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Pactiv Posts 3rd Quarter Profit

Oct. 21, 2009 - Pactiv Corp. announced that for its third quarter ending Sept. 30 income from continuing operations was $73 million, or $0.54 per share, compared with $54 million, or $0.40 per share on a reported basis, or $0.39 per share excluding a restructuring credit, in 2008. Sales declined 9 percent to $839 million from $925 million, reflecting 2-percent higher volume and 11-percent lower pricing. The price decline reflects normal reductions as a result of lower year-over-year raw material costs.

“We continued to perform well in the third quarter. Our volume growth and productivity programs accounted for almost half of our year-over-year gross profit improvement. Our Foodservice segment posted strong volume growth, and, while our Consumer segment volume was slightly negative, we expect to see a rebound in the fourth quarter. During the year we made substantial progress on the asset side of our pension funding issue. Interest rate declines have masked some of this benefit, but we expect our progress will become more apparent as rates rise with an economic recovery,” said Richard L. Wambold, Pactiv’s chairman and chief executive officer.

Third quarter gross margin was 31.7 percent compared with 23.1 percent in 2008. Operating margin was 16.3 percent compared with 11.0 percent on a reported basis and 10.8 percent excluding the restructuring credit last year. Both increases reflected lower operating expenses, favorable spread (the difference between selling prices and raw material costs), and higher volume.

Selling, general, and administrative (SG&A) expense was $83 million compared with $67 million last year. The increase primarily was a result of a return to more normal advertising spending and incentive compensation accruals this year, as well as lower pension income.

After a pension contribution of $200 million pretax and related favorable cash tax effects of $30 million, free cash flow in the third quarter was a use of $31 million compared with a source of $88 million in 2008. Excluding the after-tax cash effect of the pension contribution, free cash flow in the third quarter of 2009 would have been $139 million.

For the nine-month period, income from continuing operations was $261 million, or $1.96 per share, compared with $153 million, or $1.15 per share, last year on a reported basis, and $1.22 per share excluding the restructuring charge. Sales of $2.51 billion decreased 7 percent from $2.68 billion. Gross margin was 35.3 percent compared with 25.0 percent, while operating margin was 19.3 percent versus 11.5 percent. Excluding the restructuring charge, 2008 operating margin was 12.0 percent. After pension contributions of $400 million pretax and related favorable cash tax effects of $100 million, year-to-date 2009 free cash flow was $136 million compared with $82 million last year. Excluding the after-tax cash effect of the pension contributions, 2009 free cash flow for the nine-month period would have been $436 million.

OUTLOOK

The Company’s fourth quarter EPS outlook is a range of $0.48 to $0.52. Raw material costs are expected to be similar to third quarter 2009 levels. The full year EPS outlook has been raised to a range of $2.44 to $2.48 from $2.37 to $2.45, and includes non-cash pension income of $37 million pretax, $23 million after tax, or $0.17 per share.

Full year 2009 sales are expected to decline in a range of 6 percent to 7 percent. The sales outlook incorporates a volume increase of 2 percent to 3 percent, a price decline in a range of 8 percent to 9 percent, and unfavorable foreign exchange of approximately 1 percent.

SG&A expense is estimated to be approximately $340 million, and the 2009 tax rate is expected to be 37.0 percent.

After pension contributions of $400 million pretax, or $300 million after tax, free cash flow for 2009 is anticipated to be in a range of $200 million to $210 million, up from a range of $170 million to $190 million due to higher earnings and improved working capital. Before pension contributions, the full year free cash flow estimate is $480 million to $490 million. Depreciation and amortization expense is expected to be approximately $185 million, and capital expenditures are estimated to be approximately $130 million, up from $120 million.

SOURCE: Pactiv Corp.




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