SSCC Smurfit-Stone Container Corp. Common Stock

MeadWestvaco Corporation (MWV) delivered adjusted EPS of 43 cents in its first quarter of 2011, significantly beating the Zacks Consensus Estimate of 23 cents per share and more than three times the EPS of 13 cents in the prior-year quarter.

Adjusted EPS in the first quarter excluded some special items. Adjusting for these items, EPS in the quarter was 41 cents, a robust increase from 17 cents in the year-earlier quarter. 

The company delivered net sales of $1,365 million surpassing $1,262 million in the year-ago quarter. However, sales fell short of the Zacks Consensus Estimate of $1,372 million.

Cost and Margins

Cost of sales increased 2% year over year to $1,049 million and selling, general and administrative expenses jumped 12% to $184 million from the year-earlier quarter.

Gross profit for the company increased 36% year over year to $316 million and gross margin expanded 400 basis points to 23%.

Segmental Performance

Packaging Resource: The segment reported net sales of $679 million, spiked 9% year over year, driven by improved paperboard pricing for solid bleached sulfate (SBS) paperboard and Coated unbleached kraft (CNK) paperboard due to gains in higher value food and beverage packaging markets.

The company also witnessed increased sales from consumer packaging solutions for beauty and personal care products. Overall volumes declined 1%.

Despite decline in volumes improved pricing and product mix led to the sales increase. The sales growth was offset by modest decline in shipments of paperboard packaging and CNK paperboard due to poor weather conditions in the Northeast U.S. and freight carrier availability. Volumes were also impacted by an overall reduction in domestic retail activity in Brazil due to abnormally wet weather.

Operating profits surged 180% from the year-ago quarter to $84 million, led by improved pricing and product mix and better productivity performance, partially offset by input cost inflation in certain raw materials and freight.

Consumer Solutions: The sales for the segment grew 2% year over year to $449 million due to improvement in home and garden packaging, and the recent acquisition of Spray Plast contributed to the overall sales growth. Volumes dipped 1% due to declines in beverage, healthcare and personal care packaging.

Operating profit as reported by the company however increased 4% year over year to $26 million reflecting strong productivity gains and favorable foreign currency exchange offset in part by input cost inflation in certain raw materials and freight.

Consumer & Office Products: The segment sales jumped 4% from the year-earlier quarter to $116 million driven by higher volumes of calendar and time management products in North America, which had a favorable impact on mix, and increased sales from Tilibra as more Brazilian back-to-school business shifted to the first quarter of 2011 from the fourth quarter of 2010.

The volumes in the quarter were flat versus the prior year. The operating profit for the segment however upped 20% year over year to $6 million driven by productivity improvement and favorable foreign currency exchange, partially offset by input cost inflation for certain raw materials and freight.

Specialty Chemicals: This segment’s sales went up 28% year over year to $177 million, driven by a 13% volume growth. Operating profit rose significantly by 96% from the prior-year quarter to $49 million reflecting improved pricing and product mix, higher volumes and productivity gains, partially offset by input cost inflation for certain raw materials and freight.

The company penetrated developed and emerging markets with its value-added solutions for automotive, infrastructure, industrial and energy markets thereby driving sales.

Community Development and Land Management: Sales in the segment decreased 4.4% to $43 million compared with the year-earlier quarter. Operating profit increased 30% to $30 million driven by higher earnings from real estate activities including the sale of a 1.1 million square foot distribution center by The Rockefeller Group-MWV joint venture.

During the quarter, 12,200 acres of land were sold compared with 12,700 acres in the prior-year quarter.

Financial Position

As of March 31, 2011, cash and cash equivalents amounted to $675 million compared to $790 million as of December 31, 2010. As of March, 2010, long-term debt decreased to $2.03 billion compared with $2.04 billion as of December 31, 2010.

Capital spending from continuing operations was $113 million in the first quarter of 2011 compared to $37 million in the first quarter of 2010. The year-over-year increase was driven primarily by the expansion of the company’s corrugated packaging business in Brazil.

Dividend

The company paid a regular quarterly dividend of 25 cents per share during the first quarter of 2011 and also declared a regular quarterly dividend of 25 cents per common share to be paid on June 1, 2011, to shareholders of record at the close of business on May 2, 2011.

Outlook

For fiscal 2011 second quarter, MeadWestvaco hopes for 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 to generate increased sales from higher volume and price/mix improvements, and expand margins and grow earnings.

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. Further, the company is continuing to monitor potential second order effects from the tragedy in Japan, which could impact short-term demand for some of the company’s products.

MeadWestvaco Corporation provides solutions to the companies operating in the healthcare, beauty and personal care, food, beverage, home and garden, tobacco, and commercial print industries. 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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