MeadWestvaco Reports Challenging Q3: Net Income $55 Million
Press release from the issuing company
STAMFORD, Conn., Oct. 27 -- MeadWestvaco Corporation today reported third quarter net income of $55 million, or 30 cents per share. Included in the net income were after-tax restructuring charges of $7 million, or 4 cents per share, and an after-tax gain on the sale of forestlands of $10 million, or 5 cents per share.
Operating results for the Consumer & Office Products business were up over the level of the prior year, and results for the Specialty Chemicals business nearly matched last year's level. In Packaging, results declined from the prior year as the effect of higher selling prices for paperboard were more than offset by hurricane-related production interruptions, costs related to market downtime and higher costs for raw materials and energy. During the quarter, the impact of the hurricanes amounted to approximately $13 million after-tax, or 7 cents per share, primarily related to lost production and shipments, property damage and related expenses.
"During the quarter, we were challenged by the pressures of rising input costs, especially for energy, freight and raw materials, in addition to storm- related business interruptions. We have confronted these challenges aggressively, and are continuing to take steps to offset those costs by implementing price increases and driving down costs as part of our two-year $200 million cost initiative," said John A. Luke, Jr., chairman and chief executive officer of MeadWestvaco. "With our stronger capital structure, cost initiative and focus on global leadership in packaging, we are confident that we are capable of achieving higher levels of growth and profitability."
During the quarter, the company repurchased 2.7 million shares, completing its plan to buy back $700 million of its shares from the proceeds of its sale of the printing and writing papers business. In 2005, the company has repurchased a total of 23.9 million shares, or 12% of its outstanding shares. The company has been authorized by its Board of Directors to repurchase up to 5 million additional shares, primarily to avoid dilution of earnings per share relating to the exercise of employee stock options.
Net income for the third quarter was $55 million, or 30 cents per share, compared with $105 million, or 52 cents per share, in the third quarter of 2004. Third quarter 2004 results included after-tax earnings of $23 million, or 12 cents per share, from discontinued operations, after-tax restructuring charges of $33 million, or 16 cents per share, and after-tax gains of $40 million, or 19 cents per share, on forestland sales.
MeadWestvaco expects market demand in the fourth quarter to be similar to the third quarter, but below the robust levels of the fourth quarter of 2004. There is some seasonal strength in the company's Consumer & Office Products segment as well as parts of the consumer packaging business. The company also expects to see continued pressure from cost inflation in raw materials, energy and freight as well as costs related to the ongoing impact on operations following the hurricanes in the third quarter. The company anticipates some price realization in the fourth quarter in bleached paperboard and its other businesses from previously announced increases.
In its Packaging business, MeadWestvaco's largest segment, sales revenue of $1.1 billion increased slightly from the third quarter of the prior year. The segment's operating profit was $84 million, a decline from $135 million from last year's third quarter. Demand remained below the robust levels of a year earlier, with lower shipments of paperboard, consumer and beverage packaging. The positive effects of higher selling prices and improved sales mix were offset by higher raw material and energy costs, hurricane-related damage and production disruption and the costs of market-related downtime taken early in the quarter. Results in the consumer packaging businesses declined due to higher material costs and weaker demand primarily in beverage markets.
Consumer & Office Products
In the Consumer & Office Products segment, sales increased slightly to $317 million in the third quarter last year. Operating profit increased by 13% to $44 million, compared with $39 million in the prior year, reflecting increased demand in Canada and the added contribution from the Brazilian school and office products business acquired in the third quarter of 2004, along with cost savings from facility consolidation efforts. These factors were partially offset by higher costs for raw materials, especially uncoated paper, and from the continued pressure of low-priced imported products.
In the Specialty Chemicals segment, sales revenue of $106 million and operating profit of $15 million were relatively unchanged from the prior year. Price increases and strong demand in several markets were offset by costs of hurricane-related disruptions and rising costs for energy, freight and raw materials. Sales increased over the prior year in global asphalt markets, dyes and pine chemicals, with declines in sales of printing ink resins and activated carbon.
During the third quarter, prices the company paid for energy, freight and raw materials increased approximately $30 million over the prior year, in part due to the hurricane impact. Capital spending in the first nine months of the year was $201 million compared with $189 million in the first nine months of 2004, well below the level of annual depreciation.
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