(Source: Business Wire)
For the quarter ended June 30, 2009, Pactiv Corporation (NYSE: PTV) today announced that income from continuing operations was $97 million, or $0.73 per share, compared with $64 million, or $0.49 per share on a reported basis or $0.50 per share excluding a restructuring charge, in 2008. Second quarter 2009 sales declined 5 percent to $901 million from $951 million, reflecting 4-percent higher volume, 8-percent lower pricing, and 1-percent unfavorable foreign exchange. The price decline reflects normal reductions as a result of lower raw material costs.
"Our performance in the quarter was outstanding, particularly in a weak economic environment. Our strong volume performance was driven by the strategic investments we have made in product and service over the past two years. Year over year we also benefitted from lower raw material costs, as well as improved productivity and lower logistics and utility costs. Sequentially, we have seen an increase in raw material costs which will result in more normal margins in the second half. We expect to continue to perform well," said Richard L. Wambold, Pactiv's chairman and chief executive officer.
Second quarter gross margin was 36.2 percent compared with 26.0 percent last year. Operating margin was 19.9 percent compared with 13.6 percent on a reported basis and 13.8 percent excluding the restructuring charge in 2008. Both increases were driven primarily by favorable spread (the difference between selling prices and raw material costs), and the combination of higher volume and lower operating costs.
Selling, general, and administrative (SG&A) expense was $100 million compared with $70 million in 2008. The increase primarily was a result of higher incentive compensation accruals driven by record first half performance, as well as higher advertising and promotion expense in support of the launch of Hefty® Odor Block® unscented odor control waste bags.
After a pension contribution of $100 million pretax and related favorable cash tax effects of approximately $20 million, free cash flow in the second quarter was $62 million compared with a use of $8 million last year. The increase resulted from higher income, improved working capital, and lower capital expenditures.
For the six-month period, income from continuing operations was $188 million, or $1.42 per share, compared with $99 million, or $0.75 per share, last year. Operating margin was 20.8 percent compared with 11.8 percent. Excluding a restructuring charge of $0.08 per share, 2008 six-month earnings per share were $0.83 and operating margin was 12.7 percent. Six-month 2009 sales of $1.67 billion declined 5 percent from $1.76 billion. Gross margin was 37.1 percent versus 26.0 percent in 2008. After pension contributions of $200 million pretax and related favorable cash tax effects of $70 million, year-to-date 2009 free cash flow was $167 million compared with a use of $6 million in 2008.
Business Segment Results
Hefty® Consumer Products
Second quarter sales of $356 million declined 1 percent from $358 million, reflecting a 6-percent volume increase and 7-percent unfavorable pricing due to normal price declines related to lower raw material costs. All product categories posted solid volume increases, with particular strength in tableware and a rebound in waste bags.
Operating income was $94 million compared with $61 million last year primarily as a result of favorable spread, higher volume, and lower operating costs. Operating margin was 26.4 percent compared with 17.0 percent last year. Excluding the restructuring charge, 2008 second quarter operating income was $63 million and operating margin was 17.6 percent.
For the six-month period, sales of $639 million declined 1 percent from $648 million. Operating income was $168 million compared with $91 million last year. Operating margin was 26.3 percent compared with 14.0 percent. Excluding the restructuring charge, 2008 six-month operating income was $98 million and operating margin was 15.1 percent.
Foodservice/Food Packaging
Second quarter sales of $545 million decreased 8 percent from $593 million last year, reflecting 3-percent volume growth, 2-percent unfavorable foreign exchange, and 9-percent unfavorable pricing related to lower raw material costs. The volume increase primarily was related to focus on growing key products and partnering with strategic customers. Because of its unique capabilities, the Company believes it is increasing its market share.
Operating income was $89 million compared with $68 million last year, driven by higher volume, favorable spread, and lower operating costs. Operating margin was 16.3 percent versus 11.5 percent in 2008.
For the six-month period, sales of $1.0 billion were down 8 percent from $1.1 billion in 2008. Operating income was $184 million compared with $115 million. Operating margin was 17.9 percent compared with 10.4 percent last year. Excluding the restructuring charge, 2008 six-month operating income was $123 million and operating margin was 11.1 percent.
Outlook
The Company is introducing a third quarter EPS outlook in a range of $0.47 to $0.51. The full year EPS outlook has been raised to a range of $2.37 to $2.45 from a range of $2.15 to $2.25. Resin costs remain difficult to predict, and the EPS range represents the timing and magnitude of potential cost increases and our ability to offset them with pricing actions. The full year outlook includes non-cash pension income of $37 million pretax, $23 million after tax, or $0.17 per share.
Full year 2009 sales are expected to decline in a range of 6 percent to 7 percent, an improvement from the prior outlook of a decline of 10 percent to 12 percent. The sales outlook incorporates a volume increase of 2 percent to 3 percent, a price decline in a range of 8 percent to 9 percent, and unfavorable foreign exchange of approximately 1 percent.
SG&A expense is estimated to be between $330 million to $340 million, up from $320 million to $330 million in the prior outlook. The 2009 tax rate is expected to be 37.0 percent versus 36.5 percent in the prior outlook.
Because of the very strong free cash flow generation in the first half, which is expected to continue in the second half, in July the Company made an additional voluntary pension contribution of $200 million pretax, $130 million after tax. However, the likely timing of the $70 million favorable cash tax benefits related to this contribution will cause $20 million of the benefit to carry over into 2010. As a result, the net cash flow effect of this contribution is projected to be $150 million after tax in 2009 and a positive $20 million in 2010.
After pension contributions of $400 million pretax, or $280 million after tax, free cash flow for 2009 is anticipated to be in a range of $170 million to $190 million. This estimate is lower than the earlier outlook of $230 million to $250 million because of the higher level of voluntary pension contributions, partially offset by higher earnings and improved working capital. Depreciation and amortization expense is expected to be approximately $185 million, and capital expenditures are estimated to be approximately $120 million.
Other
This press release includes certain non-GAAP financial measures. A reconciliation of the non-GAAP financial measures to GAAP is shown in the attached "Regulation G GAAP Reconciliations" or in the attached "Operating Results by Segment".
Cautionary Statements
This press release includes certain "forward-looking statements" such as those in the Outlook section, as well as "¦we expect to continue to perform well." A variety of factors may cause actual results to differ materially from these expectations including a slowdown in economic growth, changes in the competitive market, increased cost of raw materials, and changes in the regulatory environment.
More detailed information about these and other factors is contained in the Company's Annual Report on Form 10-K at page 22 filed with the Securities and Exchange Commission as revised and updated by Forms 10-Q and 8-K as filed with the Commission.
Company Information
Pactiv Corporation (NYSE: PTV) is a leader in the consumer and foodservice/food packaging markets it serves. With 2008 sales of $3.6 billion, Pactiv derives more than 80 percent of its sales from market sectors in which it holds the No. 1 or No. 2 market-share position. Pactiv's Hefty® brand products include waste bags, slider storage bags, disposable tableware, and disposable cookware. Pactiv's foodservice/food packaging offering is one of the broadest in the industry, including both custom and stock products in a variety of materials. For more information, visit www.pactiv.com.
Pactiv Corporation Consolidated Statement of Income (In millions, except per share data) Three months ended June 30, Six months ended June 30, 2009 2008 2009 2008 Sales $ 901 $ 951 $ 1,667 $ 1,759 Costs and expenses Cost of sales (excluding depreciation and amortization) 575 704 1,048 1,302 Depreciation and amortization 46 46 92 92 Selling, general, and administrative 100 70 180 141 Other expense 1 - 1 - Operating income before restructuring and other 179 131 346 224 Restructuring and other - 2 - 16 Operating income 179 129 346 208 Other income/(expense) Interest income 1 - 1 1 Interest expense, net of capitalized interest (24 ) (27 ) (47 ) (54 ) Income before income taxes 156 102 300 155 Income tax expense 59 38 112 56 Income from continuing operations 97 64 188 99 Discontinued operations, net of tax (1 ) (3 ) (1 ) (4 ) Net income attributable to Pactiv $ 96 $ 61 $ 187 $ 95 Average common shares outstanding (diluted) 132.5 132.0 132.4 132.1 Diluted earnings per share of common stock attributable to Pactiv common shareholders: Income from continuing operations before restructuring and other $ 0.73 $ 0.50 $ 1.42 $ 0.83 Restructuring and other, net of tax - (0.01 ) - (0.08 ) Income from continuing operations 0.73 0.49 1.42 0.75 Discontinued operations, net of tax (0.01 ) (0.03 ) (0.01 ) (0.03 ) Net income $ 0.72 $ 0.46 $ 1.41 $ 0.72 Gross margin (before deprec. & amort.) 36.2 % 26.0 % 37.1 % 26.0 % Operating margin Excluding restructuring and other 19.9 % 13.8 % 20.8 % 12.7 % Restructuring & other 0.0 % -0.2 % 0.0 % -0.9 % Including restructuring and other 19.9 % 13.6 % 20.8 % 11.8 % -------------------------------------------------------------------------------
Pactiv Corporation Consolidated Statement of Financial Position (In millions) June 30, 2009 December 31, 2008 Assets Current assets Cash and temporary cash investments $ 227 $ 80 Accounts and notes receivable ((a)) 291 311 Inventories 375 344 Other 32 30 Total current assets 925 765 Property, plant, and equipment, net 1,191 1,209 Other assets Goodwill 1,128 1,124 Intangible assets, net 385 396 Other 169 231 Total other assets 1,682 1,751 Total assets $ 3,798 $ 3,725 Liabilities and equity Current liabilities Accounts payable $ 158 $ 115 Other 276 218 Total current liabilities 434 333 Long-term debt 1,345 1,345 Pension and postretirement benefits 1,021 1,266 Other liabilities 129 126 Pactiv shareholders' equity 853 639 Noncontrolling interest 16 16 Total liabilities and equity $ 3,798 $ 3,725 (a) At June 30, 2009, receivables totaling $129 million were sold, while receivables totaling $130 million were sold at December 31, 2008. -------------------------------------------------------------------------------
Pactiv Corporation Consolidated Statement of Cash Flows (In millions) Six months ended June 30, 2009 2008 Operating activities Net income $ 187 $ 95 Less results from discontinued operations 1 4 Income from continuing operations 188 99 Adjustments to reconcile income from continuing operations to cash provided (used) by continuing operations Depreciation and amortization 92 92 Deferred income taxes 52 19 Restructuring and other (1 ) 11 Noncash pension income (17 ) (25 ) Noncash compensation expense 10 9 Working capital 91 (130 ) Pension contribution (200 ) - Other - (5 ) Cash provided (used) by operating activities - continuing operations 215 70 Cash provided (used) by operating activities - discontinued operations - (6 ) Cash provided (used) by operating activities $ 215 $ 64 Investing activities Expenditures for property, plant, and equipment (49 ) (86 ) Acquisitions of businesses and assets (20 ) - Other continuing operations investing activities 1 - Cash provided (used) by investing activities $ (68 ) $ (86 ) Financing activities Issuance of common stock 1 2 Purchase of common stock - (2 ) Revolving credit facility payments - (20 ) Other (1 ) (2 ) Cash provided (used) by financing activities $ - $ (22 ) Effect of foreign-currency exchange rate changes on cash and temporary cash investments - 2 Increase (decrease) in cash and temporary cash investments 147 (42 ) Cash and temporary cash investments, January 1 80 95 Cash and temporary cash investments, June 30 $ 227 $ 53 -------------------------------------------------------------------------------
Pactiv Corporation Operating Results by Segment (In millions) Foodservice / Consumer Food Packaging Other Total Three months ended June 30, 2009 Sales $ 356 $ 545 $ - $ 901 Operating income (loss) $ 94 $ 89 $ (4) $ 179 Operating margin 26.4% 16.3% 19.9% Three months ended June 30, 2008 Sales $ 358 $ 593 $ - $ 951 Operating income (loss) before restructuring & other $ 63 $ 68 $ - $ 131 Restructuring & other 2 - - 2 Operating income (loss) $ 61 $ 68 $ - $ 129 Operating margin Excluding restructuring and other 17.6% 11.5% 13.8% Restructuring & other -0.6% 0.0% -0.2% Including restructuring and other 17.0% 11.5% 13.6% Six months ended June 30, 2009 Sales $ 639 $ 1,028 $ - $ 1,667 Operating income (loss) $ 168 $ 184 $ (6) $ 346 Operating margin 26.3% 17.9% 20.8% Six months ended June 30, 2008 Sales $ 648 $ 1,111 $ - $ 1,759 Operating income (loss) before restructuring & other $ 98 $ 123 $ 3 $ 224 Restructuring & other 7 8 1 16 Operating income (loss) $ 91 $ 115 $ 2 $ 208 Operating margin Excluding restructuring and other 15.1% 11.1% 12.7% Restructuring & other -1.1% -0.7% -0.9% Including restructuring and other 14.0% 10.4% 11.8% -------------------------------------------------------------------------------
Pactiv Corporation Regulation G GAAP Reconciliations Income from Continuing Operations and Earnings per Share (In millions, except per-share amounts) Three months ended June 30, Six months ended June 30, 2009 2008 2009 2008 Income from continuing operations - GAAP basis $ 97 $ 64 $ 188 $ 99 Adjustments (net of tax) to exclude: Restructuring and other charges - 1 - 10 Income from continuing operations excluding restructuring and other charges ((a)) $ 97 $ 65 $ 188 $ 109 Average common shares outstanding (diluted) 132.5 132.0 132.4 132.1 Diluted earnings per share EPS from continuing operations - GAAP basis $ 0.73 $ 0.49 $ 1.42 $ 0.75 Adjustments (net of tax) to exclude: Restructuring and other charges - 0.01 - 0.08 EPS from continuing operations excluding restructuring and other charges ((a)) $ 0.73 $ 0.50 $ 1.42 $ 0.83 Free Cash Flow Three months ended June 30, Six months ended June 30, (In millions) 2009 2008 2009 2008 Cash flow provided by operating activities from continuing operations - GAAP basis $ 99 $ 41 $ 215 $ 70 Capital expenditures - continuing operations (26 ) (39 ) (49 ) (86 ) (Increase) decrease in asset securitization program (11 ) (10 ) 1 10 Free cash flow (b) $ 62 $ (8 ) $ 167 $ (6 ) Outlook for Twelve months ended December 31, 2009 (In millions) Low estimate High estimate Cash flow provided by operating activities from continuing operations - GAAP basis (1) $ 290 $ 310 A service of YellowBrix, Inc.
