STAMFORD, Conn., July 27 -- MeadWestvaco Corporation today reported a loss from continuing operations of $13 million, or 6 cents per share. Included in the loss from continuing operations for 2005 was an after-tax charge for debt retirement of $56 million, or 28 cents per share; an after-tax restructuring charge of $6 million, or 3 cents per share; and an after-tax gain on the sale of forestlands of $1 million, or 1 cent per share. Second quarter 2004 earnings from continuing operations were $74 million, or 36 cents per share, which included an after-tax gain on the sale of forestlands of $12 million, or 6 cents per share, and an after-tax restructuring charge of $4 million, or 2 cents per share.
During the quarter, the company completed the sale of its printing and writing papers business for $2.2 billion in cash proceeds, and used approximately $1.1 billion of the proceeds to reduce debt. In addition, the company repurchased 21 million shares, or 10%, of its outstanding common stock at a cost of approximately $620 million. The company expects to repurchase additional shares in the amount of $80 million during the second half of 2005 as a continuation of its plan to use up to $700 million of the papers sale proceeds for share repurchases.
As part of its strategy to become the global leader in consumer packaging, the company has begun an initiative to develop a business model that enables it to respond more quickly to the market and to customers' needs. The company's new business model also will have a lower overall cost structure that is both flexible and lean. This initiative will reduce general and administrative costs and streamline warehousing logistics across the enterprise and is expected to save at least $200 million in costs annually by the end of 2007.
During the second quarter, performance in the company's continuing operating segments was seasonally stronger than the first quarter but below the level of the second quarter of 2004 due primarily to higher costs for energy and raw materials and somewhat weaker demand. The significant impact of inflation in the cost of energy and raw materials more than offset improvements in selling prices in paperboard.
"MeadWestvaco continues to make significant and measurable progress toward transforming the company into the global leader in consumer packaging, capable of producing higher growth with improved, more consistent profitability," said John A. Luke, Jr., chairman and chief executive officer. "With the sale of the papers business, we gained focus, enhanced our financial flexibility and, with the stock repurchase program, are returning value to shareowners.
"There is still plenty of work to be done to achieve the growth and profitability levels that we know we are capable of generating. As a market-driven company, our focus is creating value for customers while reducing costs and operating with maximum efficiency," continued Mr. Luke.
"We are convinced that over the next few years we can develop a more efficient and responsive organization, improve our internal processes and reduce our overall cost structure."
MeadWestvaco's second quarter net loss was $83 million, or 41 cents per share, compared to net income of $47 million, or 23 cents per share, in the second quarter of last year. The net loss for the second quarter of 2005 included a loss from the discontinued paper operations of $70 million, or 35 cents per share. Last year's second quarter net earnings included a loss from the discontinued papers operations of $27 million or 13 cents per share.
MeadWestvaco expects demand to be seasonally stronger in this year's second half and will continue to seek pricing increases to combat the continuing pressure from cost inflation in raw materials, energy and freight. The company expects to take approximately 35,000 tons of market-related downtime in bleached paperboard in the third quarter to manage its inventory levels. During the remainder of the year, the company expects to continue to repurchase shares of its common stock in accordance with its previously announced plan to use up to $700 million of the proceeds from the sale of its printing and writing papers business for share repurchase.
In the Packaging business, MeadWestvaco's largest segment, sales revenue of $1.1 billion, was essentially unchanged from the second quarter of 2004. Segment operating profit totaled $96 million, compared to $113 million in the prior year's second quarter. The positive effect of higher selling prices and improved sales mix was offset by cost inflation in energy and raw materials, the impact of market-related downtime in the bleached paperboard mill operations and weaker demand in several of the company's markets for consumer packaging. As a result of strong mill operations and slower seasonal pickup compared to the prior year, the company took 55,000 tons of market-related downtime in bleached paperboard production to manage its inventories during the second quarter.
Consumer & Office Products
In the Consumer & Office Products segment, sales were $297 million compared to $302 million in the prior year second quarter. Operating profit was $33 million compared with $50 million in the second quarter of 2004. Increased sales from Tilibra S.A. Productos de Papelaria, the company's Brazil-based operations acquired in the third quarter 2004, were offset by lower sales in North America. The decline in operating profit primarily reflected significantly higher costs for paper and other raw materials which were only partly offset by higher selling prices.
Second quarter sales for Specialty Chemicals of $116 million increased 8% compared to the second quarter last year. Operating profit for the segment was $14 million, compared with $20 million in the prior year second quarter. The decline in segment operating profit was primarily due to higher raw material and energy costs, offset in part by the impact of higher revenues attributable to improved selling prices.
Costs for raw materials increased approximately $25 million over the prior year. Costs for energy, wood and freight increased about $10 million over prior year. Capital spending was $132 million in the first half of the year, compared with $121 million in last year's first half, and remained well below the level of depreciation for the comparable period.
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