Packaging solutions provider MeadWestvaco Corp. (MWV) reported Wednesday a profit for the third quarter that soared from last year, boosted by increase in profitability across all its business segments, overhead cost reductions and improved operating productivity, despite a decline in quarterly revenues.
Adjusted earnings per share from continuing operations almost doubled and significantly topped analysts' expectations. However, the company refrained from providing guidance as the continued global economic uncertainty makes the future results difficult to predict.
In a statement, chairman and chief executive officer, John Luke, Jr. said, "We posted strong third quarter results by continuing to advance our transformation strategies to create a stronger, more competitive global packaging company. Even as we navigate through one of the most severe recessions in decades, our financial strength and flexibility have allowed us to continue to invest in the right innovation and growth opportunities for our business."
Third Quarter Results
The Glen Allen, Virginia-based company reported net income of $128 million or $0.74 per share for the third quarter, higher than $54 million or $0.31 per share in the prior-year quarter.
Income from continuing operations for the quarter climbed to $128 million or $0.74 per share from $46 million or $0.26 per share in the year-ago quarter.
The results for the latest quarter include a net benefit of after-tax $42 million or $0.24 per share, consisting of an income of $64 million or $0.37 per share from alternative fuel tax credits, income of $13 million or $0.07 per share from vacation accrual adjustments due to a policy change, a gain of $4 million or $0.02 per share from a pension curtailment, restructuring charges of $28 million or $0.16 per share, and a charge of $11 million or $0.06 per share from early retirement of debt.
Excluding special items, adjusted earnings per share from continuing operations for the quarter surged $0.50 from last year's $26. On average, twelve analysts polled by Thomson Reuters expected the company to report earnings of $0.27 per share. Analysts' estimates typically exclude special items.
Net sales for the quarter declined to $1.63 billion from $1.81 billion in the same quarter last year, and missed seven Wall Street analysts' consensus estimate of $1.57 billion.
Peer Performance
Among MeadWestvaco's peers, Memphis, Tennessee-based International Paper Co. (IP) reported earlier in the day a profit for the third quarter that more than doubled from last year to $371 million or $0.87 per share, reflecting a significant pre-tax credit for alternative fuel mixture. However, adjusted earnings from continuing operations plunged to $157 million or $0.37 per share from $356 million or $0.84 per share in the same quarter last year. Quarterly net sales declined to $5.9 billion from previous year's sales of $6.8 billion.
Another peer, Federal Way, Washington-based Weyerhaeuser Co. (WY) is scheduled to report financial results for the third quarter on October 30, 2009. Analysts anticipate Weyerhaeuser to report a loss of $0.45 per share for the third quarter, on revenues of $1.42 billion.
Segmental Details
Sales for the packaging resources segment were $627 million, down from $730 million in the year-ago quarter. Segment profit from continuing operations increased 16% to $74 million from last year, due to improved product pricing and mix, strong operational productivity, and lower input costs.
Consumer solutions segment sales declined to $585 million from $653 million in the prior-year quarter. Segment profit more than doubled to $35 million from %14 million a year ago, benefiting from input cost deflation, maximizing of production efficiency, and exiting from unprofitable product lines.
The company's consumer & office products segment reported sales of $303 million, lower than $312 million in the same quarter last year. Segment profit increased 34% to $51 million from last year, reflecting productivity actions and tight cost controls. The segment also benefited from a solid back-to-school season in North America.
Specialty chemicals segment sales edged up to $155 million from $154 million in the year-ago quarter. Segment profit increased 50% to $24 million from a year ago, as improved productivity helped offset unabsorbed fixed manufacturing costs. The focus on innovative products in several global markets helped the segment boost both sales and profits.
Community development and land management segment's sales increased to $41 million from $35 million a year ago. Segment profit was $20 million, sharply up from $11 million in the prior-year quarter. The increase in both sales and profit was driven by higher land sales volume. However, real estate industry conditions remain challenging due to continued credit tightening and weaker consumer spending.
Other Metrics
Total segment profit for the third quarter soared to $184 million from $51 million in the prior-year quarter. Selling, general and administrative expenses were $188 million, lower than $212 million in the year-ago quarter.
Income tax provisions for the quarter jumped to $56 million from a mere $5 million in the same quarter last year.
The company noted that it largely completed the overhead and facility actions associated with its strategic cost management program during the third quarter. The company is on track to exceed fiscal 2009 overhead savings target of $125 million with the cumulative savings through the first three quarters of 2009 reached $90 million. By the end of 2009, these actions are expected to result in the elimination of over 2,000 positions, or 10% of the company's global workforce, and the closure or restructure of over 16 manufacturing facilities.
The company continues to deliver higher earnings and increased margins in its core packaging businesses by focusing on innovative solutions in attractive global markets and by improving cost and productivity discipline. In the third quarter, the company achieved savings of $44 million, and has targeted run-rate of more than $300 million by mid-2010 from facility actions, overhead cost reductions, and sourcing savings.
Nine-Month Highlights
For the nine-month period, the company reported net income of $174 million or $1.01 per share, higher than $106 million or $0.61 per share in the prior-year period. Income from continuing operations for the period climbed to $174 million or $1.01 per share from $96 million or $0.55 per share in the year-ago period.
Net sales for the year-to-date period dropped to $4.41 billion from $5.04 billion in the same period last year.
Looking Ahead.......
"We are making solid gains in each of our businesses by reshaping our market participation, reducing overhead and operating costs, and improving productivity at our facilities. Along with our strong financial position, these strategies are helping us perform in this low demand environment, and importantly, will position us to outperform in a recovering economy," Luke added.
The company refrained from providing guidance as the continued global economic uncertainty makes the future results difficult to predict. However, it would continue to execute its transformation strategies that are centered on increased participation in higher return markets, improved cost competitiveness, and excellent financial strength.
Stock Quote
MWV closed Tuesday's regular trading session at $22.77, down $0.40 on a volume of 2.09 million shares, higher than the three-month average volume of 1.79 million shares. In the past 52-week period, the stock has been trading in a range of $7.53 to $25.01.
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