MeadWestvaco to Shed Envelope Biz - Analyst Blog

MeadWestvaco Corporation (MWV) announced that it has agreed to sell its Envelope Products Group to Stamford, Connecticut-based leading graphic communications company Cenveo Inc. (CVO). The sale is expected to close by the end of 2010.

The Envelope Products Group commands a leading position and produces high quality envelope products suited for diverse business customer needs. This business is part of MeadWestvaco's Consumer & Office Products wing.

The Consumer & Office Products division manufactures, sources, markets and distributes school and office products, time-management products and envelopes in North America and Brazil through both retail and commercial channels. Its brands include Mead, Five Star, AT-A-GLANCE, DayMinder, Cambridge, Academie, Day Runner and Amcal among others.

In the third quarter of fiscal 2010, the Consumer & Office Products segment contributed 18.5% to MeadWestvaco's total revenue. Segment sales dropped 5% from the year-earlier quarter to $288 million. Despite a strong back-to-school season in North America with its Mead, FiveStar and Trapper Keeper line-up, the segment was affected by lower envelope volumes compared with 2009.

Sales of envelopes and office products have been reportedly weak in 2009 as well, due to the weak global economic environment. The envelope business was particularly affected by sluggish demand from financial services customers who significantly reduced their direct mail offerings in 2009.

Following a strategic review of its businesses, MeadWestvaco has decided to exit unprofitable businesses and product lines to refocus on growth markets. The divestment of the envelope business is hence in sync with the company's strategy.

In the third quarter of fiscal 2010, MeadWestvaco divested its global media and entertainment packaging business to Atlas Holdings LLC for $68 million in cash, resulting in an after-tax loss on a disposal value of $122 million. The business was previously included in the Consumer Solutions segment and specialized in innovative packaging for DVDs, music and video games.

We appreciate the company's efforts to shed its unprofitable businesses as it will help it focus on businesses that generate attractive returns. We also like the company's increasing investments in emerging markets. Since the beginning of 2009, the company has implemented various cost reduction and productivity improvement initiatives that would fetch cumulative savings of around $250 million in 2010. Complemented by MeadWestvaco's financial strength, the company is in a sound position to capitalize on the economic recovery. We currently have a Zacks #2 Rank (short-term Buy recommendation) on the stock.

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's segments include Packaging Resource, Consumer Solutions, Consumer & Office Products, Specialty Chemicals, Community Development and Land Management. It competes with International Paper Co. (IP), Smurfit-Stone Container Corp. (SSCC) and Weyerhaeuser Co. (WY).

 
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