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MeadWestvaco Posts Improved Third Quarter Earnings

Oct. 25, 2007 - MeadWestvaco Corp. today reported net income for the third quarter of 2007 of $121 million, or $0.66 per share. Included in the results are after-tax restructuring charges of $13 million, or $0.07 per share, related to asset write-downs and employee separation costs, and after-tax one-time costs of $4 million, or $0.02 per share, related to the company's cost initiative. The results also include an after-tax gain of $53 million, or $0.29 per share, related to the sale of approximately 62,000 acres of West Virginia forestlands. Excluding the effects of above items, adjusted earnings per share were $0.46 for the third quarter of 2007 versus $0.41 for the third quarter of 2006 computed on the same basis (1). Sales in the third quarter of 2007 were $1.80 billion, a 3 percent increase compared to sales of $1.75 billion in the third quarter of 2006.

Profit from MeadWestvaco's primary business segments increased 3 percent to $190 million in the third quarter of 2007. In the nine-month period ended September 30, 2007, profit from MeadWestvaco's primary business segments increased 12 percent to $416 million from $372 million in the same period of 2006. In the third quarter and nine-month period of 2007, higher selling prices and improved mix and productivity more than offset higher input costs for energy, raw materials and freight.

"MeadWestvaco's execution of our packaging strategy continues to deliver consistent earnings improvement in most of our targeted markets," said John A. Luke, Jr., chairman and chief executive officer. "During the third quarter, we generated improved profitability for shareholders despite significantly higher costs for critical raw materials. I am confident that our solid operating performance and focus on execution will result in year-over-year fourth quarter improvement and better overall performance in 2007."

Mr. Luke added, "MeadWestvaco's strategy for profitable growth includes a relentless focus on our packaging platform, expansion into emerging markets and building a valuable land management business. We recently closed the acquisitions of Keltec Dispensing Systems and Hayes Products to augment our pump and sprayer line of business, celebrated the opening of our expanded packaging facility in Wuxi, People's Republic of China, and completed the sales of non-strategic forestlands for $493 million. These milestones are an indication that we continue to advance the strategic imperatives we laid out at the beginning of the year to build value for our shareholders."

Quarterly Comparison

In the third quarter of 2006, net income was $56 million, or $0.31 per share. Included in the results were after-tax restructuring charges of $12 million, or $0.07 per share, related to asset write-downs and employee separation costs. In addition, the company incurred after-tax one-time costs of $6 million, or $0.03 per share, related to the company's cost initiative.

Packaging Resources

In the Packaging Resources segment, profit in the third quarter of 2007 increased 8 percent to $97 million compared to $90 million in 2006. Sales in the third quarter of 2007 grew 4 percent to $779 million compared to $752 million in 2006. Segment profit growth and margin improvement was driven by improved price, mix and productivity. Higher input costs for wood, other raw materials and freight negatively impacted profitability. Overall paperboard packaging pricing improved 4 percent, reflecting the company's ongoing pricing actions across its lines of business to offset inflationary costs of raw materials.

Consumer Solutions

In the Consumer Solutions segment, profit in the third quarter of 2007 was $26 million compared to $30 million in 2006, a 13 percent decrease. Sales in the third quarter of 2007 increased 4 percent to $611 million from $585 million in 2006. Improved sales in the third quarter of 2007 reflect renewed growth in the global media business and solid growth in the global healthcare and personal care businesses. The growth in media is a result of the company's commercial refocusing efforts, resulting in improved market share for specialty media packaging. Sales were negatively impacted by market weakness in the segment's lawn and garden business due to drought conditions in the mid-Atlantic, Southeastern and Western regions of the U.S. Segment profit decreased due to lower pricing in media and to higher raw material input costs, principally plastic resin and stainless steel, which was partially mitigated by productivity improvements.

Consumer & Office Products

In the Consumer & Office Products segment, profit in the third quarter of 2007 increased 4 percent to $51 million from $49 million in 2006. Sales in the third quarter of 2007 decreased 1 percent to $334 million compared to $339 million in 2006. Segment profit growth and margin improvement was driven by an enhanced product mix from the company's focus on proprietary branded products while lower volume and higher costs for paper negatively impacted results. The company's Five Star® consumer products line experienced a solid back to school season. This segment continues to be affected by Asian-based imported products.

Specialty Chemicals

In the Specialty Chemicals segment, profit in the third quarter of 2007 increased 7 percent to $16 million compared to $15 million in 2006. Sales in the third quarter of 2007 were $131 million which were unchanged compared to 2006. Segment profit growth and margin improvement were driven by improved product pricing and lower selling, general and administrative expenses, which more than offset higher raw material input costs and lower volume. In the pine chemicals business, increased asphalt volume was offset by weakness in chemicals used in certain building products. In the carbon business, lower North American automotive sales continued to negatively impact both volume and mix.

Corporate and Other

Corporate and Other loss in the third quarter of 2007 was $28 million compared to $116 million in 2006. Included in the 2007 results is an $83 million pre-tax gain related to the sale of approximately 62,000 acres of West Virginia forestlands.

Other Items

MeadWestvaco recently sold approximately 290,000 acres of owned forestlands and approximately 95,000 acres of land on which the company had long-term timber rights for $493 million. In the third quarter of 2007, MeadWestvaco closed the sale of approximately 62,000 acres of owned forestlands located in West Virginia for $93 million. In the fourth quarter of 2007, MeadWestvaco closed the sale of approximately 228,000 acres of owned forestlands and approximately 95,000 acres under long-term timber contracts for $400 million. As a result of this transaction, the fourth quarter results will reflect a pre-tax gain of about $160 million. The company intends to return to shareholders proceeds obtained from these transactions.

During the third quarter of 2007, prices for energy, wood, raw materials and freight increased $36 million over the prior year. Capital spending increased to $226 million in the nine-month period ended September 30, 2007, compared to $186 million in the same period of 2006 due primarily to the addition of the dispensing and sprayer business and expansion initiatives in Wuxi, People's Republic of China.

Cash flow from operations was approximately $370 million for the nine-month period ended September 30, 2007, compared to $351 million in the same period last year.

The annual effective tax rate for 2007 is estimated to be about 30 percent. The differences in the effective tax rates of 25 percent for the third quarter and 29 percent for the first three quarters of 2007 compared to statutory rates were primarily the result of the level and mix of domestic versus foreign earnings and the impact of certain discrete items, including a reduction in the German statutory rate.

Outlook: Fourth Quarter 2007

For the fourth quarter of 2007, MeadWestvaco expects total profit from the primary business segments to improve modestly compared to the prior year.

MeadWestvaco expects solid year-over-year segment profit improvement in its Packaging Resources segment. Backlogs remain seasonally firm for the company's key paperboard products. Costs for wood, oil-based materials and freight are expected to remain elevated in the fourth quarter. The company, however, expects to continue to overcome the impact of input cost inflation with price realizations, mix improvements and productivity gains.

In the Consumer Solutions segment, MeadWestvaco expects segment profit to be above fourth quarter 2006 levels. Improved demand in the lawn and garden business, solid performance in beverage and food packaging, and continued growth in the global personal care and healthcare packaging businesses, as well as price realizations to offset higher plastic resin and stainless steel costs, will be the primary drivers of this expected improvement.

In the Consumer & Office Products segment, MeadWestvaco expects segment profit to be similar to year-ago levels. Continued benefits from improved product mix and productivity will be offset by lower volume and higher input costs for raw materials.

In the Specialty Chemicals segment, MeadWestvaco expects segment profit to be similar to year-ago levels. Continued price improvement across all product lines will be offset by volume declines in carbon and building materials products, and by continued input cost inflation.

SOURCE: MeadWestvaco Corp.




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