MeadWestvaco Reports Improved Third Quarter Earnings
Nov. 1, 2006 (Press Release) - MeadWestvaco Corp. today reported net income for the third quarter of $56 million, or $0.31 per share. Included in the third quarter results is an after-tax restructuring charge of $12 million, or $0.07 per share, primarily related to employee termination costs and facility closures. In addition, the company incurred one-time after-tax costs of $6 million, or $0.03 per share, related to the company's cost initiative. Sales in the third quarter were $1.75 billion, an 11% increase compared to sales in the third quarter of 2005.
MeadWestvaco's stronger third quarter results reflect revenue and operating profit growth across its major businesses versus the year-ago quarter. Improved demand and pricing drove the company's overall operating income and operating margin higher compared to the year-ago quarter. In Packaging, profitability increased substantially compared to the prior year as solid demand, higher selling prices and improved productivity at the mills offset higher costs for raw materials and energy. In Consumer & Office Products, increased year-over-year sales and profitability reflect strong seasonal demand for back-to-school products and a better sales mix. In Specialty Chemicals, stronger demand and price recovery drove revenue growth.
"MeadWestvaco delivered a solid quarter by any measure," said John A. Luke, Jr., chairman and chief executive officer. "We showed excellent improvement in our packaging business, and our newest acquisition, Calmar, performed above expectations. As we move forward, we remain intensely focused on generating profitable growth through innovative, high-value products, better pricing and enhanced productivity as we become the global leader in consumer packaging and packaging solutions."
In the third quarter of 2005, net income was $55 million, or $0.30 per share. Included in net income were after-tax restructuring charges of $7 million, or $0.04 per share and after-tax gains on the sale of forestlands of $10 million, or $0.05 per share. The third quarter of 2005 also included after-tax hurricane-related costs of $13 million, or $0.07 per share.
MeadWestvaco expects overall fourth quarter operating profitability to be above year-ago levels. While the company expects demand for paperboard to be seasonally slower in the fourth quarter, paperboard demand is still expected to be comparatively strong and above year-ago levels. In addition, the company is continuing to implement price increases to offset historically high cost inflation for key inputs. Sequentially, seasonal strength in the company's Consumer & Office Products segment as well as in the company's media business is expected to offset seasonal slowing in the paperboard packaging and Specialty Chemicals businesses.
Overall, year-over-year improvements in price and mix are expected to continue to more than offset cost inflation.
In its Packaging business, MeadWestvaco's largest segment, third quarter sales increased 10% to $1.2 billion from $1.1 billion in the year-ago quarter. The segment's third quarter operating profit increased 43% to $120 million from $84 million in last year's third quarter. Stronger year-over-year revenue growth from improved pricing for the company's paperboard products and from the addition of Calmar in the most recent quarter was partially offset by weakness in global beverage and media packaging, as well as by lower demand for personal care, tobacco and healthcare packaging. Strong year-over-year operating profit growth was driven by better demand for paperboard products, improved paperboard pricing and sales mix and overall mill productivity gains. Year-ago quarter results were affected by direct damages and higher costs due to hurricane-related disruptions.
For the quarter, Calmar's performance was solid as sales and operating results were driven by strong volume growth in North American personal care and cleaning and chemical markets, as well as by improved pricing and manufacturing performance.
Consumer & Office Products
In the Consumer & Office Products segment, sales increased 7% to $339 million from $317 million in the third quarter last year. Operating profit increased 11% to $49 million from $44 million in the prior year, driven largely by strong sales of value-added back-to-school products. Operating profit was negatively impacted by higher operating costs, especially cost for uncoated paper.
In the Specialty Chemicals segment, third quarter 2006 sales of $131 million increased 24% from $106 million in the year-ago quarter. Third quarter 2006 operating profit of $15 million was unchanged versus the same year-ago quarter. Strong demand and improved pricing were somewhat offset by increased costs for raw materials, principally crude tall oil. The company is continuing to pursue product price increases to offset inflated raw materials costs. Sales increased over the prior year in global printing ink resins and activated carbon.
In the quarter, prices for energy, wood, raw materials and freight increased about $35 million over the prior year. Capital spending in the first nine months of 2006 was $186 million, compared with $201 million in last year's nine-month period, and remained well below the level of depreciation expense for the comparable period.
Cash flow from continuing operations was approximately $165 million for the third quarter of 2006 compared to $20 million in the same quarter last year. Some of this cash was used to pay down approximately $120 million of commercial paper borrowing as of October 31, 2006.
On September 1, 2006, MeadWestvaco paid a regular quarterly dividend of $0.23 per share to stockholders of record at the close of business on August 4, 2006.