MeadWestvaco Corporation (MWV) reported net income from continuing operations of $117 million or 67 cents per share in the third quarter of 2011 compared with $109 million or 63 cents per share in the year-ago quarter.
Reported earnings in the quarter included after-tax restructuring charges of $4 million or 3 cents per share versus a tax benefit of $15 million or 9 cents per share related to cellulosic biofuel producer credits, after-tax restructuring charges of $10 million or 6 cents per share and an after-tax charge of $4 million or 2 cents per share from early retirement of debt in the year-ago quarter.
Excluding these items, adjusted income of MeadWestvaco stood at 70 cents per share in the quarter, up from 62 cents per share in the year-ago period. Adjusted earnings also exceeded the Zacks Consensus Estimate of 65 cents per share.
Total revenue increased 9% year over year to $1.64 billion in the reported quarter, beating the Zacks Consensus Estimate of $1.58 billion.
Cost of sales increased to $1.23 billion in the reported quarter from $1.16 billion in the year-earlier quarter. Selling, general and administrative expenses rose to $197 million in the quarter from $193 million in the year-earlier quarter.
Segmental Performance
Packaging Resources segment reported total revenue of $750 million, up from $703 million in the prior-year quarter. Total paperboard shipments declined 6% year over year.
The increase in sales was mainly due to improved paperboard pricing and product mix across all end-markets, especially global food, beverage, tobacco, liquid packaging and commercial print, and favorable currency exchange impact.
Operating profit increased to $102 million from $91 million in the year-earlier quarter. Profit improved mainly due to pricing improvement and product mix across key product lines, increased productivity and favorable foreign currency exchange, partly offset by higher prices for certain raw materials and freight, higher maintenance expenses and unabsorbed fixed manufacturing costs arising from the planned Mahrt mill outage last month.
Net sales in Consumer Solutions segment increased 5% year over year to $478 million, primarily driven by strong volume growth in airless dispensers and beverage businesses in the emerging markets, market share gains in tobacco and healthcare packaging businesses, favorable foreign currency exchange and benefits from the addition of the trigger sprayer business acquired with Spray Plast.
Operating profit in the segment declined 29% year over year to $27 million in the quarter, largely due to increased costs for resins, stainless steel, energy and freight.
Net sales from the Consumer & Office Products segment inched down 1% year over year to $228 million in the quarter due to unfavorable shipment timings, largely mitigated by increased sales volume at Tilibra, the segment’s Brazilian operation.
However, income from operations for the segment grew 4% year over year to $53 million in the quarter. Product mix improvement from the timing of branded product sales, continued productivity gains and favorable foreign currency exchange were primarily responsible for the improvement in income, partly offset by cost inflation for raw materials and freight.
Specialty Chemicals segment reported total revenue of $225 million, up 19% year over year. Improvement in sales was driven by strong performance in higher value markets for pine chemicals, asphalt additives and carbon technologies in both developed and emerging countries.
Operating profit increased 27% year over year to $56 million during the quarter. Product mix and pricing improvement and higher volumes across key pine chemicals product lines were the major growth drivers, partly offset by higher costs.
Community Development & Land Management segment reported net sales of $53 million, up considerably from the year-earlier quarter’s level of $26 million. The land sale in the quarter shot up to 15,700 acres from 2,200 acres in the year-ago quarter.
Operating profit increased significantly to $19 million in the quarter from $2 million a year earlier, reflecting increased activities in the segment.
Financial Position
As of September 30, 2011, cash and cash equivalents decreased to $757 million from $790 million as of December 31, 2010. Long-term debt decreased to $1.85 billion as of September 30, 2011 from $2.04 billion as of December 31, 2010. However, inventories rose to $748 million at the end of the third quarter in 2011 from $642 million at the end of the fourth quarter in 2010.
Cash flow from operating activities was approximately $390 million in the first nine months of 2011 compared with $333 million in the comparable period of 2010, reflecting higher earnings. Capital expenditure also increased to $439 million in the first three quarters of 2011 from $136 million from the year-ago period, reflecting the company’s business expansion plans.
Outlook
Management did not provide any estimates for 2011, but believes that earnings in the fourth quarter will be negatively impacted by higher costs arising from the planned maintenance and upgrade outage at the Covington paperboard mill and to lower rural land sales.
In addition, the company remains concerned about the ongoing macro-economic challenges in developed markets and the impact on consumer demand, higher costs for certain raw materials and freight, as well as the potential impact of policies in key emerging markets to control inflation.
MeadWestvaco Corporation provides solutions to companies operating in the healthcare, beauty and personal care, food, beverage, home and garden, tobacco, and commercial print industries. The company competes with the likes of International Paper Co. (IP) and Weyerhaeuser Co. (WY). The shares of MeadWestvaco are currently maintaining a Zacks #4 Rank (Sell rating) over the short term.
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