RICHMOND, Va.-- MeadWestvaco Corporation today reported a net loss in the first quarter of $16 million, or $0.09 per share. Included in the first quarter results were after-tax restructuring charges of $10 million, or $0.05 per share, primarily related to employee separation costs and facility closures. In connection with the company's cost initiative, the company also incurred after-tax one-time costs of $3 million, or $0.02 per share. Sales in the first quarter were $1.55 billion, an increase of 8% compared to sales of $1.43 billion in the first quarter of 2006.
First quarter 2007 total operating profit from the company's primary business segments increased 20% to $77 million, compared to $64 million in the prior year. In 2007, higher selling prices and improved productivity as well as the results from Calmar, the company's plastic dispensing and sprayer technology business, more than offset lower volume and higher costs for energy, freight and raw materials.
"Our strategies to generate profitable growth in our core packaging businesses are working," said John A. Luke, Jr., chairman and chief executive officer. "Pricing actions, an enhanced product mix and better overall productivity in the packaging businesses improved our operating performance compared to last year.
"We are responding to good demand in many of our key markets with an aggressive focus on execution and implementation of our strategies for profitable growth - including innovative product development and emerging markets expansion. With these efforts and continued price increases to offset cost inflation, we expect to generate meaningful improvements in all key performance metrics in 2007."
Land Management Strategy
MeadWestvaco is establishing a new business unit to segment and manage higher-value opportunities for its United States land holdings. The new Land Management Group will generate long-term value and sustainable cash flow from enhancement strategies across MeadWestvaco's land holdings in the United States - including converting land for uses such as conservation, recreation and development.
"With a focused business unit and experienced leadership, we will ensure that shareholders receive the full potential benefit of our valuable land holdings in growing areas across the southeastern United States," continued Luke. "We will work to increase the value of these lands in a sustainable manner that fully considers the long-term needs of our communities."
In the first quarter of 2006, MeadWestvaco had net income of $3 million, or $0.02 per share. These results included after-tax restructuring charges of $2 million, or $0.01 per share; after-tax one-time costs of $1 million, or $0.01 per share; and after-tax gains on forestland sales of $2 million, or $0.01 per share.
In the Packaging Resources segment, operating profit in the first quarter of 2007 increased 4% to $55 million versus $53 million in 2006. Sales in the first quarter of 2007 were $714 million, a decline of 2% versus $727 million in 2006. Improved product pricing and productivity more than offset lower shipments, higher costs for energy and raw materials as well as expenses incurred for long-term maintenance activities at the Evadale, Texas, bleached board mill. Shipments were lower compared to the prior year due to a key customer's supply chain optimization. During the first quarter of 2007, demand remained solid for bleached paperboard packaging with shipment growth continuing in the higher value markets for liquid aseptic packaging and tobacco packaging. Overall paperboard packaging pricing improved 5% year-over-year, reflecting the company's pricing actions.
In the Consumer Solutions segment, operating profit in the first quarter of 2007 was $20 million compared to $7 million in 2006. Sales in the first quarter of 2007 were $566 million compared to $462 million in 2006. Included in 2007 are results from Calmar, the plastic dispensing and sprayer technology business that was acquired in July 2006. Higher domestic selling prices and stronger demand from international markets in global beverage as well as cost and manufacturing productivity improvements across the segment were offset by lower profits in global media packaging mainly due to lower CD music volumes.
New leadership within the Consumer Solutions segment was announced in April 2007 to accelerate the company's profit improvement initiative focused on growth and enhancing asset productivity. In April, Mark Cross, senior vice president, assumed direct oversight of the Consumer Solutions Group (CSG). Steve Scherger, previously vice president of corporate strategy, assumed the role of president, CSG Americas, with additional responsibility for the global strategy of the group.
Consumer & Office Products
In the Consumer & Office Products segment, first quarter 2007 operating loss was $2 million, compared to an operating loss of $5 million in 2006. Sales of $201 million increased 3% from $195 million in the prior year quarter. An enhanced product mix from the company's focus on value-added products and manufacturing productivity improvements were offset by higher costs for raw materials, principally uncoated paper. A solid back to school season in the segment's Brazilian business also contributed to improved results. This segment continues to be impacted by Asian-based imported products.
In the Specialty Chemicals segment, first quarter 2007 operating profit was $4 million compared to $9 million in 2006. Sales for the segment grew 3% to $117 million from $114 million in the first quarter of 2006. Improved pricing across all major product lines was more than offset by lower volumes and unfavorable product mix in the carbon business and by higher raw materials and manufacturing costs. The volume and profit decline in the carbon business is due to lower production levels at North American auto manufacturers. Increased raw material costs are due to increased costs for crude tall oil, the principal raw material used to make value-added pine chemicals. Crude tall oil prices have increased substantially compared to the comparable year-ago quarter.
Corporate and Other
Corporate and Other segment operating loss was $94 million in the first quarter of 2007 versus $62 million operating loss in 2006. Contributing to the increased loss in 2007 were restructuring charges and one-time costs that were $16 million higher in 2007 compared to 2006, and gains from the sales of corporate real estate of $11 million and transition services revenue of $5 million recorded in the prior year quarter.
In the first quarter of 2007, prices for energy, raw materials and freight were approximately $32 million higher than the prior year quarter.
Cash flow from operations was nearly $100 million during the first quarter of 2007, down slightly from cash provided by operations of $104 million for the same period last year. Capital spending remained well below depreciation expense for both periods, but was $17 million higher than the first quarter of 2006 due to the addition of Calmar and investments for growth in emerging markets.
The annual effective tax rate for 2007 is estimated to be approximately 30%. The effective tax rate in the first quarter was lower than the estimated annual rate due primarily to the company's adoption of FIN 48 and other discrete items.
MeadWestvaco paid a regular quarterly dividend of $0.23 during the first quarter, and on April 30, 2007, declared a quarterly dividend payable on June 1, 2007, to stockholders of record at the close of business on May 10, 2007.
For the second quarter, MeadWestvaco expects solid year-over-year improvement in its Packaging Resources segment. Market demand is expected to remain steady during the second quarter of 2007 with shipments benefiting from the seasonally stronger selling period and from improved mill operating performance. The company also plans to continue to implement price increases to offset input costs, which remain at historically high levels.
MeadWestvaco's Consumer Solutions segment is expected to show significant year-over-year operating profit improvement due to previously-announced cost and productivity actions and from the addition of Calmar. Partially offsetting these improvements are expected lower volumes in media packaging due to continued declines in sales of CD music.
While results should improve from the seasonally weak first quarter for MeadWestvaco's Consumer & Office Products segment, operating profits are expected to continue to shift into the second half of the year as major customers place an emphasis on optimizing the overall supply chain. In the company's Specialty Chemicals segment, increased demand for pine chemicals and improved pricing are expected to be more than offset by continued high raw materials costs, principally crude tall oil, and by continued weakness in the automotive carbon business.
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