ATLANTA, Oct. 28 -- Georgia-Pacific Corp. today reported third quarter 2004 income from continuing operations of $239 million (91 cents diluted earnings per share) compared with income from continuing operations of $184 million (73 cents diluted earnings per share) in third quarter 2003.
Third quarter 2004 net income before unusual items was $235 million (89 cents diluted earnings per share). Unusual items totaled $5 million before income taxes (2 cents diluted earnings per share) and included gains from facility sales and working capital settlements from earlier divestitures, offset in part by severance and other restructuring costs across several business units.
This quarter's results include a pretax charge of $24 million ($15 million after tax or 6 cents diluted loss per share) for the expensing of stock-based compensation.
Third quarter 2003 net income before unusual items was $158 million (63 cents diluted earnings per share). Unusual items included a pretax credit of $118 million ($74 million after tax or 29 cents diluted earnings per share) to increase the estimated amount that Georgia-Pacific will recover from its asbestos liability insurance, a pretax charge of $21 million ($13 million after tax or 5 cents diluted loss per share) for costs to settle a class action antitrust suit involving containerboard, and a pretax charge of $44 million ($27 million after tax or 11 cents diluted loss per share) primarily for asset impairments, facility closures and employee severance costs.
"Our third quarter results demonstrate the continuing success of our business strategy to focus on profitability and product improvement, especially in our consumer products business," said A.D. "Pete" Correll, Georgia-Pacific chairman and chief executive officer. "Price increases were implemented in our tissue, packaging and paper businesses, while our building products business remained strong in its peak season. We benefited from the operating efficiencies and cost reductions we have implemented across our businesses, which helped offset inflation in raw materials and energy costs."
Georgia-Pacific's net sales were $4.7 billion for third quarter 2004, versus $5.1 billion in third quarter 2003. Net sales for the third quarter 2003 include sales of our building products distribution unit, which was sold in May of this year. Adjusting for the sale of the building products distribution business, net sales increased 12 percent in the third quarter compared to the same quarter one year ago. Net sales for 2004 and 2003 exclude results from the non-integrated pulp facilities, which have been sold and are reported as discontinued operations in all periods.
Proceeds from third quarter 2004 operating cash flow and asset sales were used to reduce debt by approximately $325 million. Net debt was $8.9 billion at the end of the quarter.
"We are continuing to achieve our financial goals of reducing debt and restoring our ratios to solid, investment-grade levels," Correll said.
For the first nine months of 2004, Georgia-Pacific reported income from continuing operations of $611 million ($2.33 diluted earnings per share), compared with $187 million (75 cents diluted earnings per share) in the same period of 2003. Both periods exclude results of the discontinued pulp operations.
The company reported net income before unusual items of $637 million ($2.42 diluted earnings per share) for the first nine months of 2004, compared with $216 million (86 cents diluted earnings per share) in the same period of 2003. Net sales for this year's first nine months were $15.2 billion, compared with $14.4 billion in the same period a year ago. Net sales include sales of our building products distribution business for all of 2003 and the first four months of 2004. Adjusting for the sale of the distribution business, net sales for the year increased 13 percent versus the same period a year ago.
North America Consumer Products
The North America consumer products segment includes the company's retail and away-from-home tissue businesses. Familiar consumer tissue brands include Quilted Northern, Angel Soft, Brawny, Sparkle, Soft 'n Gentle, Mardi Gras, So-Dri, Green Forest and Vanity Fair, as well as the Dixie brand of disposable cups, plates, containers and cutlery.
The segment recorded third quarter 2004 operating profit of $206 million versus $164 million in the third quarter 2003. Included in the third quarter 2004 results were pretax charges of $6 million primarily for severance and equipment relocation expenses in the Dixie business.
"We've proven the success of our strategy. Our announced retail price increases were realized during the quarter, leading to a 26 percent increase in profits versus this time last year," Correll said. "Manufacturing cost reductions contributed to the improved results and helped offset increases in distribution, raw materials and energy costs.
"Our away-from-home tissue shipment volumes were up versus the second quarter 2004 as well as third quarter a year ago. Prices are up compared with the second quarter and have recovered to near third quarter 2003 levels. We will continue our focus on achieving announced price increases in this business as we did in our retail business," Correll said. "We are really encouraged about the improved performance of our consumer products business overall."
International Consumer Products
The international consumer products segment markets both retail and away- from-home products such as bathroom and facial tissue, handkerchiefs and paper towels, as well as tabletop products for foodservice in Europe and other locations. Market-leading brands include Lotus, Moltonel, Colhogar, Tenderly and Delica.
The segment recorded a third quarter 2004 operating profit of $39 million, compared with $41 million during the same quarter a year ago. The segment's 2004 results this quarter include unusual items of $5 million for severance, equipment relocation and a loss on a fire at the Ivanteevka facility in Russia.
Changes in the currency exchange rate between the U.S. dollar and the Euro since the third quarter 2003 benefited this year's third quarter results by approximately $4 million.
"The third quarter again proved the strength of the Lotus and Colhogar brands in Europe, which held market share in the face of fierce competition. Significant cost reductions in our international business contributed to solid results despite continuing competitive pressures," Correll said.
Georgia-Pacific's packaging segment includes four containerboard manufacturing facilities and 57 converting operations. Its Color-Box subsidiary is the leading litho-laminated corrugated manufacturer in North America.
The segment recorded an operating profit of $100 million in the third quarter 2004, compared with $77 million in the third quarter 2003.
"Packaging profits are up nearly 30 percent versus a year ago following price increases, despite higher prices for energy and secondary fiber. From second to third quarter, our business realized a 6 percent price improvement on corrugated packaging," Correll said. "Corrugated box demand rose for the 12th straight month in September. Georgia-Pacific continues to outgrow the industry with year-to-date box shipments increasing 4.4 percent, versus the industry average of 3.6 percent."
Bleached Pulp and Paper
The bleached pulp and paper segment is comprised of the company's bleached board, kraft and communication papers businesses, as well as its former non- integrated pulp operations, and its 40 percent minority ownership in Unisource.
The segment recorded a third quarter 2004 operating profit of $20 million, compared with an operating profit of $4 million in the third quarter 2003. The most recent quarterly results include a $2 million reduction in the gain realized on the second quarter 2004 sale of the company's interest in Aracruz Celulose S.A.
"This segment's profits increased approximately four times over 2003 results. Paper prices are up versus the second quarter 2004, as well as the third quarter a year ago, while volumes were flat due to the closure of a paper machine at Camas, Wash., earlier this year," Correll said. "Lower manufacturing costs contributed to increased profitability."
Building Products Manufacturing
The building products manufacturing segment includes the company's structural panels, gypsum, lumber, industrial wood products and chemical manufacturing businesses.
The segment recorded third quarter 2004 operating profit of $282 million versus $156 million in the third quarter 2003, an increase of 81 percent. The 2004 results include unusual items totaling $3 million. These are primarily a pretax gain on the sale of three hardwood lumber mills, offset in part by asset impairment and severance costs. The 2003 results include a pretax charge of $20 million primarily for severance costs from previously announced facility closures.
The structural panels business reported an increase in operating profits over the same quarter last year. Oriented strand board and plywood panel prices spiked in July and finished the quarter at 6 and 11 percent higher, respectively, compared with the third quarter 2003. Overall plywood shipments were about equal with last year, even though significant supplies of plywood were diverted to Florida and the Gulf Coast during the quarter in response to regional demand from multiple hurricanes.
Lumber profits nearly tripled versus the same period a year ago. Particleboard prices were up 33 percent over the same quarter last year while gypsum prices were up 21 percent. Dens gypsum products accounted for more than a third of gypsum sales.
"Our building products business recorded another outstanding quarter. However, structural panel prices began to fall dramatically this month and have reached new low levels for the year," Correll said. "Housing starts remain at historically high levels, and there are emerging signs that commercial construction is strengthening."
Building Products Distribution
In May, Georgia-Pacific finalized the previously announced sale of this segment to a new company owned by Cerberus Capital Management L.P., and members of the distribution business' management team. Georgia-Pacific entered into a six-year agreement with this company to continue to sell it structural panels, lumber and other building products manufactured by Georgia- Pacific.
During the third quarter 2004, Georgia-Pacific recorded a $13 million pretax unusual gain as part of a working capital settlement associated with the sale.
The company's Other segment primarily includes unallocated corporate expenses and the elimination of intersegment sales.
The segment reported third quarter 2004 expenses of $122 million compared with expenses of $13 million for the same period in 2003. Third quarter 2003 results included a pretax credit of $118 million for the increase in asbestos liability insurance receivables, a pretax charge of $21 million for costs to settle a class action antitrust suit involving containerboard, and a pretax charge of $12 million for pension settlement costs.
Included in third quarter 2004 results were a $24 million pretax charge for stock-based compensation expenses (versus an $11 million charge a year ago), as well as higher variable compensation expenses related to the company's improved financial performance and net foreign currency transaction losses associated with foreign borrowings.
Discontinued operations in the third quarter 2004 recorded a gain of $2 million on the May 7 sale of the non-integrated pulp mills. For the third quarter 2003 those same discontinued pulp operations reported operating income of $10 million. Amounts in both periods are net of taxes.
"Overall, our businesses executed our strategy and produced excellent results this quarter. An outstanding performance in our building products segment in its peak season and a strong rally in our North America consumer products business, combined with price increases, cost reductions and improved operating efficiencies across the company, made this quarter exceptional," Correll concluded.
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