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Pactiv Posts Jump in 2nd Quarter Income

July 24, 2006 (Press Release) - For the quarter ended June 30, Pactiv Corporation today announced that income from continuing operations was $69 million, or $0.49 per share, compared with $37 million, or $0.24 per share, in 2005. Sales rose 6 percent to $750 million from $707 million as volume was maintained at the prior year level.

"Performance in the quarter was excellent as we reaped the benefit of successfully managing our business in a higher raw material cost environment. Earnings rose significantly and margins returned to historical levels, driven by favorable spread (the difference between selling prices and raw material costs), as well as lower product launch costs in the Consumer segment. Free cash flow improved significantly reflecting strong operating results," said Richard L. Wambold, Pactiv's chairman and chief executive officer.

Gross margin was 31.9 percent compared with 25.7 percent last year and 29.1 percent in the first quarter of 2006. The improvement reflected favorable spread, as well as improved operating costs. Operating margin rose to 16.5 percent from 10.9 percent last year and 14.3 percent in the first quarter.

Free cash flow in the quarter was $65 million compared with a use of $21 million last year. The increase was driven by higher net income, improved working capital, and lower capital expenditures. Year-to-date free cash flow was $93 million compared with a use of $10 million last year. During the quarter the Company repurchased 3.7 million shares of its common stock for $91 million. Year-to-date the Company has repurchased 5.7 million shares of its common stock for $137 million.

For the six-month period, income from continuing operations was $120 million, or $0.84 per share, compared with $58 million, or $0.38 per share, last year. Sales of $1.43 billion rose 8 percent from $1.32 billion based on 1-percent volume growth. Operating margin was 15.5 percent compared with 9.8 percent.

BUSINESS SEGMENT RESULTS

Hefty® Consumer Products

Sales of $277 million rose 10 percent from $251 million reflecting 1-percent volume growth. The increase was based on continued strength in food bags, as well as continued positive trends in waste bags and tableware. Volume in the second half is expected to increase as a result of planned higher advertising and promotion spending.

Operating income was $57 million versus $30 million last year primarily reflecting favorable spread, as well as lower costs related to new product launches.

Operating margin was 20.6 percent compared with 12.0 percent last year and 17.4 percent in the first quarter.

For the six-month period, sales of $519 million rose 12 percent from $465 million based on a 2-percent volume increase. Operating income was $99 million compared with $50 million last year. Operating margin was 19.1 percent compared with 10.8 percent.

Foodservice/Food Packaging

Sales of $473 million rose 4 percent from $456 million last year. Volume declined slightly due to a sluggish market and the Company's decision to exit some low margin business in 2005. Volume is expected to improve in the second half due to new business secured during the second quarter.

Operating income was $70 million compared with $45 million last year driven by favorable spread and improved operating costs. Improved mix continued to favorably impact profitability. Operating margin was 14.8 percent compared with 9.9 percent last year and 13.0 percent in the first quarter.

For the six-month period, sales of $911 million increased 7 percent from $855 million based on 1-percent volume growth. Operating income was $127 million compared with $73 million in 2005. Operating margin was 13.9 percent compared with 8.5 percent in 2005.

Outlook

The Company expects 2006 sales to grow approximately 6 percent to 8 percent. The third quarter earnings per share outlook is a range of $0.29 to $0.34. The full year earnings per share outlook has been revised upward to a range of $1.42 to $1.52 from $1.25 to $1.40. The full year outlook includes non-cash pension income of $42 million, $26 million after tax, or $0.18 per share.

"Raw material costs were lower on average in the second quarter compared with the first quarter. However, we exited the quarter at a higher level and expect resin costs to rise in the third quarter. In addition, advertising and promotion spending in the Consumer segment is skewed toward the second half, particularly the third quarter. Nevertheless, we are raising our second half outlook as we anticipate better volume and good operating efficiencies, partially offset by some spread compression," concluded Wambold.

For the full year, SG&A expense is estimated to be approximately $300 million. The 2006 tax rate is expected to be approximately 37 percent. Free cash flow from continuing operations for 2006 is anticipated to be in a range of $220 million to $240 million, up from a previous estimate of $150 million to $180 million. Capital expenditures are expected to be approximately $70 million, down from a previous outlook of $100 million. Depreciation and amortization expense will be approximately $150 million.

Other

This press release includes certain non-GAAP financial measures. A reconciliation of the non-GAAP financial measures to GAAP is shown in the "Consolidated Statement of Income", as well as the attached "Regulation G GAAP Reconciliations" or in the attached "Operating Results by Segment". The "Operating Results by Segment" also details the impact on sales of acquisitions and foreign exchange.

On October 12, 2005, Pactiv completed the sale of substantially all of its protective and flexible packaging businesses. The results of those businesses, as well as costs and estimated charges associated with that transaction, have been classified as discontinued operations. The results of the protective and flexible packaging businesses that are being retained have been included in the Foodservice/Food Packaging segment, and prior period results reflect this change. This press release discusses Pactiv's results and outlook on a continuing operations basis unless noted otherwise.

Company Information

Pactiv Corporation is a leading producer of specialty packaging products for the consumer and foodservice/food packaging markets. With sales of $2.8 billion, Pactiv has one of the broadest product lines in the specialty packaging industry, and derives more than 80 percent of its sales from market sectors in which it holds the No. 1 or No. 2 market-share position. For more information about Pactiv, log on to the company's website at www.pactiv.com.

SOURCE: Pactiv Corporation




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