STAMFORD, Conn., Oct. 27 -- MeadWestvaco Corporation today reported third quarter 2004 earnings of $105 million, or 52 cents per share, on sales of $2.1 billion. For the third quarter of 2003, the company reported net earnings of $27 million, or 14 cents per share, on sales of $2 billion.
MeadWestvaco's improved performance was driven by continued progress on the company's productivity initiative to increase earnings and cash flow as well as strong market demand and higher selling prices for coated paper and bleached paperboard. MeadWestvaco's operations continued to generate significant positive cash flow.
"Our third quarter performance and the direction of our business are both strongly positive," said John A. Luke, Jr., chairman and chief executive officer. "These results stem not only from our success in the marketplace, but also from our efforts to improve our cost structure, increase cash flow and smartly manage our assets. This has enabled us to fund profitable growth and reward shareholders with a strong dividend."
Quarterly Net Income Comparison
MeadWestvaco's third quarter 2004 net earnings included pre-tax restructuring charges related to the company's productivity initiative of $48 million, or 16 cents per share. Earnings also included pre-tax gains of $71 million, or 22 cents per share, from the sale of approximately 89,000 acres of forestland generating gross proceeds of $117 million.
Results for the third quarter 2003 included pre-tax gains of $30 million, or 9 cents per share, on the sale of forestlands, in addition to pre-tax charges of $18 million, or 5 cents per share, related to the early retirement of debt and $6 million, or 2 cents per share, for restructuring activity in the company.
The company expects its markets to remain firm in the fourth quarter of 2004, with continued price realization in coated paper and paperboard. At the same time, it expects earnings in its paper and packaging segments to be affected by a normal seasonal slowdown in the fourth quarter. The company also anticipates higher scheduled maintenance costs than in the third quarter, along with higher costs for energy and some raw materials.
Through its ongoing productivity initiative, the company enhanced its operating earnings by approximately $40 million compared to the third quarter last year. 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. It also excludes the effects of acquisitions and divestitures. The company continued its year-over-year improvement in cash flow from operations through more disciplined management of working capital, including inventory, receivables and payables. Cash flow from operating activities for the first nine months of 2004 was approximately $580 million, compared to $163 million for the same period in 2003.
In Packaging, the company's largest business segment, operating profit increased to $135 million in the third quarter versus $72 million in the third quarter of 2003 and $113 million in the second quarter of 2004. Sales rose 9% to $1.1 billion from the third quarter of 2003, remaining even with the second quarter of 2004.
The improvement in the segment operating profit compared to the third quarter of 2003 was driven by stronger shipments, higher selling prices and better product mix for most grades of paperboard as well as by more efficient mill performance. Segment results also benefited from growth and productivity in the company's converted packaging businesses. Within consumer packaging, sales improved in media packaging products in both the North American and European markets, and in packaging for essentials and luxury products in European markets. In the packaging systems business, results improved on improved productivity in converting operations, the contribution from the company's recent packaging acquisition in France and the favorable impact of currency exchange rates.
The Papers segment recorded profit of $36 million, significantly higher than the $19 million in the third quarter last year. The $19 million profit reported third quarter of 2003 included an $8 million contribution from the company's ownership in a panelboard facility that was sold during the first quarter of 2004. Segment profit turned positive after an operating loss of $25 million in the second quarter of 2004, when the division conducted much of its annual, scheduled maintenance. Segment sales were $616 million versus $571 million in the third quarter of 2003 and $583 million in the second quarter of 2004.
These improved results were driven by higher selling prices and strong shipment levels for coated paper, from both production and inventory, and improved mill operating efficiency which more than offset the effects of higher costs in the quarter for energy, wood, freight and petroleum-based raw materials. Results were also stronger in MeadWestvaco's specialty papers business.
Consumer and Office Products
In the Consumer and Office Products segment, quarterly operating profit was $39 million versus $48 million in the third quarter last year and $50 million in the second quarter of 2004. Segment sales totaled $315 million, compared with $323 million in last year's third quarter and $302 million in the second quarter of 2004.
The decline in third quarter profit reflected sales weakness in the back- to-school selling season, especially in commodity-based paper products, as well as higher costs for paper and freight. The decline was partly offset by the contribution from recent acquisitions, including DayRunner and Tilibra S.A. Produtos de Papelaria, the Brazilian-based producer of consumer and office products.
Third quarter operating profit for the Specialty Chemicals segment was $16 million, unchanged from the prior year and down from $20 million in the second quarter of 2004. Segment sales increased to $105 million from $93 million the prior year, down from $107 million in the second quarter of 2004. The impact of higher sales in the markets for automotive carbon and asphalt emulsifier products was offset by higher costs, including costs for raw materials, energy and selling and other items.
Costs for wood and energy in the third quarter increased about $21 million from the prior year and increased from the previous quarter. Cost of outbound freight, driven primarily by higher oil prices, increased $10 million over the third quarter of 2003 and was slightly lower than the second quarter of 2004.
MeadWestvaco paid a regular quarterly dividend of 23 cents per share during the quarter, and declared a quarterly dividend payable December 1, 2004, to shareholders of record on November 5, 2004.
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