MeadWestvaco Misses Estimates

Zacks

MeadWestvaco Corp (MWV) posted adjusted earnings (excluding special items) from continuing operations of 7 cents per share for fourth-quarter of 2012 compared with 3 cents in the year-ago quarter. The results missed the Zacks Consensus Estimate of 19 cents. Profit went up significantly to $13 million from $5 million in the year-ago quarter.

On a reported basis, the company recorded a profit from continuing operation of $17 million or 10 cents per share compared with a loss of $7 million or 4 cents in the fourth quarter of 2011.

MeadWestvaco reported adjusted earnings from continuing operation of $1.25 per share for 2012, down 10.1% from $1.39 a year ago. Reported earnings decreased to $212 million or $1.20 per share from $217 million or $1.25 per share in 2011.

Total revenues increased 3.6% to $1.33 billion in the reported quarter, marginally missing the Zacks Consensus Estimate of $1.34 billion. The year-over-year rise reflects hike in sales volume of higher value products across the targeted packaging and specialty chemicals markets together with higher land sales.

The company’s revenues for the year increased 2.7% to $5.5 billion from $5.3 billion in 2011.

Cost of sales increased 2% year over year to $1.1 billion in the fourth quarter. Selling, general and administrative expenses went up 1.1% to $183 million.

Segmental Performance

Food & Beverage:  Revenues in the segment dropped 1.3% year over year $744 million. The decline was due to unfavorable foreign currency translation, which was partly offset by higher pricing and product mix and contribution from the caps and closures of business (Polytop).

Home, Health & Beauty: Revenues in the segment decreased $1 million to $180 million. The drop in revenues was due to unfavorable foreign currency translation effects and contractual resin-based pricing adjustments, partly offset by higher volumes from personal care dispensing and medical pumps and benefits from caps and closure business.

Industrial: Revenues in the segment declined 1.7% to $118 million. The decline was due to negative currency exchange impact, partly offset by increase in sales volume and benefits from higher pricing and product mix.

Specialty Chemical: Revenues in the segment increased 20.2% to $232 million. The escalation was fueled by volume gains in targeted pine chemicals and carbon technology markets.

Community Development and Land Management: Revenues in the segment surged 60% to $56 million.

Financial Position

Cash and cash equivalents increased to $663 million at the end of 2012, from $656 million at the end of 2011. Long-term debt amounted to $2.1 billion as of Dec 31, 2012, versus $1.9 million as of Dec 31, 2011.

Cash flow from continuing operations declined to $330 million in 2012, compared with $479 in the 2011. The decline in cash flow was due to higher prepaid taxes related to capacity expansion in Brazil, increased payments for settlement of legacy environmental matters and higher level of inventory. Capital expenditure from continuing operations was approximately $656 million in 2012 compared with $655 in 2011.

Outlook

The company expects to record higher revenues in the first quarter of 2013 compared to fourth quarter of 2012, driven by its profitable growth strategies, expansion in Brazil and benefits from acquired businesses. However, it anticipates that earning per share will decline year-over-year due to higher startup expenses for the expansion in Brazil, and lower earnings from land sales.

Our View

We appreciate MeadWestvaco’s strategy of becoming more of a packaging company moving forward with its investments in adding capacity and expansion in emerging markets. However, sluggish global demand, unfavorable foreign currency and start-up expenses from the expansion activities will put pressure on the company.

MeadWestvaco retains a Zacks Rank #3 (Hold).

Graphic Packaging Holding Company (GPK), International Paper Co. (IP) and UFP Technologies, Inc. (UFPT) are performing well in the same industry where MeadWestvaco operates. Graphic Packaging and International Paper are Zacks Rank #1 (Strong Buy) stocks while UFP Technologies carries a Zacks Rank #2 (Buy).

Read the Full Research Report on MWV

Read the Full Research Report on IP

Read the Full Research Report on GPK

Read the Full Research Report on UFPT

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