MeadWestvaco Corporation (MWV) has reported its fiscal 2011 second quarter results reporting an EPS of 51 cents versus 32 cents in the yea-earlier quarter. The quarter noted a one-time restructuring charge amounting to 3 cents, excluding which the adjusted EPS increased to 54 cents from 38 cents in the year-ago quarter, in line with the Zacks Consensus Estimate.
Total revenue increased 9% year over year to $1.56 billion in the reported quarter, striding ahead of the Zacks Consensus Estimate of $1.52 billion.
Cost of sales increased substantially to $1.18 billion in the reported quarter from $1.13 billion in the year-earlier quarter. Selling, general and administrative expenses also increased to $205 million from $169 million in the year-earlier quarter.
Segmental Performance
Packaging Resources segment reported total revenue of $741 million, up from $676 million in the prior-year quarter. The volume growth remained unchanged from last- year’s quarter.
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, as well as the favorable currency exchange impact of sales in Europe and Brazil. Pricing for solid bleached sulfate (SBS) paperboard and coated unbleached kraft both improved during the quarter.
Operating profit increased to $99 million from $72 million in the year-earlier quarter. Profit improved mainly due to pricing improvement across key product lines and favorable foreign currency exchange.
Net sales in Consumer Solutions segment increased 4% year over year to $505 million, including a 3% contribution from volumes. Favorable foreign currency exchange, pricing and product mix improvement and the addition of the trigger sprayer business acquired with Spray Plast, accounted for the increase in sales.
Segment’s operating profit declined 5% year over year to $36 million in the quarter, due to input cost inflation and increased costs for resins and freight.
Net sales of Consumer & Office Products segment rose 7% year over year to $182 million in the quarter, including a 3% contribution from volumes. The improvement was driven by the increased North American shipments and early orders for time management products.
Income from operations for the segment was up 21% year over year to $34 million, in the quarter. Product mix improvement from the timing of branded product sales, continued productivity gains and favorable foreign currency exchange, drove the operating profit of the segment.
Specialty Chemicals segment reported a total revenue increase of 20% year over year to $216 million in the reported quarter. Improvement in sales was driven by continued success in higher value markets for pine chemicals, asphalt and carbon technologies in both developed and emerging markets.
Operating profit increased at a whopping rate of 56% 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 main driving factors of the segment’s profit.
Community Development & Land Management segment reported net sales of $30 million, declining from $36 million in the year-earlier quarter. The land sale in the quarter declined to 4,700 acres from 5,700 acres in the year-ago quarter.
Operating profit reduced to half to reach $6 million in the quarter, from the year-earlier quarter. The profit decline was due to lower rural tract land sales.
Financial Position
As of June 30, 2011, cash and cash equivalents plunged to $678 million from $790 million as of December 31, 2010.
Cash flow from operating activities improved to approximately $160 million in the second quarter of 2011 compared to $75 million in the second quarter of 2010, reflecting higher earnings and lower working capital usage.
As of June 30, 2011 debt-to-capitalization improved to 51% from 60% as of March 31, 2011 and 62% as of December 31, 2010.
MeadWestvaco also paid a quarterly dividend of 25 cents per share, during the quarter. Besides, the company also declared a quarterly dividend of 25 cents per share for the second quarter payable on September 1, 2011, to shareholders of record at the close of business on August 1, 2011.
Outlook
Management did not provide any estimates for the fiscal 2011, but believes that the earnings will improve modestly from the prior year levels. It further expects continued benefits from value-based pricing, product mix improvement and profitable growth in faster growing emerging markets.
However, the company remains concerned regarding 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. We currently have a Zacks #4 Rank (short-term Sell rating) on the stock.
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). We currently have a Zacks #2 Rank (short-term Buy rating) on the stock.
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