MeadWestvaco Reports Improved Results From Packaging Operations in First Quarter 2005
Press release from the issuing company
STAMFORD, Conn., April 22 -- MeadWestvaco Corporation today reported earnings from continuing operations of $17 million, or 9 cents per share. Included in earnings from continuing operations for 2005 were after-tax gains on the sale of forestlands of $25 million, or 12 cents per share, and after-tax restructuring charges of $3 million, or 1 cent per share. In 2004, first quarter earnings from continuing operations of $26 million, or 13 cents per share, included a gain on the sale of forestlands of $40 million, or 20 cents per share, and restructuring costs of $7 million, or 4 cents per share.
Excluding the items identified above, performance in the company's continuing operations improved modestly compared to the prior year. The improvement was attributable to stronger results in the company's Packaging segment, reflecting higher selling prices for bleached and kraft paperboard, as well as better mill operating performance. However, much of the improvement was offset by the significant impact of inflation in energy, freight and raw materials.
"Our company's principal focus is on packaging, where we continue to strengthen our position," said John A. Luke, Jr., chairman and chief executive officer. "In the seasonally slower first quarter, our packaging markets remained firm, although moderately weaker than the robust levels of the first quarter of 2004.
"The sale of our printing and writing papers business, which we expect to complete during the second quarter," Mr. Luke continued, "will be a significant event for MeadWestvaco, helping us achieve greater focus and direction in our global, high-value packaging business and throughout our other core businesses. We will become a financially stronger company, and we intend to leverage both our financial strength and our market leadership to deliver higher returns as well as profitable growth for our shareholders."
MeadWestvaco's first quarter net income was $45 million, or 22 cents per share, compared to a net loss of $2 million, or 1 cent per share, in the first quarter last year. Net income for the first quarter of 2005 included earnings from the company's discontinued paper operations of $28 million, or 13 cents per share. In 2004, the first quarter net loss included a loss from discontinued paper operations of $28 million, or 14 cents per share.
In the second quarter, while the company expects demand to be seasonally stronger than it was in the first quarter, it also expects shipments to be relatively unchanged from the level of the second quarter of 2004. Pricing for mill-based products is expected to continue to improve year over year. However, costs for energy, chemicals and other raw materials are projected to be significantly higher than in the second quarter of 2004. The sale of the company's Papers business is scheduled to be completed during the second quarter with the use of proceeds to be carried out according to plans previously announced for debt repayment and common stock repurchases.
In the Packaging business, the company's largest segment, sales increased 4% to $1.06 billion from $1.01 billion in the prior year due primarily to higher selling prices for paperboard. Operating profit increased 22%, to $79 million from $65 million in the first quarter last year. The improvement was driven by more efficient mill performance and higher selling prices for paperboard. Much of the improvement was offset by the negative effect of significantly higher costs for raw materials, energy, wood and freight. Sales increased overall in converted packaging, primarily in European markets for cosmetics, tobacco and personal care. Shipments of bleached paperboard were essentially unchanged from the prior year. Sales and operating results at the company's Brazilian packaging business improved over last year.
Consumer & Office Products
In the Consumer & Office Products segment, quarterly sales of $183 million increased 8% over the prior year primarily from the Brazilian-based school products business, Tilibra S.A. Produtos de Papelaria, acquired late in 2004. Segment operating profit declined to a loss of $6 million from a loss of $2 million in the first quarter of 2004. Higher revenues and the benefits of facility rationalization were more than offset by higher raw material costs, primarily uncoated paper used in this segment's envelope, school and time management products.
Sales for the Specialty Chemicals segment rose 8% to $96 million in the first quarter compared to first quarter of 2004. Segment operating profit declined to $4 million from $10 million in the first quarter of 2004. Significantly higher costs for energy, maintenance and raw materials were only partially offset by higher selling prices. Sales increased over the prior year's first quarter for asphalt emulsifiers, ink resins and other pine chemical based products. Sales of activated carbon for automotive applications were unchanged from the prior year quarter.
Pending the sale of the company's printing and writing papers business, the results of this business are reported as discontinued operations for accounting purposes. The business operated well in the quarter. Shipments of coated paper increased over the fourth quarter of 2004 and were down slightly from the very strong levels of the first quarter last year. Selling prices for coated paper increased from the fourth quarter 2004 and were significantly higher than the levels of the first quarter last year.
From the beginning of 2004 through the end of the first quarter of 2005, the company generated a cumulative total of $530 million of productivity improvement from continuing and discontinued operations, primarily in working capital improvement, toward its two-year goal of $500 million. As part of its productivity initiative, the company recorded after-tax restructuring charges in the first quarter of 2005 of $3 million, or 1 cent per share. In the quarter, costs for raw materials and energy increased significantly over the same quarter of 2004. Specifically, costs for raw materials for the company's continuing operations increased by approximately $30 million, and total costs for energy and freight increased approximately $7 million. During the quarter, the company sold more than 11,000 acres of forestland for gross proceeds of $45 million and after-tax gains of $25 million, or 12 cents per share.
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