MeadWestvaco Corporation (NYSE:MWV) today reported second quarter 2008 income from continuing operations of $58 million, or $0.34 per share. Included in the results from continuing operations are after-tax restructuring charges of $6 million, or $0.03 per share, primarily related to employee separation costs and facility closures, and an after-tax gain of $9 million, or $0.05 per share, related to a sale of corporate real estate. Sales from continuing operations increased 8 percent to $1.71 billion in the second quarter of 2008 compared to sales from continuing operations of $1.58 billion in the second quarter of 2007.
MWV generated solid top-line growth driven by price increases, sales in emerging markets and growth in its global packaging businesses. Margins, however, were adversely impacted by rapid input cost escalation during the quarter. Pre-tax costs for energy, raw materials and freight increased $64 million versus the year-ago quarter.
"MWV's strong sales performance and commercial momentum in our global packaging markets included aggressive actions to combat unprecedented input cost inflation during the second quarter," said John A. Luke, Jr., chairman and chief executive officer. "While we continue to address cost challenges by going after price increases in the marketplace, we are also pressing ahead with our profitable growth strategy - including a focus on innovative solutions, growth in emerging markets and relentless productivity improvement. The overall progress of our global packaging business demonstrates that these strategies are working, and are helping us continue to build a sustainable competitive advantage in the global marketplace."
Quarterly Comparison
In the second quarter of 2007, MWV reported income from continuing operations of $28 million, or $0.15 per share. Included in the results from continuing operations were after-tax restructuring charges of $5 million, or $0.03 per share, primarily related to employee separation costs and facility closures, and after-tax one-time costs of $5 million, or $0.03 per share, related to the company's cost initiative.
On July 1, 2008, MWV completed the sale of its North Charleston, S.C., kraft paper mill and related assets to KapStone Paper and Packaging Corporation for $485 million, subject to certain post-closing adjustments. For the current and prior year reporting periods, the company is reporting the results of the North Charleston mill and related assets as discontinued operations. The results of the North Charleston mill were previously included in the Packaging Resources segment. Results from discontinued operations were an after-tax loss of $2 million, or $0.01 per share, in the second quarter of 2008 compared to after-tax income of $4 million, or $0.02 per share, in the second quarter of 2007.
Packaging Resources
In the Packaging Resources business, segment profit from continuing operations was $54 million in the second quarter of 2008 compared to $81 million in the second quarter of 2007. Sales from continuing operations increased 5 percent to $674 million in the second quarter of 2008 compared to $642 million in the second quarter of 2007. Improved pricing and mix was more than offset by higher costs for energy, wood, raw materials and freight of $37 million and by higher maintenance-related expenses of $10 million versus the year-ago quarter. Year-over-year, bleached board shipments increased 2 percent driven by liquid packaging and export markets. Bleached board pricing increased 5 percent in the second quarter of 2008. Year-over-year, coated unbleached kraft (CNK(R)) pricing increased 3 percent, but shipments declined 2 percent due to longer than expected maintenance downtime at the company's Mahrt mill. Rigesa, the company's Brazilian operation, posted strong quarterly sales and earnings growth, reflecting continued solid demand for value-added corrugated packaging solutions in the domestic Brazilian market and the impact from favorable foreign exchange.
The Packaging Resources business continues to take pricing actions across its entire volume to combat the unprecedented cost inflation that has negatively impacted margins. In addition, the segment is implementing a new freight policy to limit its exposure to the rising cost of fuel on outbound shipments.
Consumer Solutions
In the Consumer Solutions business, segment profit was $22 million in the second quarter of 2008 compared to $24 million in the second quarter of 2007. Sales increased 10 percent to $656 million in the second quarter of 2008 compared to $595 million in the second quarter of 2007. The segment delivered revenue growth across all lines of business. Growth was particularly strong in beverage, tobacco, personal care and healthcare markets outside North America. The segment also generated improved media packaging results that were driven by strong gains in higher margin video games packaging and productivity improvement. These positive developments were more than offset by higher costs for energy, raw materials and freight. During the quarter, the company continued to consolidate its converting footprint without reducing capacity, resulting in the planned closure of its Warrington, Pa. facility.
In the second quarter, the company purchased assets of Oracle Packaging in North Carolina. This acquisition will strengthen the company's leading position in North American beverage packaging by adding new business from Coors, Pepsi and Diageo.
In the third quarter, the company jointly acquired pharmaceutical packaging company International Labs of St. Petersburg, Fla. with India-based Bilcare Ltd. The transaction enhances MWV's ability to provide its innovative Shellpak(R) compliance packaging solution to leading retailers for their low-cost branded and generic drug programs. The joint acquisition will streamline the supply chain by eliminating several steps in the distribution channel, and will also provide MWV with additional scale and health care packaging capabilities.
Consumer & Office Products
In the Consumer & Office Products business, segment profit increased 13 percent to $27 million in the second quarter of 2008 compared to $24 million in the second quarter of 2007. Sales in the second quarter of 2008 were $270 million compared to $267 million in the second quarter of 2007. Sales increased modestly due to the company's continued focus on higher value proprietary products. Segment profit growth was due to benefits from an improved mix and productivity. These benefits more than offset higher costs for raw materials, principally uncoated paper. This segment continues to be impacted by Asian-based imported products.
Specialty Chemicals
In the Specialty Chemicals business, segment profit was $11 million in the second quarter of 2008, unchanged compared to the second quarter of 2007. Sales grew 15 percent to $146 million in the second quarter of 2008 compared to $127 million in the second quarter of 2007, driven in part by a 41 percent increase in sales from outside North America. Strong exports of performance chemicals and improved pricing was offset by higher costs for energy, raw materials and freight and by incremental costs related to refinery maintenance downtime. Lower automotive carbon sales due to the significant decline in truck sales in North America also negatively impacted segment profit. The segment is aggressively pursuing pricing actions across its entire product line to offset energy and raw materials inflation.
Corporate and Other
Corporate and Other loss was $41 million in the second quarter of 2008 compared to a loss of $98 million in the second quarter of 2007.
