Georgia-Pacific Reports Solid Third Quarter Results
Press release from the issuing company
ATLANTA, Oct. 27 -- Georgia-Pacific Corp. today reported third quarter 2005 net income of $145 million (55 cents diluted earnings per share) compared with net income of $240 million (91 cents diluted earnings per share) in third quarter 2004.
"This was a solid quarter, with our North America consumer products and building products businesses performing well. In fact, building products had its best quarter this year," said A.D. "Pete" Correll, Georgia-Pacific's chairman and chief executive officer. "We continued to make progress toward our North America consumer products goal. Our third quarter asset restructuring announcement to move production to newer, more efficient machines represents the most recent step in our continuing execution of our consumer products strategy.
"Higher costs and lower prices continue to negatively impact both our packaging and bleached pulp and paper businesses. Raw materials and energy inflation company-wide increased our costs for the quarter by approximately $105 million versus the same period last year. Hurricane Katrina related costs amounted to approximately $15 million for the quarter while transportation costs increased approximately $35 million," said Correll.
Third quarter 2005 net income before unusual items was $200 million (76 cents diluted earnings per share). Unusual items included:
- A $43 million charge ($28 million after tax, or 10 cents diluted loss per share) primarily for the recently announced restructuring of the North America and international consumer products businesses,
- A $36 million income tax liability (14 cents diluted loss per share) related to the planned repatriation of $709 million of unremitted earnings of certain of the company's non-U.S. subsidiaries under the provisions of the American Jobs Creation Act,
- A $20 million gain ($16 million after tax, or 6 cents diluted earnings per share) related to the sales of the company's controlling interest in GP Flakeboard, Inc., and the company's Richwood, W.Va., hardwood sawmill,
- An $8 million charge ($5 million after tax, or 2 cents diluted loss per share) for environmental liabilities,
- A $7 million charge ($4 million after tax, or 2 cents diluted loss per share) for sales tax audits related to Unisource Worldwide, Inc., when it was wholly owned by Georgia-Pacific,
- A $4 million credit ($2 million after tax, or 1 cent diluted earnings per share) related to the favorable settlement of an asbestos insurance receivable.
In addition, third quarter 2005 results include a $25 million charge ($16 million after tax, or 6 cents diluted loss per share) related to the expensing of stock-based compensation versus a charge of $24 million ($15 million after tax, or 6 cents diluted loss per share) in the third quarter 2004.
Third quarter 2004 net income before unusual items was $235 million (89 cents diluted earnings per share). Unusual items totaled $5 million after taxes (2 cents diluted earnings per share) and included gains from facility sales and working capital settlements from earlier divestitures, offset in part by severance and other restructuring costs across several business units.
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 $4.7 billion for the third quarter 2005, equal to the third quarter 2004.
Total debt was approximately $7.9 billion at the end of the third quarter, down $584 million versus the second quarter 2005 and down almost $1 billion compared to the same period one year ago.
For the first nine months of 2005, Georgia-Pacific reported net income of $544 million ($2.06 diluted earnings per share), compared with $607 million ($2.31 diluted earnings per share) in the same period of 2004.
For the first nine months of 2005, the company reported net income excluding unusual items of $621 million ($2.35 diluted earnings per share), compared with $637 million ($2.42 diluted earnings per share) in the same period of 2004.
Net sales for the first nine months of 2005 were $14 billion, compared with $15 billion in the same period a year ago. Excluding sales from the building products distribution business, which was sold in May 2004, net sales for the first nine months of 2005 increased $304 million, or 2 percent, compared with the first nine months of 2004.
North America Consumer Products
The North America consumer products segment includes the company's retail and commercial tissue businesses. Familiar consumer tissue brands include Angel Soft, Quilted Northern, Brawny, Sparkle, Mardi Gras and Vanity Fair, as well as the Dixie brand of disposable cups, plates and cutlery.
The segment recorded third quarter 2005 operating profit of $197 million versus $206 million in third quarter 2004. Third quarter 2005 results include a $38 million charge primarily for the previously announced restructuring of commercial tissue operations. Included in the third quarter 2004 results were charges of $6 million primarily for severance and equipment relocation expenses in the Dixie business. Excluding these charges, operating profits for the segment increased $23 million or 11 percent over third quarter 2004.
Profit improvement was driven by a combination of price, higher-margin products and cost reductions that offset higher energy and chemical costs. Tissue prices increased 6 percent per ton. Shipments in tons were flat with gains in retail shipments offsetting a decline in commercial shipments driven by weaker industry conditions.
Dixie profitability increased with prices higher year over year. Realized price increases and cost reductions in this business more than offset reduced shipments and higher costs.
The North America consumer products segment continues to implement its strategy to achieve the $1.2 billion annualized operating profit goal by the end of 2006.
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 personal care products in Europe and other locations. Market-leading brands include Lotus, Moltonel, Colhogar, Tenderly, Delica and Demak'Up.
The segment recorded a third quarter 2005 operating profit of $15 million, compared with $39 million during the same quarter a year ago. The third quarter 2005 results include a charge of $4 million for the previously announced restructuring of some international assets. Third quarter 2004 results include unusual items of $5 million for severance, equipment relocation and a loss from a fire at the Ivanteevka facility in Russia.
Operating profit for this business was impacted by lower prices, higher pulp and energy costs, and effects of a pulp and paper industry strike/lockout in Finland and product changes associated with a machine rebuild in the United Kingdom. These factors were partially offset by continued cost reduction and spending discipline.
Changes in the currency exchange rate between the U.S. dollar and the euro since the third quarter 2004 had no impact on this quarter.
Georgia-Pacific's packaging segment includes four containerboard manufacturing facilities and 55 converting operations. Its Color-Box subsidiary is a leading high-graphics, litho-laminated corrugated manufacturer in North America.
The segment recorded an operating profit of $45 million in the third quarter 2005, compared with $100 million in the third quarter 2004.
Lower prices combined with higher costs for energy, transportation, wood and chemicals resulted in lower operating profit for the business. During the quarter, corrugated box shipments were up 1 percent for the company while shipments reported by the Fibre Box Association were down 1.5 percent. Near the end of the quarter the containerboard mill in Monticello, Miss., was impacted by Hurricane Katrina.
Bleached Pulp and Paper
The bleached pulp and paper segment is comprised of the company's communication papers, bleached board and kraft businesses, and its 40 percent minority ownership in Unisource Worldwide, Inc.
The segment recorded a third quarter 2005 operating loss of $5 million, compared with an operating profit of $20 million in the third quarter 2004. Third quarter 2005 results included an $8 million charge primarily for sales tax audits related to Unisource for periods that it was wholly owned by Georgia-Pacific. Third quarter 2004 results include a $2 million reduction in the gain realized on the second quarter 2004 sale of the company's interest in Aracruz Celulose S.A.
Operating profit in this business was impacted by higher costs for energy and chemicals coupled with lower uncoated free sheet prices, which were partially offset by improved performance in the bleached board and kraft businesses.
The company's diversified building products segment includes structural panels, gypsum, lumber, industrial wood products and chemical manufacturing businesses.
In the third quarter 2005, building products' operating profit was $269 million versus $282 million in the third quarter 2004. Third quarter 2005 results include a $20 million gain from the sales of the company's controlling interest in GP Flakeboard, Inc., and the company's Richwood hardwood sawmill. The third quarter 2004 results include a gain totaling $3 million, which includes a pretax gain on the sale of three hardwood lumber mills, offset in part by asset impairment and severance costs.
Structural panels demand remained strong, driven by residential and non- residential construction, and repair and remodeling. Prices moderated from prior year levels. Lumber shipments remained strong compared with a year ago, and prices rose 12 percent. In the aftermath of Hurricane Katrina, the company restarted its idled Gloster, Miss., plywood facility and Roxie, Miss., sawmill. These facilities will serve the rebuilding efforts in the Gulf region and will be furnished in part with damaged timber salvaged in the region.
Demand remained strong in the gypsum business, which implemented price increases during the quarter for both ToughRock and Dens product lines. Strong prices and higher shipments more than offset higher energy costs. Overall, the Dens family of products continued to perform well in both residential and non-residential markets, including sheathing, roofing, decking, interior panels and fireproof door product lines.
The company's Other segment primarily includes unallocated corporate expenses and the elimination of intersegment sales and profits.
The segment reported third quarter 2005 expenses of $104 million, compared with expenses of $122 million for the same period in 2004.
Included in third quarter 2005 results were:
- An $8 million charge for environmental liabilities, and
- A $4 million credit related to the negotiated settlement of an asbestos receivable.
"Despite inflationary pressures, Georgia-Pacific continued to make significant progress toward achieving our operating profit goal in consumer products and in reducing debt. We expect inflationary pressures to continue into the fourth quarter but this will not deter us from our focus on operational excellence and achieving our financial goals," Correll concluded.
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