RockTenn Posts 3rd Quarter Loss on Smurfit-Stone Acquisition Charges

Aug. 2, 2011 - RockTenn today reported a loss for the quarter ended June 30, 2011 [fiscal third quarter] of $0.60 per diluted share due to Smurfit-Stone acquisition related charges. The Company’s adjusted earnings were $1.29 per diluted share, up 13% compared to the prior year quarter adjusted earnings of $1.14 per diluted share.

Third Quarter Results

  • Net sales of $1,382.1 million for the third quarter of fiscal 2011 increased $610.2 million, or 79.1% over the third quarter of fiscal 2010, primarily as a result of the May 27, 2011, Smurfit-Stone acquisition.
  • Segment income, adjusted to eliminate $55.4 million of pre-tax acquisition inventory step-up was $145.7 million, or 35.0% over the prior year quarter, primarily as a result of the Smurfit-Stone acquisition.
  • GAAP requires that an acquirer value inventory acquired at fair value. This reduces the profit on sales to that portion attributable to the selling effort. For us, this step-up in value reduced our income for the month of June 2011 by $55.4 million pre-tax, or $0.69 per diluted share after-tax, as most of the acquired inventory was sold and an intercompany profit reserve was established on new inventory and charged to cost of goods sold.
  • RockTenn’s pre-tax restructuring and other costs, net of related noncontrolling interest, were $55.4 million, or $0.71 per diluted share after-tax, for the third quarter of fiscal 2011 consisting of $29.5 million of pre-tax integration costs that primarily consisted of severance and other employee costs and professional services, $13.7 million of pre-tax facility closure charges primarily related to four former Smurfit-Stone corrugated container plants and one folding carton plant and $12.2 million of pre-tax acquisition costs.
  • We recognized a pre-tax loss on extinguishment of debt of $39.5 million, or $0.49 per diluted share for associated fees and expenses incurred in connection with the $4.3 billion of acquisition debt financing and the repayment and termination of pre-acquisition financing arrangements. The extinguishment represented approximately half of the fees and expenses we paid in connection with the new facilities. The remainder will be amortized to interest expense over the life of the debt instruments.

RockTenn Chairman and Chief Executive Officer James A. Rubright stated, “Our 13% adjusted earnings increase over the prior year quarter and 24% increase over the immediately preceding quarter resulted from the earnings accretion from the 34 days of operating results in the quarter following the acquisition of Smurfit-Stone on May 27, 2011. We expected this acquisition to be highly accretive to earnings, and it has been and should continue to be so. We are ahead of our expectations on capturing synergies from the acquisition and estimate that by quarter end we had achieved a run rate of synergy capture of between $75 million and $80 million.”

SEGMENT RESULTS

In the third quarter of fiscal 2011, following the Smurfit-Stone acquisition, we announced a realignment of operating responsibilities. Our business segments include the following: Corrugated Packaging, consisting of our containerboard mills and our corrugated converting operations; Consumer Packaging, consisting of our folding carton operations, our coated and uncoated paperboard mills, merchandising displays operations and our interior partition operations; and Recycling and Waste Solutions, which consists of our recycled fiber procurement and trading activities. Our results have been reclassified for all periods presented to reflect this realignment.

Containerboard and Paperboard Tons Produced
Total tons produced in the third quarter of fiscal 2011 increased by approximately 643,000 tons over the prior year quarter due to the Smurfit-Stone acquisition. The increase included an increase in recycled paperboard tons, which was partially offset by lower tons at our bleached paperboard mill in Demopolis, Alabama due to a scheduled major maintenance outage.

Corrugated Packaging Segment
Corrugated Packaging segment net sales increased $524.0 million to $734.5 million in the third quarter of fiscal 2011 compared to the prior year quarter, due primarily to the Smurfit-Stone acquisition. Segment income, adjusted to eliminate $55.4 million of pre-tax acquisition inventory step-up, increased to $80.0 million in the third quarter of fiscal 2011 compared to $36.7 million in the prior year quarter. Corrugated segment EBITDA margin was 16.9% for the quarter.

Consumer Packaging Segment
Consumer Packaging segment net sales increased $36.1 million in the third quarter of fiscal 2011 compared to the prior year quarter, primarily due to display sales from the Smurfit-Stone acquisition, higher paperboard selling prices, increased recycled paperboard tons shipped and higher folding carton selling prices and volumes. Segment income decreased $7.9 million to $61.1 million in the third quarter of fiscal 2011 primarily due to the bleached paperboard mill outage and higher fiber, chemical, freight and energy costs that were partially offset by lower virgin fiber costs.

Recycling and Waste Solutions Segment
Recycling and Waste Solutions segment net sales increased $106.7 million over the prior year third quarter to $147.4 million primarily due to the Smurfit-Stone acquisition. Segment income was $4.6 million in the third quarter of fiscal 2011 compared to $2.2 million in the third quarter the prior year.

Cash Provided By Operating Activities
Net cash provided by operating activities in the third quarter of fiscal 2011 was $145.7 million compared to $100.3 million in the third quarter of the prior year.

RockTenn is one of North America's leading integrated manufacturers of corrugated and consumer packaging and recycling solutions, with net sales of approximately $10 billion. RockTenn’s 26,000 employees are committed to exceeding their customers’ expectations — every time. The company operates locations in the United States, Canada, Mexico, Chile, Argentina and China.

SOURCE: RockTenn