MeadWestvaco Reports Mixed 3Q (MWV)

MeadWestvaco Corporation (MWV) has reported third-quarter 2012 adjusted earnings of 39 cents per share compared with 51 cents in the year-ago quarter. The adjusted earnings were in line with the Zacks Consensus Estimate.

Adjusted earnings in the reported quarter exclude restructuring charges of $2 million (or 1 cent a share) compared with charges of $4 million (or 2 cents per share). Including restructuring charges, earnings were 38 cents per share in the quarter compared with 49 cents in the year-ago quarter.

Total revenues in the reported quarter remained flat year over year to $1.40 billion, surpassing the Zacks Consensus Estimate of $1.37 billion. The growth reflects higher volumes, improved pricing and favorable product mix, partially offsetting the unfavorable impacts of foreign currency and lower land sales.

Cost of sales increased 0.5% year over year in the quarter to $1.1 billion. Selling, general and administrative expenses fell 0.6% year over year to $160 million.

Segmental Performance

The Food & Beverage segment reported total revenues of $806 million in the third quarter, down 0.2% year over year. Revenues fell due to unfavorable impacts of foreign currency, partially offset by higher volumes, increased pricing and product-mix and contribution from the new caps and closures business (Polytop).

Operating profit also dropped 1.1% to $93 million in the quarter, driven by unfavorable impacts of foreign currency and higher input costs, partially offset by higher volumes, gains from pricing and product-mix as well as productivity.

Home, Health & Beauty segment revenues decreased 1.6% to $187 million. Revenues dipped unfavorable effects of foreign currency, contractual resin-based pricing adjustments and reduced beauty and personal care folding carton packaging volumes in Europe, partially offset by higher volumes from personal care dispensing and healthcare packaging solutions, and inclusion of the new caps and closure business.

Operating profit, however, rose 20% to $12 million in the quarter. Improvement stemmed from higher volumes, reduced costs of raw materials, productivity gains and contribution from the new caps and closure business, partially offset by negative effects of foreign currency translation and losses in personal care folding carton products.

Revenues from the Industrial segment declined 16.2% year over year to $114 million. Volume growth was more than offset by negative impacts of currency exchange. Operating profit dropped 72% to $7 million in the quarter.

Specialty Chemical segment revenues increased 13.3% to $255 million. The growth was fueled by the volume gains in targeted pine chemicals and carbon technology markets. Operating profit increased 10.7% to $62 million, driven by higher volumes in pine chemicals and carbon technology markets, partially offset by increased expenses from growth investments, reduced pricing on standard products and negative foreign currency translation

Community Development and Land Management dipped 34% to $35 million in the second quarter. Operating profit also declined 42% to $11 million in the quarter.

Financial Position

Cash and cash equivalents increased to $745 million as of September 30, 2012, from $656 million as of December 31, 2011. Long-term debt amounted to $2,093 million as of September 30, 2012, versus $1,880 million as of December 31, 2011.

Cash flow from continuing operations was approximately $125 million in the first nine months of 2012, compared with $307 in the first nine months of 2011. Capital expenditure from continuing operations was approximately $484 million in the first nine months of 2012 compared with $430 in the first nine months of 2011.

Outlook

The company has not provided any specific guidance for 2012. However, it is hopeful about achieving annual sales growth in the range of 7%–10% and performance goals of 5% over the next 3 to 5 years.

Our View

MeadWestvaco faces intense competition in each of its businesses, in both domestic and international markets. It competes with many large, well-established companies as well as lower cost manufacturers. This could result in pricing and demand pressures, which will adversely impact the company’s operating results moving ahead.

MeadWestvaco retains a short-term Zacks #3 Rank (Hold). We have a long-term Neutral recommendation on the stock.