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MeadWestvaco Fourth Quarter Earnings Rise

Feb. 1, 2008 - MeadWestvaco Corp. today reported 2007 fourth quarter net income of $148 million, or $0.82 per share. Included in the results are after-tax restructuring charges of $26 million, or $0.14 per share, primarily related to asset write-downs and employee separation costs, and after-tax one-time costs of $3 million, or $0.02 per share, related to the company’s cost initiative. The results also include an after-tax gain of $102 million, or $0.56 per share, related to the sale of approximately 228,000 acres of owned forestlands and approximately 95,000 acres under long-term timber contracts. Sales in the fourth quarter of 2007 increased 4 percent to $1.85 billion compared to $1.78 billion in the fourth quarter of 2006.

In the fourth quarter of 2007, profit from MeadWestvaco’s business segments declined modestly to $168 million from $174 million in 2006. Profit declines in certain consumer packaging lines of business were partially offset by strong profit growth in the mill-based business.

For the full year, profit from MeadWestvaco’s business segments increased 7 percent to $584 million in 2007 from $546 million in 2006. Strong profit growth in the mill-based business and consumer and office products business drove the overall increase in business segment profit. During the year, the company made market share gains and realized higher prices in key paperboard grades, generated strong growth in healthcare packaging solutions, increased sales of proprietary branded consumer and office products and improved productivity.

“MeadWestvaco's improved results in 2007 demonstrate that our competitive global packaging platform is delivering value for our customers and helping to generate better returns for shareholders,” said John A. Luke, Jr., chairman and chief executive officer. “We strengthened our competitive position and gained market share in many of our packaging businesses, even as rising input costs and challenges in the broader economy impacted our fourth quarter results.”

Luke continued, “We will continue to execute on imperatives that ensure we fully capitalize on the substantial growth opportunities in our global packaging markets – including introducing innovative new products to the marketplace, expanding our business in both established and emerging markets and by continuing to increase productivity across our businesses. These actions and our strong positions in growing diversified global markets give us confidence that we can continue to improve our competitive position through an uncertain economic environment.”

Quarterly Comparison

In the fourth quarter of 2006, net income was $41 million, or $0.23 per share. Included in the results are after-tax restructuring charges of $34 million, or $0.19 per share, primarily related to asset write-downs and employee separation costs and after-tax one-time costs of $12 million, or $0.06 per share, related to the company’s cost initiative. The results also include an after-tax gain of $11 million, or $0.06 per share, related to the sale of corporate real estate.

Full-Year Comparison

In 2007, sales increased 6 percent to $6.91 billion compared to $6.53 billion in 2006. Sales outside the U.S. grew to approximately 45 percent of total sales in 2007.

In 2007, net income was $285 million, or $1.56 per share. Included in the results are after-tax restructuring charges of $54 million, or $0.29 per share, after-tax one-time costs of $15 million, or $0.08 per share, related to the company’s cost initiative and after-tax gains from sales of forestlands of $155 million, or $0.84 per share.

In 2006, net income was $93 million, or $0.52 per share, and included after-tax restructuring charges of $85 million, or $0.47 per share, after-tax one-time costs of $26 million, or $0.14 per share, related to the company’s cost initiative, and after-tax gains of $24 million, or $0.13 per share, from the sale of a note and corporate real estate.

Packaging Resources

In the Packaging Resources segment, profit in the fourth quarter of 2007 increased 19 percent to $80 million compared to $67 million in 2006. Sales in the fourth quarter of 2007 grew 4 percent to $755 million compared to $726 million in 2006. Segment profit growth and margin expansion were driven by improved price and mix and increased productivity. Higher input costs for wood, other raw materials and freight negatively impacted profitability. Overall paperboard packaging pricing improved 6 percent, reflecting the company’s ongoing pricing actions across its lines of business to help offset inflationary costs.

The Packaging Resources segment’s full year 2007 profit increased 17 percent to $322 million compared to $275 million in 2006. Sales in 2007 increased 2 percent to $3.02 billion compared to $2.95 billion in 2006.

Consumer Solutions

In the Consumer Solutions segment, profit in the fourth quarter of 2007 was $16 million compared to $33 million in 2006. Sales in the fourth quarter of 2007 increased 5 percent to $659 million from $625 million in 2006. Increased sales in the fourth quarter of 2007 reflect strong growth in the global beverage and healthcare businesses. In global media, sales were even with last year as market share gains for DVD specialty packaging and games packaging offset declines in CD music packaging. Segment profit decreased due to higher raw material input costs and lower pricing in media. Profitability was also impacted by costs associated with growth investments to enhance the company’s global packaging platform, including ramp-up costs for the new manufacturing facility in Wuxi, People’s Republic of China, and by start-up costs for Keltec Dispensing Systems, which produces innovative airless and foaming dispensing solutions for the global personal care market.

The Consumer Solutions segment’s full year 2007 profit was $86 million compared to $93 million in 2006. Sales in 2007 increased 12 percent to $2.43 billion compared to $2.17 billion in 2006.

Consumer & Office Products

In the Consumer & Office Products segment, profit in the fourth quarter of 2007 was $66 million, unchanged compared to 2006. Sales in the fourth quarter of 2007 were $345 million compared to $349 million in 2006. Segment profit was impacted by lower volumes and higher costs for raw materials, which were offset by improved mix and stronger results from the company’s Brazilian school business. This segment continues to benefit from a focus on higher-value proprietary branded products, but faces challenging market conditions, including Asian-based imports, rising commodity costs, and slower retail growth.

The Consumer & Office Products segment’s full year 2007 profit increased 9 percent to $139 million from $127 million in 2006. Sales in 2007 were $1.15 billion compared to $1.14 billion in 2006.

Specialty Chemicals

In the Specialty Chemicals segment, profit in the fourth quarter of 2007 was $6 million compared to $8 million in 2006. Sales in the fourth quarter of 2007 increased 5 percent to $123 million from $117 million in 2006. Segment profit was impacted by higher raw material costs, lower North American automotive sales and weak demand for building products, which negatively impacted both volume and mix.

The Specialty Chemicals segment’s full year 2007 profit decreased to $37 million compared to $51 million in 2006. Sales in 2007 were $493 million, unchanged compared to 2006.

Corporate and Other

Corporate and Other had a profit of $39 million in the fourth quarter of 2007 compared to a loss of $138 million in 2006. Included in the 2007 results is a pre-tax gain of $167 million related to the sale of approximately 228,000 acres of owned forestlands and approximately 95,000 acres under long-term timber contracts.

Corporate and Other had a loss of $184 million in the full year of 2007 compared to a loss of $448 million in 2006. Included in the 2007 results is a pre-tax gain of $250 million related to the sale of approximately 290,000 acres of owned forestlands and approximately 95,000 acres under long-term timber contracts.

Other Items

On November 20, 2007, MeadWestvaco entered into an accelerated share repurchase agreement with a third party to purchase $400 million of MeadWestvaco’s outstanding common stock. Under the agreement, MeadWestvaco has received and retired approximately 11 million shares through December 31, 2007. The agreement is a collared transaction that established minimum and maximum numbers of shares to be delivered, up to a total of approximately 14 million. The exact number of shares to be purchased will be determined at the conclusion of the agreement, which will be no later than June 2008. This program was funded with cash proceeds from sales of forestlands that occurred in the third and fourth quarters of 2007.

During the fourth quarter of 2007, costs for energy, wood, raw materials and freight increased $40 million over the prior year.

Capital spending increased to $347 million in 2007, compared to $302 million in 2006 due to investments to expand the global packaging platform.

Cash flow from continuing operations exceeded $630 million in 2007 compared to $567 million last year, reflecting improved earnings and working capital improvements.

MeadWestvaco paid a regular quarterly dividend of $0.23 per share during the fourth quarter and, on January 28, 2008, declared a quarterly dividend of $0.23 per share payable on March 3, 2008, to stockholders of record at the close of business on February 7, 2008. For the full year of 2007, the company paid $169 million in dividends to shareholders, or $0.92 per share.

Full-Year and First Quarter 2008 Outlook

In 2008, MeadWestvaco is focused on generating improved year-over-year revenue and earnings growth. Key earnings drivers the company is focused on executing in 2008 are:

  • Profitable growth from targeted global packaging end-markets, including beverage, personal care, healthcare and tobacco;
  • Increasing sales in emerging markets, including China, India and Brazil;
  • Increasing sales from new innovative products, including Natralock®, Shellpak™ and other new applications across personal care and healthcare markets;
  • Ongoing efforts to offset input cost inflation with price improvement;
  • Improving cost productivity driven by ongoing and significant manufacturing, supply-chain and sourcing actions; and
  • Real estate sales generated by the company’s Community Development and Land Management Group.

The first quarter is the seasonally weakest period for MeadWestvaco’s business segments. In the first quarter of 2008, MeadWestvaco expects total profit from its business segments to improve compared to the prior year.

MeadWestvaco expects first quarter segment profit in its Packaging Resources segment to be even with year-ago levels. Backlogs remain seasonally firm for the company’s key paperboard products. Costs for wood, oil-based materials and freight are, however, expected to remain at historically high levels into the first quarter. The company plans to continue its efforts to offset the impact of input cost inflation with price realizations and mix improvements. Two planned mill maintenance outages will negatively impact year-over-year segment profitability in the first quarter.

In the Consumer Solutions segment, MeadWestvaco expects first quarter segment profit to be even with year-ago levels. Solid seasonal performance in beverage, food and tobacco and growth in the personal care and healthcare packaging businesses outside the U.S. are expected to offset input cost inflation and lower global volumes in media due to market-related declines.

In the Consumer & Office Products segment, MeadWestvaco expects first quarter segment profit to be modestly above year-ago levels. Stronger volumes in the company’s Brazilian business and increased volumes for time management products from sales shifting to the first quarter, as well as improved mix and productivity, will more than offset higher input costs for raw materials.

In the Specialty Chemicals segment, MeadWestvaco expects strong year-over-year improvement in first quarter segment profit. Price and mix improvements will more than offset volume declines in carbon and building materials products and input cost inflation.

SOURCE: MeadWestvaco Corp.




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