GPK Driven by New Products

Graphic Packaging Holding Company (GPK) reported breakeven results in Q108, better than our estimate of a loss of $0.07 per share, and better than the year-ago loss of $0.18 per share. This was due primarily to price hikes and ongoing cost-reduction efforts. However, a high level of interest expense completely eroded the operating profit.

On a positive side, GPK is closing underperforming facilities and shifting production to its most productive plants that would boost productivity, lower costs, and bring supply in line with demand in the beer business. Moreover, its merger with Altivity Packaging provides significantly widened product offerings, market span, and technology capabilities and is expected to generate annual gross synergies of over $90 million by 2012.

Nevertheless, GPK's beverage carton volume is adversely impacted by ongoing weakness in the carbonated soft drink business. The stock is cheap and should be held on expectation of an earnings recovery in 2008. We retain our Hold rating on shares of GPK.

For the full year 2008, management expects to realize year-over-year operating cost savings of $40 million from its continuous improvement programs, including Lean manufacturing projects. Graphic Packaging is also focused on reducing its selling, general, and administrative (SG&A) expenses. On July 10, GPK announced the signing of an agreement by its subsidiary, Graphic Packaging International, Inc., with an affiliate of Sun Capital Partners, Inc. for the sale of its two coated-recycled board mills located in Philadelphia, Pennsylvania and in Wabash, Indiana.

New product introductions are also driving top-line growth. The company's release of a series of new products employing its Fridge Vendor technology, is being used in the beverage. These products have met with an encouraging response from GPK's key customers, such as Coca-Cola Co. (KO), beer giant SABMiller and Dr. Pepper (DPS).

Grupo Televisa Benefits from Sound Investment

We are keeping our Buy recommendation on Grupo Televisa S.A. de C.V. (TV). We are encouraged by the positive second quarter 2008 operating results and remain optimistic about the outlook for the media industry in 2008 due to the U.S. Presidential campaign and the Olympic games.

However, the second quarter net income was undermined by higher financial costs. Nevertheless, the new investments in the telecom sector and the gambling business are quite encouraging and should keep growing in the following quarters. Moreover, the consolidation of the assets and liabilities as well as operating results of Cablemás in the month of June was the icing on the cake.

Televisa has a dominant position in the Mexican television industry. We are encouraged by the investments in more stable and developed markets in the U.S. and in Europe.