MeadWestvaco 2nd Quarter Earnings Up Sharply
July 24, 2008 - MeadWestvaco Corporation today reported second quarter 2008
income from continuing operations of $58 million, or $0.34 per share.
Included in the results from continuing operations are after-tax
restructuring charges of $6 million, or $0.03 per share, primarily
related to employee separation costs and facility closures, and an
after-tax gain of $9 million, or $0.05 per share, related to a sale of
corporate real estate. Sales from continuing operations increased 8
percent to $1.71 billion in the second quarter of 2008 compared to sales
from continuing operations of $1.58 billion in the second quarter of
MWV generated solid top-line growth driven by price increases, sales in
emerging markets and growth in its global packaging businesses. Margins,
however, were adversely impacted by rapid input cost escalation during
the quarter. Pre-tax costs for energy, raw materials and freight
increased $64 million versus the year-ago quarter.
MWV's strong sales
performance and commercial momentum in our global packaging markets
included aggressive actions to combat unprecedented input cost inflation
during the second quarter," said John A.
Luke, Jr., chairman and chief executive officer. "While
we continue to address cost challenges by going after price increases in
the marketplace, we are also pressing ahead with our profitable growth
strategy, including a focus on innovative
solutions, growth in emerging markets and relentless productivity
improvement. The overall progress of our global packaging business
demonstrates that these strategies are working, and are helping us
continue to build a sustainable competitive advantage in the global
In the second quarter of 2007, MWV reported income from continuing
operations of $28 million, or $0.15 per share. Included in the results
from continuing operations were after-tax restructuring charges of $5
million, or $0.03 per share, primarily related to employee separation
costs and facility closures, and after-tax one-time costs of $5 million,
or $0.03 per share, related to the company's
On July 1, 2008, MWV completed the sale of its North Charleston, S.C.,
kraft paper mill and related assets to KapStone Paper and Packaging
Corporation for $485 million, subject to certain post-closing
adjustments. For the current and prior year reporting periods, the
company is reporting the results of the North Charleston mill and
related assets as discontinued operations. The results of the North
Charleston mill were previously included in the Packaging Resources
segment. Results from discontinued operations were an after-tax loss of
$2 million, or $0.01 per share, in the second quarter of 2008 compared
to after-tax income of $4 million, or $0.02 per share, in the second
quarter of 2007.
In the Packaging Resources business, segment profit from continuing
operations was $54 million in the second quarter of 2008 compared to $81
million in the second quarter of 2007. Sales from continuing operations
increased 5 percent to $674 million in the second quarter of 2008
compared to $642 million in the second quarter of 2007. Improved pricing
and mix was more than offset by higher costs for energy, wood, raw
materials and freight of $37 million and by higher maintenance-related
expenses of $10 million versus the year-ago quarter. Year-over-year,
bleached board shipments increased 2 percent driven by liquid packaging
and export markets. Bleached board pricing increased 5 percent in the
second quarter of 2008. Year-over-year, coated unbleached kraft (CNK®)
pricing increased 3 percent, but shipments declined 2 percent due to
longer than expected maintenance downtime at the company's
Mahrt mill. Rigesa, the company's Brazilian
operation, posted strong quarterly sales and earnings growth, reflecting
continued solid demand for value-added corrugated packaging solutions in
the domestic Brazilian market and the impact from favorable foreign
The Packaging Resources business continues to take pricing actions
across its entire volume to combat the unprecedented cost inflation that
has negatively impacted margins. In addition, the segment is
implementing a new freight policy to limit its exposure to the rising
cost of fuel on outbound shipments.
In the Consumer Solutions business, segment profit was $22 million in
the second quarter of 2008 compared to $24 million in the second quarter
of 2007. Sales increased 10 percent to $656 million in the second
quarter of 2008 compared to $595 million in the second quarter of 2007.
The segment delivered revenue growth across all lines of business.
Growth was particularly strong in beverage, tobacco, personal care and
healthcare markets outside North America. The segment also generated
improved media packaging results that were driven by strong gains in
higher margin video games packaging and productivity improvement. These
positive developments were more than offset by higher costs for energy,
raw materials and freight. During the quarter, the company continued to
consolidate its converting footprint without reducing capacity,
resulting in the planned closure of its Warrington, Pa. facility.
In the second quarter, the company purchased assets of Oracle Packaging
in North Carolina. This acquisition will strengthen the company's
leading position in North American beverage packaging by adding new
business from Coors, Pepsi and Diageo.
In the third quarter, the company jointly acquired pharmaceutical
packaging company International Labs of St. Petersburg, Fla. with
India-based Bilcare Ltd. The transaction enhances MWV's
ability to provide its innovative Shellpak® compliance packaging solution to leading retailers for their low-cost
branded and generic drug programs. The joint acquisition will streamline
the supply chain by eliminating several steps in the distribution
channel, and will also provide MWV with additional scale and health care
Consumer & Office Products
In the Consumer & Office Products business, segment profit increased 13
percent to $27 million in the second quarter of 2008 compared to $24
million in the second quarter of 2007. Sales in the second quarter of
2008 were $270 million compared to $267 million in the second quarter of
2007. Sales increased modestly due to the company's
continued focus on higher value proprietary products. Segment profit
growth was due to benefits from an improved mix and productivity. These
benefits more than offset higher costs for raw materials, principally
uncoated paper. This segment continues to be impacted by Asian-based
In the Specialty Chemicals business, segment profit was $11 million in
the second quarter of 2008, unchanged compared to the second quarter of
2007. Sales grew 15 percent to $146 million in the second quarter of
2008 compared to $127 million in the second quarter of 2007, driven in
part by a 41 percent increase in sales from outside North America.
Strong exports of performance chemicals and improved pricing was offset
by higher costs for energy, raw materials and freight and by incremental
costs related to refinery maintenance downtime. Lower automotive carbon
sales due to the significant decline in truck sales in North America
also negatively impacted segment profit. The segment is aggressively
pursuing pricing actions across its entire product line to offset energy
and raw materials inflation.
Corporate and Other
Corporate and Other loss was $41 million in the second quarter of 2008
compared to a loss of $98 million in the second quarter of 2007.
Improvement in 2008 was due to higher operating profit from land sales
generated by the Community Development and Land Management business, a
gain from a sale of corporate real estate, lower overall corporate
expense, and increased interest income.
Profit from land sales generated by the Community Development and Land
Management business was $21 million in the second quarter of 2008
compared to $5 million in the second quarter of 2007. The company sold
approximately 7,300 acres in the second quarter of 2008 at an average
price per acre of about $3,300 as part of its small-tract sales
strategy. The company currently has 170 tracts that it is actively
marketing through multiple channels.
In the second quarter of 2008, pre-tax costs for energy, wood, raw
materials and freight increased $64 million over the prior-year quarter
on a continuing operations basis.
In the second quarter of 2008, the pre-tax impact from favorable foreign
exchange was $3 million higher compared to the prior-year quarter on a
continuing operations basis.
Cash flow provided by operations was over $150 million in the first half
of 2008, compared to $191 million in the first half of 2007. The decline
was principally driven by higher working capital.
Capital spending for continuing operations was $142 million in the first
half of 2008 compared to $139 million in the first half of 2007.
During the second quarter of 2008, MWV completed its $400 million
accelerated share repurchase program. As a result of this program, which
began in November 2007, the company retired 14 million shares at an
average price of $28.51 per share, representing 7.5 percent of the total
shares outstanding when the program commenced.
In the second quarter of 2008, the tax provision attributable to income
from continuing operations had an effective rate of approximately 20
percent. The effective rate differed from statutory rates primarily due
to changes in the mix of expected income levels between the company's
domestic and foreign operation and certain discrete items. The annual
effective tax rate for 2008 excluding discrete items is expected to be
about 26 percent.
MWV paid a regular quarterly dividend of $0.23 during the second quarter
of 2008, and on June 23, 2008, declared a quarterly dividend payable on
September 2, 2008, to stockholders of record at the close of business on
August 1, 2008.
In the Packaging Resources business, third quarter segment profit is
expected to be similar to prior-year results. Overall demand for the
company's paperboard grades remains solid
with backlogs that are at or above the prior year. However, costs for
fiber, oil-based materials and freight are expected to continue to
increase to historically high levels and pressure segment profits. The
company is continuing to execute price increases and limit its exposure
to freight-related surcharges to help offset the effects of input cost
inflation. Improved productivity in the third quarter is expected to
help partially offset the impact of input cost inflation.
In the Consumer Solutions business, third quarter segment profit is
expected to be similar to prior-year results. Continued strength in
global beverage, home and garden, and healthcare packaging, as well as
improvement in global media packaging combined with ongoing pricing and
productivity improvement actions are expected to be offset by continued
input cost inflation.
In the Consumer & Office Products business, third quarter segment profit
is expected to be lower than the prior-year results. Uncertainty in the
U.S. economy could result in lower consumer product sell-through during
the important back-to-school season. In addition, shipments for the
planning products business may also be affected by the uncertain
economy, resulting in a potential shift of shipments between the third
and fourth quarters.
In the Specialty Chemicals business, third quarter segment profit is
expected to be modestly above prior-year results. Continued demand for
performance chemicals, higher pricing and increased productivity are
expected to more than offset lower market-related demand for automotive
emissions carbon and housing-related chemicals as well as higher costs
for energy, raw materials and freight.
SOURCE: MeadWestvaco Corp.