MeadWestvaco Q3 2010 Earnings Call Transcript

MeadWestvaco Q3 2010 Earnings Call Transcript
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MeadWestvaco (MWV)

Q3 2010 Earnings Call

October 27, 2010 10:00 am ET

Executives

E. Rajkowski - Chief Financial Officer and Senior Vice President

James Buzzard - President

John Luke - Chairman, Chief Executive Officer and Chairman of Executive Committee

Jason Thompson - Director of Investor Relations

Analysts

Peter Ruschmeier - Barclays Capital

Mark Connelly - Credit Agricole Securities (USA) Inc.

Mark Wilde - Deutsche Bank AG

Richard Skidmore - Goldman Sachs Group Inc.

George Staphos

Chip Dillon - Crédit Suisse AG

Gail Glazerman - UBS Investment Bank

Presentation

Operator

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Ladies and gentlemen, thank you for standing by. Welcome to the MeadWestvaco Third Quarter Results Conference Call. [Operator Instructions] I would now like to turn the conference over to our host, Jason Thompson, Director of Investor Relations. Please go ahead, sir.

Jason Thompson

Thanks, Roxanne, and good morning, everyone. This morning, we announced our results before the market opened. The notification of this morning's call was broadly disclosed and further, this morning's call is being webcast at mwv.com and slides that accompany this call are available there as well.

I'll briefly remind you that certain statements we make are forward-looking and are not guarantees of future performance and are subject to known and unknown risks and uncertainties described in our public filings. Furthermore, contents contain time-sensitive information that, although correct today, may change with the passage of time.

First, a brief recap of the results we reported this morning. For the third quarter, we reported net income from continuing operations of $111 million or $0.64 per share. These results include a one-time tax benefit of $15 million or $0.09 per share and after-tax charges for restructuring and early retirement of debt totaling $14 million or $0.08 per share. Now here to tell you more about our results for the third quarter are John Luke, Chairman and CEO; Jim Buzzard, our President; and Mark Rajkowski, CFO.

I'll now turn the call over to John.

John Luke

Jason, thanks, and good morning. In the third quarter, the MWV organization's execution of our value-based strategy continued to deliver stronger, more sustainable earnings performance from each of our businesses. This progress is particularly apparent in our market-focused strategic business units for Packaging, whose revenues represent the principal output of our efficient paperboard converting and injection molding manufacturing system.

With these market-focused business units, we're building new and deeper partnerships with customers, improving the overall mix of high-value products and packaging solutions and achieving share gains in targeted, attractive end markets and geographies. This progress is the foundation for MWV's continuing transformation and is contributing soundly to the company's improved performance and our very strong prospects for profitable growth, just as our similar strategies in our Specialty Chemicals, Consumer & Office Products and Community Development and Land Management businesses.

Some highlights from the quarter include adjusted earnings per share of $0.63, a 4% volume growth from core products, a 28% increase in earnings from our Packaging businesses, a remarkable 83% profit increase from our Specialty Chemicals business and the sale of our Media Packaging business.

With those highlights in mind, let me provide some details on the progress we're making in each of our packaging end markets, progress that we expect will continue to drive improvement across our packaging platform.

Turning first to the beverage market. In the global beverage markets, trends are flat to slightly down in the mature markets of North America and Europe but the opportunities are very large in emerging markets, especially across Asia and Latin America. Our beverage packaging business has outpaced these trends for several quarters, with sales volume roughly the same year-over-year in North America and Europe and double-digit growth in emerging markets.

We are leveraging our global footprint and systems value proposition to grow along with customers in emerging markets by offering better speed-to-market, increased productivity for their operations and more product flexibility, and our pipeline for both innovation and high-end machinery solutions in this business is very strong.

In the large global food and food services markets, our business team is working directly with brand owners and retailers to specify MWV paperboard solutions for frozen food packaging, ready-to-eat meals and hot drink cups. Our focus on these demanding applications help generate strong double-digit sales and profit growth in these markets during the quarter.

Looking forward, the beneficial environmental features of our new MWare line of paperboard for compostable cups and other food service products have generated excellent potential for participation in global quick serve restaurant chains. And we recently launched a new product called Captivate. Captivate is a shelf-ready and shopper-friendly packaging solution for canned goods, pet food, frozen juice, yogurt and other consumer goods. It delivers benefits for the brand owner, the retail operator and the shopper, with a billboard effect on crowded store shelves, supply-chain efficiencies and shrinkage or theft reduction benefits and a better overall shopping experience for consumers. Captivate is a great example of the way we are using brand and consumer insights to develop innovation in packaging. And in addition to applications in the retail food market, it has strong potential in the beverage and healthcare markets as well.

Turning to our Healthcare business, we're focused on extending our leading position in value-added adherence packaging. Demand for Shellpak was steady in the third quarter, and we are adding a new drug to the program with our biggest customer, Wal-Mart, that will increase volume by about 15% beginning this December.

We are also beginning a partnership with Kroger on an initial launch of Shellpak for its Health Matters prescription drug program. This partnership with Kroger will include educational materials for pharmacists and patients, as well as in-store promotions, and we expect to be able to demonstrate significant sales lift with the switch to Shellpak for many of its generic prescription offerings.

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