MeadWestvaco

MWV Reports Strong Fourth Quarter and Record Full-Year Earnings

MeadWestvaco Corporation today announced stronger fourth quarter earnings from continuing operations of $68 million, or $0.40 per share ($0.41 ex-items) and record full-year earnings from continuing operations of $262 million, or $1.52 per share ($1.54 ex-items). Profit growth in the company’s Packaging and Specialty Chemicals businesses continued to drive MWV’s improved performance.

 

Combined profits of the company’s Packaging businesses were up 54 percent in the fourth quarter and up 38 percent for the full year, reflecting strong performance in global end-markets for retail food and liquid packaging, personal care dispensing solutions, home and garden trigger sprayers, and corrugated packaging serving the produce, meat and personal care markets in Brazil. The company’s overall financial performance was augmented by record fourth quarter and full-year results in Specialty Chemicals.

 

“We have transformed MWV into a company that is generating significantly higher returns on a consistent basis, and we’ve seen that reflected in our operating performance over the course of 2010,” said John A. Luke, Jr., chairman and chief executive officer. “Our record 2010 earnings are the direct result of the success we’ve had implementing focused strategies to increase profits in each of our targeted end-markets. With the transformative changes to our business model taking hold and giving us positive momentum to start 2011, we are focused on achieving the next level of performance by continuing to capitalize on the commercial and operating strengths we have built.”

 

Fourth Quarter and Full-Year Comparisons
Net income from continuing operations in the fourth quarter of 2010 was $68 million, or $0.40 per share, compared to $53 million, or $0.30 per share, in the fourth quarter of 2009. Sales in the fourth quarter of 2010 increased 3 percent to $1.50 billion. Net income from continuing operations in 2010 was $262 million, or $1.52 per share, compared to $240 million, or $1.38 per share, in 2009. Sales in 2010 increased 5 percent to $5.69 billion.

 

Adjusted earnings from continuing operations in the fourth quarter of 2010 excluding the effects of special items were $71 million, or $0.41 per share, compared to $35 million, or $0.20 per share, in the fourth quarter of 2009. Adjusted earnings from continuing operations in 2010 excluding the effects of special items were $267 million, or $1.54 per share, compared to $139 million, or $0.80 per share, in 2009. Items excluded in the measures of adjusted earnings from continuing operations and adjusted per share amounts are presented in the “Use of Non- GAAP Measures” section of this release.

 

On November 27, 2010, MWV agreed to sell its envelope products business for an undisclosed amount. The sale is expected to close in the first quarter of 2011, subject to regulatory approval. For the current and prior periods, the company is reporting this business as a discontinued operation in the consolidated financial statements. The envelope products business was previously included in the Consumer & Office Products segment. Results from discontinued operations also include the media and entertainment packaging business that was sold on September 30, 2010. The media and entertainment packaging business was previously included in the Consumer Solutions segment.

 

Fourth Quarter Segment Results
Following is a summary of fourth quarter 2010 results by business segment. All comparisons of the results for the fourth quarter of 2010 are with the fourth quarter of 2009 on a continuing operations basis.

 

Packaging Resources
(Includes high-quality packaging paperboard principally for global food and beverage, tobacco and commercial print markets as well as Rigesa, a fully-integrated manufacturer of corrugated packaging solutions for produce, meat and consumer products markets in Brazil)
- <1% volume decline
- 5% sales growth
- 60% profit growth

 

In the Packaging Resources segment, profit increased to $64 million in the fourth quarter of 2010 compared to $40 million in the fourth quarter of 2009. Sales increased to $667 million in the fourth quarter of 2010 compared to $637 million in the fourth quarter of 2009.

 

Shipments of paperboard packaging were essentially unchanged as increased volumes of the company’s CNK coated unbleached kraft paperboard (+3%) for retail food companies were offset by a slight decline in solid bleached sulfate (SBS) shipments (-1.5%) driven by deliberate actions to focus on the segment’s highest return customers. Rigesa had increased corrugated volumes driven by continued gains in the produce, meat and personal care markets in Brazil.

 

While volume was flat, the sales increase was due to improved pricing and product mix. SBS pricing improved (+8%) as the segment continued to make gains in higher value markets for food, liquid packaging, tobacco and commercial print. CNK® pricing was essentially unchanged, as volume gains in retail food and solid volumes in North American beverage were partially offset by lower European volumes, which impacted product mix. Rigesa had pricing and product mix improvement from increased sales of value-added corrugated packaging solutions.

 

Profit growth in 2010 reflects improved pricing and product mix and better productivity performance, partially offset by input cost inflation for certain raw materials and freight and by unfavorable foreign currency exchange compared to 2009.

 

Consumer Solutions
(Includes packaging for beverage, tobacco, personal care, home and garden and healthcare markets)
- 2% volume decline
- 4% sales decline
- 41% profit growth

 

In the Consumer Solutions segment, profit increased to $24 million in the fourth quarter of 2010 compared to $17 million in the fourth quarter of 2009. Sales declined to $437 million in the fourth quarter of 2010 compared to $456 million in the fourth quarter of 2009.

 

The segment had strong volume gains in home and garden packaging and in personal care dispensing solutions for higher value fragrance and airless products. This growth was more than offset by deliberate exits from lower return product lines in healthcare packaging, lower volumes in standard personal care dispensing products due to reduced concerns about the H1N1 virus and by lower beverage volumes in line with overall declines in carbonated soft drinks and beer. Volumes in adherence healthcare packaging (Shellpak) and tobacco packaging remained essentially unchanged.

 

The price/mix impact to sales was consistent with last year, but the segment was negatively impacted by unfavorable foreign currency exchange.

 

Profit growth in 2010 reflects strong productivity gains offset in part by input cost inflation for certain raw materials and freight, unfavorable foreign currency exchange and lower volume compared to 2009.

 

Consumer & Office Products
(Includes branded school supplies, office products and planning and organizing products)
- 1% volume decline
- 2% sales decline
- 4% profit increase

 

In the Consumer & Office Products segment, profit increased to $57 million in the fourth quarter of 2010 compared to $55 million in the fourth quarter of 2009. Sales declined to $235 million in the fourth quarter of 2010 compared to $240 million in the fourth quarter of 2009.

 

Sales for the quarter were in line with our expectations, but slightly below last year’s levels. In North America, shipments for dated and time management products, while lower than last year, were better than expected. The segment’s branded consumer products also had solid shipments as retailers replenished inventory in the fourth quarter. Overall fourth quarter volume was lower in Tilibra, as growth at Grafons was more than offset by the shift in timing of the back-to-school season in Brazil.

 

Profit growth in 2010 primarily reflects productivity improvement, partially offset byinput cost inflation for certain raw materials and freight compared to 2009. The segment continues to be impacted by imports from Asia.

 

Specialty Chemicals
(Includes chemicals for asphalt, oilfield, adhesives and inks, as well as carbon for auto emission controls and food and water purification)
- 6% volume growth
- 25% sales growth
- 125% profit increase

 

In the Specialty Chemicals segment, profit increased to $36 million in the fourth quarter of 2010 compared to $16 million in the fourth quarter of 2009. Sales increased to $173 million in the fourth quarter of 2010 compared to $138 million in the fourth quarter of 2009.

 

Volume and sales growth were driven by continued penetration of developed and emerging markets with the company’s value-added solutions for infrastructure and energy markets, gains in market share for inks and adhesive solutions, as well as increased auto and truck production in North America, Europe and in emerging markets.

Profit growth in 2010 reflects improved pricing and product mix and higher volumes, partially offset by input cost inflation for certain raw materials and freight compared to 2009.

 

Community Development and Land Management
(Includes 730,000 owned acres in Southeastern U.S. – pursuing small-tract land sales and development opportunities)

In the Community Development and Land Management segment, profit was $30 million in the fourth quarter of 2010 compared to $20 million in the fourth quarter of 2009. The increase in profit was driven by higher earnings from real estate activities, which were $28 million in the fourth quarter of 2010 compared to $17 million in the fourth quarter of 2009. Profit from forestry operations and leasing activities was $2 million in the fourth quarter of 2010 compared to $3 million in the fourth quarter of 2009. Sales were $61 million in the fourth quarter of 2010 compared to $43 million in the fourth quarter of 2009. The segment sold approximately 12,200 acres for gross proceeds of approximately $38 million in the fourth quarter of 2010 compared to approximately 12,700 acres for gross proceeds of $22 million in the fourth quarter of 2009.

 

Corporate and Other
Corporate and Other loss was $121 million in the fourth quarter of 2010 compared to a loss of $35 million in the fourth quarter of 2009. The results for the fourth quarter of 2010 include restructuring charges of $18 million. The loss for the fourth quarter of 2009 includes the net effect of items totaling $68 million comprised of income of $94 million from alternative fuel mixture credits; restructuring charges of $18 million; an expense of $20 million from a contribution to the MeadWestvaco Foundation; a gain of $17 million from the sale of assets; and a charge of $5 million from early extinguishment of debt.

 

Other Items
In the fourth quarter of 2010, total pre-tax input costs of energy, raw materials and freight increased $42 million over the fourth quarter of 2009 on a continuing operations basis.

 

In the fourth quarter of 2010, the pre-tax impact from unfavorable foreign currency exchange was $7 million compared to the fourth quarter of 2009 on a continuing operations basis.

 

Cash flow provided by continuing operations was about $550 million in 2010 compared to about $830 million in 2009. The year-over-year decrease was driven primarily by the receipt of cash from alternative fuel mixture credits totaling $348 million in 2009, offset in part by higher year-over-year business segment earnings in 2010.

 

Capital spending from continuing operations was $242 million in 2010 compared to $218 million in 2009.

 

The company's U.S. qualified retirement plans remain over funded and management does not anticipate any required regulatory funding contributions to such plans in the foreseeable future.

 

The effective tax rate from continuing operations in the fourth quarter of 2010 was approximately 24 percent. During the fourth quarter the federal extenders bill was passed and additional favorable IRS guidance was issued in relation to the cellulosic biofuel producer credit. These items, along with the mix of earnings between domestic and foreign operations, contributed to the difference between the 24 percent effective tax rate and statutory rates. The company currently expects its annual effective tax rate for 2011 to be about 31 percent.

 

MWV paid a regular quarterly dividend of $0.25 per share during the fourth quarter of 2010. On January 24, 2011, MWV declared a regular quarterly dividend of $0.25 per common share. The payment of the dividend will be made on March 1, 2011, to shareholders of record at the close of business on February 3, 2011.

 

Outlook
The company expects to extend its record of year-over-year margin and earnings improvement in the first quarter of 2011. Positive factors for the first quarter of 2011 include stable to strengthening demand trends in targeted markets along with continued momentum with commercial strategies focused on business mix improvement and further penetration of faster growing emerging markets. The company also expects continued gains in productivity. Negative factors for the first quarter include higher costs for freight and the rising price for oil, and the impact on both input costs and potential demand in a still fragile global economy. Further, the company is continuing to monitor ongoing macro-economic developments, particularly in North America and Europe, and is prepared to respond to additional challenges.

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