MeadWestvaco Announces Significantly Improved Performance in Q4
Press release from the issuing company
STAMFORD, Conn., Jan. 31 -- MeadWestvaco Corporation today reported a fourth quarter net loss of $497 million, or $2.45 per share. This net loss included a pretax charge of $708 ($546 million, or $2.69 per share, after-tax) for goodwill, asset impairment and other costs related to the pending sale of its papers business, productivity-related and other restructuring charges of $36 million pretax, or 11 cents per share, and a pretax gain on forestland sales of $30 million, or 9 cents per share.
Excluding the papers business charge, fourth quarter operating results in the company's business segments improved over last year. The operating improvement was driven by the performance of the Packaging segment, which doubled its operating profit compared to the year-ago quarter, and the Consumer and Office Products segment, which posted a more than 50% increase in operating profit compared to the fourth quarter of 2003. Sales in the fourth quarter of 2004 were $2.2 billion, 11% higher than reported in the same quarter last year.
"We delivered strong operating results in the fourth quarter as we continued to execute on our productivity initiatives, generating excellent cash flow that we used to retire approximately $500 million in debt," said John A. Luke, Jr., chairman and chief executive officer. "We are particularly pleased with the performances of our largest continuing businesses, Packaging and Consumer and Office Products.
"Clearly, the pending sale of our papers business which we expect to close in the second quarter will be a transformational event for MeadWestvaco," Mr. Luke continued. "It will make our company a more focused leader in global packaging, able to deliver stronger, more consistent financial returns with a strengthened balance sheet."
Quarter and Full-year Comparisons
(Results for 2003 included herein are restated as described in the "Other Items" section below.)
For the fourth quarter of 2003, the company reported net earnings of $72 million, or 36 cents per share, which included a pretax gain of $37 million, or 12 cents per share, from the sale of forestlands, pretax gains of $12 million, or 4 cents per share, from insurance settlements, and a charge of $15 million, or 5 cents per share, for restructuring charges.
For the full year 2004, sales increased 9% to $8.2 billion from $7.6 billion in 2003. The company reported a net loss of $347 million, or $1.72 per share, including the $546 million after-tax charge for goodwill, asset impairment and other related costs, or $2.71 per share, associated with the papers business; as well as other pretax restructuring charges of $100 million, or 33 cents per share; and pretax gains of $191 million, or 59 cents per share, from the sale of forestlands.
For the full year 2003, the company reported net income of $18 million, or 9 cents per share, which included the cumulative effect of an accounting change of $4 million, or 2 cents per share; pretax restructuring charges of $68 million, or 21 cents per share; pretax costs related to the early retirement of debt of $26 million, or 8 cents per share; and pretax gains of $12 million, or 4 cents per share, for certain insurance settlements. In addition, the company reported pretax gains of $106 million, or 33 cents per share, from the sale of forestlands.
The company expects its markets to remain firm in the first quarter of 2005, with continued price realization in paperboard and coated paper. The company expects earnings in its Packaging and Consumer and Office segments to be affected by the normal seasonal slowdown in the first quarter. In addition, it expects to see higher costs year-over-year for energy and raw materials. Due to its pending sale, the papers business will be reported as a discontinued operation beginning in the first quarter of 2005. The company expects to incur additional costs in 2005 as the divestiture of the Papers Group is completed.
For the full year 2004, the company enhanced its operating earnings through productivity initiatives by approximately $136 million in 2004 compared to 2003 results. 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 2004 was $948 million, compared with $462 million in 2003. With this improvement in cash flow, the company paid down approximately $600 million in debt in 2004.
In Packaging, the company's largest business segment, quarterly operating profits rose to $118 million, double the $59 million of the previous year. Sales rose 13% to $1.2 billion from the fourth quarter of 2003 due to increased shipments, higher prices and an improved product mix in paperboard, as well as profitable growth in consumer packaging.
Sales from the company's mill-based businesses rose from the previous year, with higher production rates from improved operating performance, and strong markets. Higher shipment volumes and selling prices offset higher costs for energy, freight and raw materials. In consumer packaging, results improved from the year earlier, with strong sales growth in the European markets for media, entertainment, tobacco and cosmetics packaging.
The Packaging segment's full year operating profit was $431 million, an increase of 57% over the $275 million reported in 2003. Sales for the full year were $4.4 billion, up 10% from $4 billion in the prior year.
The Papers segment reported an operating loss of $436 million in the fourth quarter due to the asset impairment charge of $430 million pretax related to the pending sale of the Papers Group. Segment operating results before the charge were a loss of approximately $6 million, a slight improvement over last year's fourth quarter operating loss of $7 million. Fourth quarter 2003 results included $11 million in profit from the company's now-divested panelboard business. Segment sales were $576 million, an increase from $555 million reported last year.
The improvement in operating results compared to the fourth quarter of 2003 was due primarily to higher selling prices for coated paper. Improved results in the quarter compared to prior year were largely offset by a higher level of scheduled maintenance, as well as higher costs for energy, freight and raw materials. In addition, productivity enhancements and stronger markets for decor and tape paper improved the results of the company's Specialty Papers business.
For the full year 2004, the Papers segment reported an operating loss of $457 million, compared to a $46 million loss in 2003. Segment results for the full year were affected by the charge taken in the fourth quarter related to the pending sale of the Papers Group. Papers segment sales for 2004 totaled $2.3 billion, a 10% increase over last year's sales of $2.1 billion.
Consumer and Office Products
In the Consumer and Office Products segment, quarterly operating profit was $50 million, a 52% increase over the prior year results of $33 million. Sales for the quarter were $303 million, up 16% from $261 million in the fourth quarter of 2003. The improved results reflected the contribution from the recent focused acquisition of Tilibra S.A. Produtos de Papelaria, the Brazilian-based school products business, as well as better product mix. The segment also benefited from cost savings from productivity initiatives, including the consolidation of its North American converting and distribution facilities, which offset the impact of higher raw materials costs. During the quarter, as part of its North American consolidation program, the business completed the closure of plants in Texas and Missouri and began the process of closing its facilities in Mexico.
For the full year 2004, the Consumer and Office Products segment earnings were $137 million, up 9% from $126 million in 2003. Sales in 2004 increased slightly from $1 billion in 2003.
Quarterly operating profit for the Specialty Chemicals segment was $11 million, unchanged from the prior year's fourth quarter. Segment sales totaled $110 million for the quarter, up almost 20% from $92 million in the previous year. During the fourth quarter, revenue growth in markets for automotive carbon products, asphalt emulsifiers and resins for printing inks were offset by increased costs for energy, freight, maintenance and raw materials.
For the Specialty Chemicals segment, operating profit was $57 million for the full year 2004, up 27% from the $45 million reported in 2003. Sales for the full year were $411 million, up 17% from prior year's sales of $352 million.
Costs for wood and energy in the fourth quarter increased about $31 million compared to the fourth quarter of 2003, and were $16 million over the third quarter of 2004. Cost of outbound freight, driven primarily by higher fuel prices increased $10 million over the fourth quarter of 2003 and $3 million over the third quarter of 2004.
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