Strong Results at MeadWestvaco - Analyst Blog

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) reported net income from continuing operations of 35 cents per share, beating the Zacks Consensus Estimate by 2 cents for the second quarter of 2010. Results were also ahead of the year-ago figure of 22 cents per share. Net income from continuing operations of MeadWestvaco was $61 million, a substantial increase of 61% from $38 million in the prior-year quarter.

Better-than-expected results were driven by increased profitability in global packaging and other markets, complemented by improving operating productivity of manufacturing facilities and supply chain, and declining overhead costs.

Including after-tax restructuring charges of $11 million or 6 cents per share, MeadWestvaco reported a net income of $50 million or 29 cents per share, compared with $125 million or 72 cents per share in second-quarter 2009. The prior-year quarter benefited from an after-tax income of $112 million or 65 cents per share from alternative fuel credits earned under 2007 legislation, partially offset by after-tax restructuring charges of $25 million or 15 cents per share.

Total revenue reported by MeadWestvaco was $1.6 billion, up 8.4% from $1.4 billion in the prior-year quarter. It was almost in line with the Zacks Consensus Estimate. Revenue increased across three segments, partially offset by a decrease in one segment, leading to the overall increase.

Cost of sales of MeadWestvaco increased 3.7% year over year while selling, general and administrative expenses decreased 5.1% year over year.

In the second quarter of 2010, MeadWestvaco reported a total segment operating profit of $178 million, an improvement of 45% over the prior-year quarter. Operating profit increased across all the segments, led by the Packaging Resources and Specialty Chemicals segments.

Consolidated operating profit of MeadWestvaco, however, declined to $76 million from $168 million in the year-ago quarter, as the prior-year quarter benefited from alternative fuel credits.

Interest expense of MeadWestvaco in the quarter under review was $49 million, a 3.9% year-over-year decrease.

The effective tax rate of MeadWestvaco for the quarter was 34%, compared with 26% in the prior-year quarter.

: Sales improved 10.3% year over year to $677 million in the quarter. The segment saw an increase in shipments of bleached paperboard, strong liquid packaging and Coated Natural Kraft.

Operating profit was $72 million, a year-over-year increase of 47%. The improvement was driven by increased sales volume, improved product mix and productivity, partially offset by input cost inflation, largely of freight and raw materials.

: Sales in the quarter remained flat at $554 million year over year.

Operating profit increased 8% year over year to $27 million. The increase was largely attributable to better manufacturing productivity and reduced overhead costs.

Consumer & Office Products: Sales declined 3.4% year over year to $226 million in the quarter. A better mix at the segment's time management products business coupled with higher volumes in Brazil, owing to the Grafons acquisition, and modest improvement at Tilibra muted the lower volume in back-to-school.

Operating profit remained flat at $31 million compared with the prior-year quarter.

: Sales increased a whopping 55% year over year to $180 million in the quarter under review. Strong demand for its asphalt solutions in emerging markets coupled with continued strong performance in chemicals for oilfield services and adhesive applications fueled the increase.

Strong volume growth across the segment’s performance chemicals and carbon technologies offerings led to a substantial 140% year-over-year operating profit increase to $36 million.

Community Development and Land Management: Sales increased considerably by 57% year over year to $36 million in the quarter.

Operating profit increased to $12 million, compared with $3 million in the prior-year quarter. The improvement was largely driven by profit from real estate activities as well as from forestry operations and leasing activities.

Cash and cash equivalents of MeadWestvaco at the end of the quarter were $659 million, compared with $850 million at the end of the fourth quarter of 2009. Long-term debt declined to $2.14 billion from $2.15 billion at the fourth-quarter 2009 end.

Cash from operations of MeadWestvaco declined to $60 million in the first half of 2010, from $266 million in the comparable period a year ago. The unfavorable result was attributable to cash received from alternative fuel credits and higher employee incentive compensation payments in the first half of 2009.

MeadWestvaco’s capital spending during the first half of 2010 totaled $78 million, compared with $92 million in the first half of 2009.

Dividend Update

During the second quarter of 2010, MeadWestvaco paid a quarterly dividend of 23 cents per share.

The board of directors also declared a quarterly dividend of 23 cents per share payable on September 1, 2010, to stockholders of record as of August 2, 2010.

Management expects to post solid results in the third-quarter 2010, driven by its strong presence in the emerging markets, continued cost reductions and better operating productivity. However, these positives would be countered by a sustained unemployment scenario, stagnant wages and a soft housing market in the U.S. and in Europe.

We remain Neutral on MeadWestvaco. The quantitative Zacks #3 Rank (Hold) for the company indicates no clear directional pressure on the stock over the near term.