MeadWestvaco Corporation (MWV) reported second-quarter 2014 adjusted earnings from continuing operations of 53 cents per share, which increased nearly twofold from the year-ago quarter’s earnings per share of 28 cents. The reported figure came ahead of the Zacks Consensus Estimate of 50 cents.
Including one-time items, earnings in the quarter came in at 43 cents per share, improving 53.6% year over year.
Operational Updates
Total revenue rose 5.8% year over year to $1.47 billion also surpassing the Zacks Consensus Estimate of $1.44 billion. The year over year growth was driven by gains across targeted packaging and specialty chemicals markets.
Cost of sales remained flat at $1.15 billion compared with the year-ago quarter. Gross profit grew 34% to $318 million from $237 million in the year-ago quarter and gross margin increased 470 basis points (bps) to 21.7%.
Selling, general and administrative expenses in the reported quarter went up 0.6% year over year to $160 million. Adjusted operating profit increased twofold to $158 million from $78 million in the year-ago quarter. Consequently, operating margin expanded 520 bps to 10.8%.
Segmental Performance
Food & Beverage: Revenues in the segment increased 5.5% year over year to $846 million. The increase was driven by solid pricing and product mix gains. Segment profit increased 79% to $93 million from $52 million in the year-ago quarter.
Home, Health & Beauty: Revenues in the segment grew 7.4% to $202 million from $188 million in the prior-year quarter, led by rise in the demand of value home and garden, beauty and skin care, fragrance and medical dispensing solutions. Profit for the segment was $17 million, improving twofold from the year-ago quarter profit of $3 million.
Industrial: Net sales in the quarter rose 3.6% to $143 million from $138 million in the prior-year quarter. However, segment profit declined 15% year over year to $17 million, due to weaker corrugated volumes and unfavorable foreign currency exchange.
Specialty Chemical: The segment reported record revenues of $285 million, up 9.6% from the year-ago quarter, driven by solid pricing and product mix gains, along with positive productivity from improved utilization rates. The segment’s profit increased 13% to a record $69 million from the year-ago quarter.
Community Development and Land Management: Segment sales remained flat at $3 million in the reported quarter compared with the prior-year quarter. The segment reported an operating loss of $3 million, flat compared with the year-ago quarter.
Financial Position & Other Updates
As of Jun 30, 2014, MeadWestvaco’s cash and cash equivalents were $339 million versus $1.06 billion as of 2013-end. The company recorded cash flow from operating activities of $151 million in the quarter compared with $167 million in the year-ago quarter.
Long-term debt remained flat at $1.8 billion as of Jun 30, 2014 as compared with 2013-end. Debt-to-capitalization ratio was 33.7% as of Jun 30, 2014, up from 31.5% as of Dec 31, 2013.
MeadWestvaco completed its previously announced accelerated stock repurchase program. Approximately 7.9 million shares were retired throughout the duration of the program using a portion of the proceeds from forestland sales. The company has returned more than $600 million to shareholders through repurchases and special dividend.
Outlook
Though MeadWestvaco did not provide any specific guidance for fiscal 2014, it expects enhanced operating productivity and continued improvement to drive the second half of 2014 results and to assist in attaining the goal of market-leading margins in 2015.
For the third quarter of 2014, earnings excluding special items are expected to be above year-ago levels on a continuing operations basis, led by benefits from commercial and operational excellence strategies, as well as continued contributions from growth and productivity improvements and cost savings initiatives. The company had reported earnings per share of 49 cents in the third quarter of 2013.
Further, improvement in third-quarter results are expected to be driven by increase in packaging volumes, ongoing value-based pricing initiatives across all packaging businesses, continued positive operating leverage from increased mill and plant utilization rates and cost reduction efforts. However, continued soft economic conditions in Brazil, demand challenges in frozen food markets and increased cost of raw materials remain matters of concern.
Our View
We believe that going forward MeadWestvaco will benefit from its new products, growth strategies, acquisitions and sale of nonperforming businesses.
Richmond, VA-based MeadWestvaco is a global packaging company providing innovative solutions to the world’s most renowned brands in the healthcare, beauty and personal care, food, beverage, home and garden, tobacco, and agricultural industries. The company also produces specialty chemicals for automotive, energy and infrastructure industries.
Currently, MeadWestvaco has a Zacks Rank #2 (Buy). Some other stocks in the containers industry that are performing well and have a good visibility include Graphic Packaging Holding Company (GPK), Sealed Air Corporation (SEE) and Bemis Company, Inc. (BMS). While Graphic Packaging and Sealed Air sport a Zacks Rank #1 (Strong Buy), Bemis carries the same rank as MeadWestvaco.
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