MeadWestvaco's 1Q Earnings Miss Est.

Zacks

MeadWestvaco Corp’s (MWV) first-quarter 2013 adjusted earnings (excluding special items) from continuing operations declined 51% to 16 cents per share compared with 33 cents in the year-ago quarter. The results missed the Zacks Consensus Estimate of 23 cents.

Results were affected by lower sales of beverage packaging, home and garden packaging, and asphalt paving chemicals due to colder weather in some key regions as well as lower consumer spending in Europe which affected sales of beauty and personal care folding carton packaging.

On a reported basis, earnings declined nearly five-fold to 6 cents per share from the prior-year quarter’s earnings of 29 cents. Earnings in the reported quarter include restructuring charges of 10 cents per share compared with 4 cents in the year-ago quarter.

Operational Updates

Total revenues increased 2% year over year to $1.34 billion in the reported quarter, marginally missing the Zacks Consensus Estimate of $1.35 billion. The year-over-year rise reflects higher volumes in food, tobacco, industrial, personal care and healthcare packaging markets along with higher value specialty chemical solutions. Sales also improved from the additions of the recently acquired corrugated business in India and the pine chemicals business in Brazil.

Cost of sales increased 8.5% year over year to $1.1 billion in the first quarter. Selling, general and administrative expenses in the reported quarter went up 4.3% to $168 million from the prior-year quarter.

Segmental Performance

Food & Beverage: Revenues in the segment went up 1.8% year over year to $761 million. The increase was driven by an overall paperboard volume growth, including gains in food and tobacco packaging. Segment’s profit, however, declined 36% to $40 million in the reported quarter from $60 million in the year-ago quarter.

Home, Health & Beauty: Revenues in the segment dropped 6% to $188 million from $200 million in the prior-year quarter. The drop in revenues was due to unusually cold weather in North America resulting in lower than expected volumes in home and garden packaging as well as lower volumes and pricing in beauty and personal care folding carton packaging in Europe. The decline was partly offset by gains in higher value beauty and personal care products including fine mist dispensers and caps and closures. Profit for the segment was $3 million in the first quarter compared with $12 million in the year-ago quarter.

Industrial: Net sales in the reported quarter went up 15.8% year over year to $132 million, driven by improved product pricing and mix in Brazil along with contribution from the corrugated business in India, partly offset by unfavorable foreign currency exchange. However, profit declined to $11 million in the first quarter compared to $19 million in the prior-year quarter.

Specialty Chemical: The segment reported revenues of $226 million, up 9.1% from the year-ago quarter, driven by growth in higher value end markets for pine chemicals, including oilfield and adhesives, and carbon technologies. The segment’s profit was $49 million, down 15.5% compared with the year-ago quarter.

Community Development and Land Management: Revenues in the segment declined 15% year over year to $39 million. Profit for the segment inched up 14% to $16 million in the reported quarter compared to $14 million in the prior-year quarter.

Financial Position

As of Mar 31, 2013, cash and cash equivalents amounted to $417 million versus $663 million as of Dec 31, 2012. Long-term debt amounted to $2.08 billion as of Mar 31, 2013, compared with $2.1 billion as of Dec 31, 2012. The debt-to-capitalization ratio expanded to 34.3% as of Mar 31, 2013 from 38.4% as of Dec 31, 2012. Cash flow used in operating activities was about $90 million during first quarter 2013 compared to $86 million in the prior-year quarter.

MeadWestvaco is planning to sell its beauty and personal care folding carton in Europe and Brazil to improve margins in its Home, Health & Beauty segment.

MeadWestvaco has embarked on an enterprise-wide overhead cost reduction plan, which is expected lead to annual cost savings between $65 and $75 million by the end of 2014. The company is refocusing and streamlining its operations, as well as consolidating general and administrative support across the organization. A major portion of the plan will be completed this year and the company expects benefits of $25 to $30 million in 2013.

Outlook

MeadWestvaco expects lower revenues for the second quarter of 2013 compared to the year-ago quarter, driven by planned major cold outage at the Covington, Virginia paperboard mill and lower land sales, partly offset by its profitable growth strategies which will improve volume across the Packaging and Specialty Chemicals businesses. In addition, the company also hopes to generate product pricing improvement and to benefit from its recent acquisitions in the Industrial and Specialty Chemicals businesses.

Our View

MeadWestvaco will benefit from its new products, profitable growth strategies, expansion in Brazil and benefits from acquired businesses despite challenging economic conditions in Europe.

Richmond, VA-based MeadWestvaco is a global packaging company providing innovative solutions to the world’s most admired brands in the healthcare, beauty and personal care, food, beverage, home and garden, tobacco, and agricultural industries. The company also produces specialty chemicals for the automotive, energy, and infrastructure industries.

MeadWestvaco currently retains a short-term Zacks Rank #3 (Hold). Other companies in the containers and packaging industry with favorable Zacks Ranks are Graphic Packaging Holding Company (GPK), Bemis Company, Inc. (BMS) and UFP Technologies, Inc. (UFPT); while UFP Technologies holds a Zacks Rank #1 (Strong Buy), Graphic Packaging and Bemis carry a Zacks Rank #2 (Buy).
 

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