MeadWestvaco Expands, Ups Dividend - Analyst Blog

MeadWestvaco Corporation (MWV) plans to expand its Rigesa corrugated packaging business in Brazil for a total investment of $480 million. The company will develop its existing facility located in Santa Catarina State and install a new paperboard machine, which will double the capacity of its Três Barras mill. The investment will be funded by cash as well as borrowing.

Once construction and installation of the new machine is completed in mid-2012, it will produce 300,000 metric tons per year of kraft linerboard for use in the company's packaging converting operations throughout Brazil.

The investment will enable MeadWestvaco to emerge as a fully integrated packaging solutions company. Rigesa will further leverage its sustainable forestry, mill and converting operations as well as consumer insights, design and engineering to produce specialized corrugated packaging solutions for the South American markets.

The announcement does not come as a surprise as MeadWestvaco already commands a leading position in Brazil and can capitalize to tap the growing Brazilian market. In the third quarter of fiscal 2010, revenues from emerging markets comprised about 25% of the company's total sales. Asia and Brazil collectively reported a 12% year-over-year increase in sales in the third quarter. Sales generated by the Rigesa operations increased 24% year over year, attributable to increased volume and improved pricing and product mix, as well as favorable foreign currency exchange.

In a separate development, MeadWestvaco upped its quarterly cash dividend by 9% to 25 cents per share from the prior 23 cents. The increased dividend will be paid on December 1, 2010, to stockholders of record at the close of business on November 26, 2010.

MeadWestvaco Corporation delivered a strong third quarter 2010 with operating EPS of 63 cents, outperforming the Zacks Consensus Estimate of 55 cents and improving 37% from 46 cents in the prior-year quarter.

The company had cash and cash equivalents of $774 million as of September 30, 2010, down from $850 million as of December 31, 2009. Cash from operations declined to approximately $350 million for the first three quarters of 2010 compared with $530 million during the prior-year period, given that the cash receipt from alternative fuel mixture credits amounted to $248 million in 2009.

During the quarter, the company repurchased 2.6 million of its common shares for $60 million under existing authorizations, at an average price of $23.08. 

Following a strategic review of its businesses, MeadWestvaco has decided to exit unprofitable businesses and product lines to focus on growth markets. We appreciate the company's increasing investments in emerging markets. Since the beginning of 2009, the company has implemented various cost reduction and productivity improvement initiatives, through which it expects to save around $250 million in 2010. Along with its financial strength, we believe this will put MeadWestvaco in a sound position to capitalize on the economic recovery. The company currently has a Zacks #2 Rank (short-term Buy recommendation).

Richmond, Virginia-based MeadWestvaco Corporation provides solutions to companies operating in the health care, beauty and personal care, food, beverage, home and garden, tobacco, and commercial print industry. The company comprises five segments -- Packaging Resource Consumer Solutions Consumer & Office Products Specialty Chemicals Community Development and Land Management.