MeadWestvaco Posts Second Quarter Loss
Aug. 1, 2006--MeadWestvaco Corporation today reported a
net loss for the second quarter of $7 million, or $0.04 per share.
Included in the second quarter loss is an after-tax restructuring
charge of $37 million, or $0.20 per share, primarily related to the
permanent shutdown of two previously idled paperboard machines as well
as employee termination costs. In addition, the company incurred other
one-time after-tax costs of $6 million, or $0.04 per share, related to
the company's cost initiative. Also included in the second quarter
loss is an after-tax gain of $13 million, or $0.07 per share, on the
sale of a note received as part of the consideration for the sale of
the printing and writing papers business in 2005. Excluding these
special items, net income for the second quarter of 2006 was $0.13 per
share, compared to $0.25 per share in the same quarter last year.
Sales in the second quarter were $1.57 billion, essentially unchanged
compared to sales in the second quarter of 2005.
Second quarter 2006 results versus second quarter 2005 results
reflect higher selling prices and improved mix in bleached paperboard,
higher pricing and volumes in coated paperboard as well as improved
overall performance in Specialty Chemicals. These improvements were
more than offset by higher input and production costs in the U.S.
paperboard mills. In addition, as previously announced, the Consumer &
Office Products business experienced a greater than anticipated shift
of orders into the second half of the year as well as delayed second
quarter shipments due to the northeast floods.
"We are executing on the initiatives that will make MeadWestvaco a
highly profitable consumer packaging provider to the world's largest
consumer goods companies," said John A. Luke, Jr., chairman and chief
executive officer. "We are aggressively and successfully driving price
increases and product mix enhancements across all of our businesses to
overcome cost inflation while reshaping our company to perform better
for shareholders and customers alike. As we move through the remainder
of 2006 and into 2007 our hard work will become increasingly apparent
through improved profitability.
"I want to thank all of the employees of MeadWestvaco who have
made the opening of our new Richmond, Virginia headquarters
successful," continued Mr. Luke. "Our new location makes our company
more productive and it fosters an atmosphere of collaboration and
creativity to help move our company forward."
In the second quarter 2005 MeadWestvaco reported a loss from
continuing operations of $13 million, or $0.06 per share. Included in
the loss from continuing operations for 2005 was an after-tax charge
for debt retirement of $56 million, or $0.28 per share, and an
after-tax restructuring charge of $6 million, or $0.03 per share.
MeadWestvaco's second quarter net loss was $83 million, or $0.41 per
share. The net loss for the second quarter of 2005 included a loss
from discontinued operations of $70 million, or $0.35 per share.
In the third quarter and in the second half of 2006 MeadWestvaco
expects solid year-over-year improvement in Packaging profitability.
Backlogs in the bleached and coated paperboard mills are stronger
compared to the prior year. Seasonal volume growth in conjunction with continued price increases and product mix enhancements in the
paperboard mills as well as modest growth in consumer packaging are
expected to overcome the cost inflation of raw materials, energy and
freight in the second half of 2006. In the third quarter and in the
second half of 2006 MeadWestvaco expects the Consumer & Office
Products business to record seasonally stronger sales and improved
year-over-year operating profits as customers shift their orders to
the second half of the year. Specialty Chemicals anticipates continued
year-over-year improvement in the third quarter and in the second half
of 2006 driven by modest volume growth and cost savings.
In the Packaging business, MeadWestvaco's largest segment, sales
of $1.14 billion were up slightly compared to second quarter 2005
sales of $1.13 billion. Segment operating profit totaled $88 million
compared to $96 million in the prior year's second quarter. The
positive effects of higher selling prices and improved sales mix at
the mills were more than offset by cost inflation in energy and raw
materials, higher production costs and by weaker overall results in
In consumer packaging, performance in the second quarter of 2006
declined compared to the year-ago quarter. Stronger tobacco and
personal care converting were more than offset by weaker results in
media and beverage packaging converting. Media markets remain
challenged due to a lackluster major release schedule, next-generation
DVD format conflicts and to higher resin costs. Overall performance of
the mills in the second quarter of 2006 declined compared to the
year-ago quarter. Prices and mix enhancements were offset by lower
bleached board volumes from the previously-announced capacity
reduction and higher energy, wood, freight and manufacturing costs.
Consumer & Office Products
In the Consumer & Office Products segment, sales declined 12% to
$260 million compared to $297 million in the prior year second
quarter. Operating profit was $17 million compared with $33 million in
the second quarter of 2005. The decline in sales and operating profit
reflect lower sales as customers continued to shift orders into the
second half of the year and as other shipments were delayed due to the
northeast floods in late June. Lower volumes also reflect the impact
of Asian imports, especially for commodity-based products. In addition
to lower volumes, higher operating and raw materials costs were only
partly offset by a better mix of products sold.
Second quarter sales for Specialty Chemicals of $131 million
increased 13% compared to the second quarter last year. Operating
profit for the segment was $19 million, compared with $14 million in
the prior year second quarter. The improved segment operating profit
was primarily due to better selling prices that offset the cumulative
effect of higher raw material and energy costs and lower selling,
general and administrative costs.
In the quarter, prices for energy, wood, raw materials and freight
increased about $30 million over the prior year. Capital spending was
$114 million in the first half of the year, compared with $132 million
in last year's first half, and remained well below the level of
depreciation for the comparable period.
Cash flow from continuing operations was approximately $180
million for the first half of the year, a 46% increase over the same
period last year.
In 2006, the company began to expense stock options in accordance
with SFAS No. 123R, Share-Based Payments. The effect of adoption of
SFAS No. 123R was an incremental non-cash expense of approximately $4
million in the quarter ended June 30, 2006, and the full year expense
is currently estimated to be an incremental non-cash expense of
approximately $15 million before taxes.
On July 5, 2006, MeadWestvaco completed its acquisition of Calmar,
a leading global manufacturer of high-quality plastic dispensing and
spraying systems. Total consideration was $710 million. As previously
announced, the company expects Calmar to have minimal impact on its
earnings through 2006, but expects it to be accretive to earnings
beginning in 2007. The purchase of Calmar was funded with $340 million
in short-term loans and with cash on hand.
The tax rate for 2006 is estimated to be approximately 18%,
excluding the effects of the Calmar acquisition. The company is
currently evaluating the impact of the acquisition on the full year
On June 1, 2006, MeadWestvaco paid a regular quarterly dividend of
$0.23 per share to stockholders of record at the close of business on
May 6, 2006.
SOURCE: MeadWestvaco Corp.