Mixed Results for MeadWestvaco - Analyst Blog

MeadWestvaco Corporation (MWV) delivered adjusted earnings per share (EPS) of 41 cents in its fiscal fourth quarter, beating the Zacks Consensus Estimate by a penny and more than double the 20 cents in the prior-year quarter.

Adjusted EPS in the fourth quarter excluded some special items. Excluding these items, EPS in the quarter was 40 cents, a 33% increase from 30 cents in the year-earlier quarter. 

The company delivered net sales of $1.49 billion surpassing $1.45 billion in the year-ago quarter. However, sales fell short of the Zacks Consensus Estimate of $1.53 billion.

Cost and Margins

Cost of sales declined 1% year over year to $1,157 million and selling, general and administrative expenses dropped 6% to $203 million from the year-earlier quarter.

Gross profit for the company increased 22% year over year to $341 million and gross margin expanded 360 basis points to 22.8%. Operating profit increased 116% to $138 million and operating margin expanded 480 basis points to 9.2%. 

Segmental Performance

Packaging Resource: The segment reported net sales of $667 million, spiked 5% year over year, driven by the increased volumes of the company's CNK®-branded coated unbleached kraft paperboard for retail food companies were offset by a slight decline in solid bleached sulfate (SBS) shipments driven by deliberate actions to focus on the segment's highest return customers. Overall volumes declined 1%. Despite decline in volumes improved pricing and product mix led to the sales increase.  

Operating profits surged 60% from the year-ago quarter to $64 million, led by 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: The sales for the segment inched down 4% year over year to $437 million. Volumes dipped 2% and the price/mix impact to sales was consistent with last year, but the segment was negatively impacted by unfavorable foreign currency exchange.

Operating profit as reported by the company however increased 41% year over year to $24 million reflecting 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: The segment sales dropped 2% from the year-earlier quarter to $235 million affected by a 1% decline in volumes. The operating profit for the segment however upped 4% year over year to $57 million driven by productivity improvement, partially offset by input cost inflation for certain raw materials and freight compared to 2009.

Specialty Chemicals: This segment's sales went up 25% year over year to $173 million, driven by 6% volume growth. Operating profit rose significantly by 125% from the prior-year quarter to $36 million reflecting 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: Sales in the segment increased 42% to $61 million compared with the year-earlier quarter. Operating profit increased 50% to $30 million driven by higher earnings from real estate activities. During the quarter, 12,200 acres of land was sold compared with 12,700 acres in the prior-year quarter.

Fiscal 2010 Performance

MeadWestvaco's adjusted EPS for fiscal 2011 was $1.54, a 93% year over year growth and  above the Zacks Consensus Estimate of $1.50. Including special items, fiscal EPS was $1.52 compared with $1.38 in fiscal 2009. Sales during the year increased 5% year over year to $5.69 billion, but missed the Zacks Consensus Estimate of $6 billion.  

Financial Position

As of December 31, 2010, cash and cash equivalents amounted to $790 million compared $774 million as of September 30, 2010 and $850 million as of December 31, 2009. As of December 31, 2010, long-term debt remained flat at $2.04 billion compared with as of September 30, 2010 and down from $2.15 billion as of December 31, 2009.

Cash flow from 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.

Debt-to-capital ratio as of December 31, 2010 improved to 62% compared with 64% as of December 31, 2009.

Divestitures

In November, MeadWestvaco 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. The envelope products business was previously included in the Consumer & Office Products segment.

Outlook

For fiscal 2011 first quarter, MeadWestvaco expects 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. However on the flipside, the company expects higher freight costs and rising price for oil, and the impact on both input costs and potential demand in a still fragile global economy.

MeadWestvaco Corporation provides solutions to the companies operating in the healthcare, beauty and personal care, food, beverage, home and garden, tobacco, and commercial print industry. The company competes with the likes of International Paper Co. (IP), Smurfit-Stone Container Corp. (SSCC) and Weyerhaeuser Co. (WY). We currently have a Zacks #2 Rank (short-term Buy rating) on the stock.

 
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