Georgia-Pacific Reports Strong First Quarter Results
Press release from the issuing company
ATLANTA, April 28 -- Georgia-Pacific Corp. today reported first quarter 2005 net income of $205 million (78 cents diluted earnings per share) compared with net income of $147 million (57 cents diluted earnings per share) in first quarter 2004.
"Our first quarter results reflect a solid earnings performance. Our North American consumer products business delivered significantly improved performance. The building products business was strong, despite comparison to last year's record first quarter," said A.D. "Pete" Correll, Georgia-Pacific's chairman and chief executive officer. "Our packaging business performed well compared to more robust conditions a year ago, and our paper business was profitable for the quarter.
"Overall, prices remained strong across all North American businesses, as increases we announced in 2004 continued to be implemented. Structural panels prices, while still historically high, were down compared to a year ago, but this was offset somewhat by higher prices in all other building products businesses. Higher manufacturing costs across the company in energy, fiber and chemicals counterbalanced some of the gains from the improved prices," Correll said.
First quarter 2005 net income before unusual items was $204 million (78 cents diluted earnings per share). Unusual items included:
- A $24 million credit ($15 million after tax, or 6 cents diluted earnings per share) due to an accounting correction to reverse prior insurance charges,
- An $11 million charge ($7 million after tax, or 3 cents diluted loss per share) related to a loss on a leased warehouse, which was vacated by Unisource in the first quarter 2005,
- An $8 million charge ($5 million after tax, or 2 cents diluted loss per share) for asset impairments, severance and other costs, and
- A $4 million charge ($2 million after tax, or 1 cent diluted loss per share) for the open market purchase and retirement of $25 million of bonds.
In addition, first quarter 2005 results include a pretax charge of $6 million ($4 million after tax, or 1 cent diluted loss per share) related to the expensing of stock-based compensation versus $36 million ($23 million after tax, or 9 cents diluted loss per share) in the same quarter last year.
First quarter 2004 net income excluding unusual items was $163 million (63 cents diluted earnings per share) and included a $26 million charge ($16 million after tax, or 6 cents diluted loss per share) for the early extinguishment of debt.
Note: Georgia-Pacific management believes that, because of the nature of these items, investors' understanding of the company's performance is enhanced by disclosing net income before the unusual items as a reasonable basis for comparison of the company's core ongoing results of operations. The attached Reconciliation of Earnings Before Unusual Items provides a reconciliation of net income before the unusual items to net income determined in accordance with generally accepted accounting principles.
Georgia-Pacific's net sales were $4.6 billion for first quarter 2005, compared with $5.2 billion for first quarter 2004. Excluding sales from the building products distribution business, which was sold in May 2004, net sales for first quarter 2005 increased $276 million, or 6 percent from first quarter 2004. Net sales for 2005 and 2004 exclude results from the non-integrated pulp facilities, which are reported as Discontinued Operations in all periods.
Total debt was $8.8 billion at the end of the first quarter.
North American Consumer Products
The North American consumer products segment includes the company's retail and commercial tissue businesses. Familiar consumer tissue brands include Quilted Northern, Angel Soft, Brawny, Sparkle, Soft 'n Gentle, Mardi Gras, So-Dri and Vanity Fair, as well as the Dixie brand of disposable cups, plates and cutlery.
The segment recorded first quarter 2005 operating profit of $210 million versus $122 million in the first quarter 2004. A pretax charge of $7 million primarily for severance and asset impairment at the Green Bay, Wis., facility is included in the first quarter 2005 results. First quarter 2004 results included pretax charges of $2 million, primarily for employee severance costs also at the Green Bay facility.
Operating profit was up 72 percent versus the first quarter 2004, primarily due to a 12 percent increase in tissue price realization. Volume was essentially flat versus one year ago with gains in retail branded tissue products offset by reduced commercial volume. Manufacturing costs increased, driven by fiber, energy and chemicals, which partially offset price gains.
International Consumer Products
The international consumer products segment markets both retail and commercial 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 first quarter 2005 operating profit of $42 million, compared with $58 million during the same quarter a year ago. The first quarter 2005 results included a $3 million credit for the reversal of prior insurance charges, and the first quarter 2004 results included a credit of $4 million for a reversal of accrued severance costs in the United Kingdom. In addition, the first quarter 2005 benefited $2 million from favorable currency exchange rates.
Business results continue to be impacted by a very competitive environment. The decline in operating profit for the first quarter 2005 was driven primarily by lower local currency prices and volumes. Continued cost reduction in the business helped mitigate higher cost pressures.
Georgia-Pacific's packaging segment includes four containerboard manufacturing facilities and 55 converting operations. Its Color-Box subsidiary is the leading litho-laminated corrugated manufacturer in North America.
The segment recorded an operating profit of $75 million in the first quarter 2005, compared with $45 million in the first quarter 2004.
Operating profit improved 67 percent versus first quarter 2004. Pricing was significantly higher than a year ago, due to two successful price increases in 2004. Corrugated box shipments experienced a modest decline. Fiber Box Association industry shipments increased 1 percent, while the company's shipments decreased 2 percent. Containerboard shipments were up nearly 2 percent year over year. Transportation, fiber, energy and maintenance costs in the segment were considerably higher.
Bleached Pulp and Paper
The bleached pulp and paper segment is comprised of the company's bleached board and communication papers businesses and its minority ownership in Unisource.
The segment recorded a first quarter 2005 operating profit of $7 million, compared with an operating loss of $20 million in the first quarter 2004. Results include an $11 million charge for a loss on a leased warehouse, which was vacated by Unisource in the first quarter 2005.
Operating profit improved $38 million year over year, excluding the warehouse charge. Prices in all of this segment's businesses improved as price increases announced in 2004 were achieved. Higher chemical, fiber and energy costs were partially offset by cost reduction initiatives, including the shutdown of a high-cost paper machine at Camas, Wash.
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 first quarter 2005 operating profit of $204 million versus an operating profit of $263 million in the first quarter 2004. The 2004 results include a $2 million charge primarily for employee severance costs at the Gloster, Miss., and Russellville, S.C., plywood facilities.
Contributions from the structural panels business declined compared with the first quarter 2004, due to substantially lower prices compared with prior year record levels. Plywood and oriented strand board shipments continued to benefit from a strong residential market.
GP ToughRock gypsum wallboard and DensGlass panels experienced continued strong demand in the first quarter 2005, aided by rebounding non- residential demand. ToughRock volume was up 8 percent, versus the same quarter one year ago, while prices were up 18 percent compared to first quarter.
The lumber business benefited from historically high prices and stronger shipments. The chemical business significantly improved year over year due to improved pricing and growth in its South American business. Industrial wood products performed well, with improved prices for particleboard.
Higher costs for wood, resins, labor and energy were factors in all businesses.
The company's Other segment primarily includes unallocated corporate expenses and the elimination of intersegment sales.
The segment reported first quarter 2005 expenses of $69 million, compared with expenses of $116 million for the same period in 2004. Included in the first quarter 2005 results were a $21 million credit from the reversal of prior insurance charges and a $4 million pretax charge for the early extinguishment of debt. First quarter 2004 results included a $26 million pretax charge for the early extinguishment of debt and approximately $26 million of credits primarily from foreign currency transactions associated with foreign borrowings and a favorable workers' compensation experience adjustment. First quarter 2005 results also included a $6 million pretax charge for stock-based compensation expenses versus a $36 million charge a year ago.
"Moving forward, we are optimistic about all of our businesses. We will continue to focus on implementing announced price increases and mitigating higher costs with improved operating efficiencies," said Correll. "We remain disciplined in our manufacturing operations, adhering to inventory targets. Our strategy remains to grow our branded products across all of our segments to continue to connect with customers and consumers by providing differentiated products to meet their needs."
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