STAMFORD, Conn., Oct. 22 -- MeadWestvaco Corporation today reported a third quarter net income of $27 million, or 14 cents per share. For the previous quarter, the company reported a net loss of $7 million, or 4 cents per share, and for the third quarter of 2002, a net loss of $2 million, or 1 cent per share. The company reported income from continuing operations of $17 million, or 9 cents per share, in the third quarter of 2002.
"Our improved operating results in the face of ongoing market weakness reflect our determination in managing through an extremely challenging period," said John A. Luke, Jr., chairman and chief executive officer. "We are particularly encouraged by our paper segment's performance, which was the result of rigorous cost synergy programs, and by the continuing growth in sales and earnings in our higher value consumer packaging and packaging systems businesses. However, we will not be satisfied until we deliver the higher returns we are capable of achieving for our shareholders. We continue to see opportunities to improve MeadWestvaco's productivity and extend our market leadership."
Mr. Luke noted that, apart from normal seasonal variations, the company has yet to see any significant improvement in most of its markets. "While we would welcome evidence that positive macro-economic indicators are strengthening the markets for our products, we are not waiting for that to happen," stated Mr. Luke. "We are working across the company to drive progress within our control." The company will announce details of a new important productivity initiative in December, Mr. Luke said.
Quarterly Net Income Comparisons
MeadWestvaco's third quarter 2003 results include pre-tax gains of $30 million, or 9 cents per share, on the sale of forestlands, in addition to pre-tax charges of $18 million, or 5 cents per share, related to the early retirement of debt and $6 million, or 2 cents per share, for continued restructuring activity in the company. Pension income was $19 million before taxes in the third quarter, approximately $11 million lower compared to the same period last year.
As in the previous quarter, the company adjusted its tax provision to better reflect its estimate of a lower effective tax rate for the year due to changes in expected income levels primarily in domestic operations. The effective tax rate was lowered from the 27% recorded during the first half of 2003 to a revised annual effective rate now estimated at approximately 5%. The change in the tax rate negatively impacted net income by $12 million, or 6 cents per share.
Results for the third quarter of 2002 included an after-tax loss on discontinued operations of $19 million, or 10 cents per share, related to the sale of the company's U.S. containerboard business, as well as charges related to restructuring and other merger-related expenses of $28 million pre-tax, or 8 cents per share. Pre-tax gains on the sale of forestlands in the third quarter of 2002 totaled $9 million, or 3 cents per share.
2003 Third Quarter Results
Sales for the quarter were $2 billion, in line with sales from continuing operations in the third quarter last year and up from $1.9 billion in the second quarter of 2003. The company reported continued progress on synergies and forestland sales during the quarter. It captured $103 million in repeatable synergies and announced an agreement to sell 629,000 acres in New England that is expected to close by the end of 2003. Costs for wood and energy were higher throughout the mill-based businesses, each increasing by approximately $10 million from the third quarter last year. Results benefited from favorable foreign currency exchange rates in certain internationally based businesses.
MeadWestvaco paid a regular quarterly dividend of 23 cents per common share for the quarter, representing an annualized dividend rate of 92 cents per common share.
In Packaging, the company's largest business segment, operating profit for the third quarter was $70 million compared with $88 million in last year's third quarter and $91 million in the second quarter of 2003. Packaging sales were $1.015 billion in the third quarter of 2003, compared with $971 million in the third quarter of 2002 and $1.032 billion in the second quarter of 2003. Overall paperboard shipments and pricing declined slightly from the third quarter of 2002. Compared to the second quarter, segment operating profit included the effect of a scheduled maintenance shutdown at the company's coated unbleached kraft paperboard mill in Alabama, weaker shipments and 17,000 tons of market-related downtime for bleached board. Results for the company's domestic paperboard mills declined from last year's third quarter because of higher costs, including wood, energy and materials, in addition to continued operating challenges at two mills.
The company's Brazilian subsidiary, Rigesa, reported improved performance versus last year's third quarter due to higher selling prices and enhanced product mix, despite cost inflation and ongoing political and economic uncertainties in Brazil. Packaging systems results improved due to higher North American and Latin American sales volume and favorable foreign currency rates, compared with the previous year. Consumer packaging results were in line with last year and modestly improved over the prior quarter.
The Papers segment recorded an operating profit of $19 million, compared to a prior year loss of $3 million and a prior quarter loss of $42 million. Paper segment sales were $571 million compared to 2002 third quarter sales of $606 million and 2003 second quarter sales of $489 million. Compared to the prior year, segment profitability resulted from improved mill operating performance and higher synergy savings, which offset lower price and volume due to continued weaker market conditions. Third quarter results improved over the prior quarter due to lower planned maintenance costs, improved operating performance and synergy savings. Volumes were seasonally stronger, particularly in the magazine, catalog and book markets; however, commercial print markets remain challenged and pricing declined during the quarter. For carbonless paper, average selling prices were in line with the prior quarter and the prior year. Carbonless paper shipments were even with the prior quarter and down slightly from the prior year. To control inventories, the company took 11,000 tons of coated paper and 6,000 tons of carbonless paper downtime during the quarter. Strength in panelboard pricing also contributed to segment results, compared to the prior quarter and the prior year.
Consumer and Office Products
In the Consumer and Office Products segment, operating profit for the quarter was $48 million compared to prior-year operating profit of $54 million and a profit of $49 million in the second quarter of 2003. Segment sales were $323 million compared to prior year sales of $350 million and second quarter 2003 sales of $303 million, reflecting a reduction in sales of commodity products.
Third quarter results reflect the seasonality and relatively stable market conditions for the company's consumer and office and time management products, particularly branded and licensed products.
In the Specialty Chemicals segment, third quarter operating profit was $16 million, compared to a prior year profit of $14 million and second quarter operating profit of $10 million. Segment sales for the third quarter were $93 million, compared to prior year revenue of $90 million and second quarter revenue of $85 million. Compared with the prior year, improved overall volume and productivity offset pricing weakness for refinery products sold into industrial chemical markets. Stronger sales were driven by the continued success of value-added products, including carbon honeycomb filters to the automotive market and asphalt emulsifiers.
In order to manage paper inventory levels during the fourth quarter, which tends to be seasonally weaker than the third quarter, the company expects to take approximately 32,000 tons of market-related downtime in coated papers, 8,000 tons in carbonless paper, and 42,000 tons in bleached paperboard. Compared to the third quarter, wood costs are expected to be stable and energy costs are expected to be higher in the fourth quarter. Full-year capital spending is expected to remain well under depreciation at approximately $400 million.
"In light of continuing market challenges, we are remaining prudent in our capital spending and continuing to manage our inventories through market- related downtime," said Cynthia A. Niekamp, senior vice president and chief financial officer. "We are determined to capture the remaining cost synergies by yearend, and will seek new opportunities for productivity that will improve both earnings and cash flow."
MeadWestvaco will broadcast its third quarter analyst conference call today at 10:00 a.m. (EDT) with access available via the Internet on the company's website at www.meadwestvaco.com, and telephone. Investors may participate on the live conference by dialing 1 800 593 0644 (toll-free domestic) or 1 484 630 9957 (international). Passcode: MeadWestvaco. Please call to register at least 10 minutes before the conference call begins.
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