MeadWestvaco Reports Improved Q2 Earnings of $48 Million
Press release from the issuing company
STAMFORD, Conn., July 27 -- MeadWestvaco Corporation today reported second quarter 2004 earnings of $48 million, or 24 cents per share, on sales of $2.1 billion. For the second quarter of 2003, the company reported a net loss of $7 million, or 4 cents per share, on sales of $1.9 billion, and for the first quarter 2004, a net loss of $2 million, or 1 cent per share, on sales of $1.8 billion.
Revenue and earnings were driven by productivity improvements, including stronger mill performance and effective cost control, as well as improved market demand. Cash flow improved in the first half of 2004 through disciplined working capital management. The company's operations generated positive cash flow in the first half of the year, allowing the company to fund its operations and seasonal working capital needs internally. Recently announced price increases for bleached paperboard and coated paper are expected to affect results beginning in the third quarter.
"Our second quarter performance demonstrates the earnings power of our platform and the efforts we have taken since the merger to realize our return potential," said John A. Luke, Jr., chairman and chief executive officer. "Our ongoing productivity initiatives are reducing our operating costs and enhancing our product mix.
"We are witnessing encouraging demand trends, with growing backlogs and improving prices in many of our businesses," Mr. Luke added. "As these trends gain momentum and MeadWestvaco continues to improve both productivity and market share, we expect to deliver the strong returns envisioned when Mead and Westvaco merged."
Quarterly Net Income Comparison
MeadWestvaco's second quarter 2004 net earnings included pretax restructuring charges related to the company's productivity initiative of $6 million, or 2 cents per share. Earnings also included a pretax gain of $22 million, or 7 cents per share, from the sale of approximately 16,000 acres of forestland on gross proceeds of $25 million.
For the second quarter 2003, the net loss of 4 cents per share included pretax charges of $29 million, or 9 cents per share, for asset writedowns, facility closures and employee termination benefits, and pretax gains on the sale of forestlands of $36 million, or 11 cents per share.
Through its productivity initiative, the company enhanced its operating earnings by approximately $60 million compared to the second quarter of 2003. This productivity measure is net of cost inflation and does not include the impact, positive or negative, of changes in selling prices in the mill-based paper and paperboard businesses.
The company improved its cash flow from operations through better use of working capital, including inventory and receivables. For the first six months of the year, cash flow from operations was a source of cash, compared to the same period last year when cash flow from operations was a use of cash. This improvement enabled the company to fund its operations and seasonal working capital needs internally without relying on short-term borrowings.
Signs of market recovery are visible in many of the company's markets, and order backlogs are expected to continue to strengthen, especially in coated paper and bleached paperboard. Price increases announced for these and other grades of paper and paperboard are expected to contribute to improved results during the second half of the year. Results for the third quarter are expected to continue to be impacted negatively by higher than normal costs for wood and energy. Freight charges for the remainder of the year are anticipated to be higher than prior year.
In Packaging, the company's largest business segment, both revenue and operating profit improved versus the year-ago and previous quarters. Operating profit for the second quarter was $113 million, up from $93 million in the second quarter of 2003 and $65 million in the first quarter of 2004. Packaging sales were $1.1 billion in the second quarter of 2004, compared with $1 billion in both the second quarter of 2003 and the first quarter of 2004.
The improvement over the prior year's quarter was driven by stronger shipments and higher average selling prices in certain grades of bleached paperboard, as well as better operating performance at most mills. The coated board business also benefited from strong shipments and continued cost management. In the packaging systems business, sales and profits increased over the second quarter last year and were seasonally stronger than in the first quarter. Results from the company's consumer packaging business increased substantially over the prior year's second quarter, due to higher demand for music and DVD packaging and continued strong demand for higher value solutions for cosmetic and compliance packaging.
The Papers segment recorded a quarterly operating loss of $25 million, a significant improvement compared to the prior year's operating loss of $42 million and the prior quarter's operating loss of $32 million. Segment sales were $583 million, compared to sales of $489 million in the second quarter of 2003 and $556 million in the first quarter 2004.
Sales revenue improved in the Papers segment, reflecting both increased demand and gains in market share resulting in much higher shipments of coated paper. The operating loss for the quarter was lower than the same period of the prior year, with higher shipments, better operating efficiency and lower costs helping to offset the effect of weaker average selling prices. Compared to the first quarter of 2004, operations were stronger due to improved productivity, despite costs associated with scheduled maintenance performed during the second quarter.
Consumer and Office Products
In the Consumer and Office Products segment, second quarter operating profit was $50 million, up slightly from the prior year second quarter profit of $49 million and showing seasonal improvement from the first quarter 2004 loss of $2 million. Segment sales were $302 million compared to prior year second quarter sales of $303 million and first quarter 2004 sales of $170 million.
Operating profit in the segment reflected growth from focused acquisitions in decorative calendars and branded time management products completed in the prior year. Improved product sales mix offset higher operating costs and continuing competition in commodity products. Shipments to retailers for the back-to-school season were good in the quarter, especially for the company's premium brands of notebooks and accessories.
Second quarter operating profit for the Specialty Chemicals segment was $20 million, double the $10 million profit in the prior year second quarter and the first quarter 2004. Segment sales for the second quarter were $107 million, compared to prior year revenue of $85 million and first quarter 2004 revenue of $89 million. The increase in operating profit from the prior year reflects the sales growth in activated carbon products for automotive emission and in specialty performance chemicals used in asphalt paving applications. In addition, strong demand in industrial markets contributed positively to results.
Costs for wood and energy for the quarter increased approximately $7 million from the prior year and were approximately $13 million lower than the first quarter 2004. The company recorded pension income before settlements and curtailments of $18 million in the quarter, the same as recorded in the second quarter 2003. Full year 2004 pension income before settlements and curtailments is expected to be approximately $73 million in 2004, a slightly higher level than in 2003.
MeadWestvaco paid a regular quarterly dividend of 23 cents per share for the quarter, and declared a quarterly dividend payable September 1, 2004, to shareholders of record on August 6, 2004.
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