profit of $13 million last year. Higher costs, including energy, and a weaker mix impacted profitability.
"As we begin the second quarter, demand continues to be weak. While we expect future quarters to benefit from seasonal strength, our commitment is to take actions to improve earnings," said Mr. Luke. "During the quarter, we realized $82 million in synergies and are on track to achieve our goal of $360 million in savings this year. Recognizing that the benefits this quarter were offset by higher costs, we are committed to additional cost reduction initiatives while focusing on strategies to enhance the earning power of our business platforms."
MeadWestvaco will broadcast its first quarter analyst conference call today at 10:00 a.m. (EDT) with access available via the Internet and telephone. Investors may participate in the live conference call by dialing 800 593 0644 (toll-free domestic) or 1 484 630 9957 (international). Passcode: MeadWestvaco. Please call to register at least 10 minutes before the conference call begins.
The live conference call and presentation slides may be accessed on MeadWestvaco's website at http://www.meadwestvaco.com/invest/presentations.html. After connecting to this page, look for a link with instructions to access the webcast in listen and view mode. Please go to the website at least one hour prior to the call to register, download and install any necessary audio software. The webcast will be available for replay starting at noon on April 21, 2003, and will be archived for one month.
A replay of the call will be available for one month via the telephone starting at noon on April 21, 2003, and can be accessed at 888 397 5639 (toll-free domestic) or 1 402 998 1279 (international).
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