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MWV Projects F&B 2Q Profit to Fall 50%

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MeadWestvaco Corporation projected its Food and Beverage (F&B) business segment profit to fall 50% in second quarter 2013. MeadWestvaco cited unanticipated costs, outage and start-up issues at its Covington, Va., paperboard mill to be the reasons for lower profit expectation.

MeadWestvaco is expected to announce its second quarter results on July 30. For the quarter, MeadWestvaco estimates the Food & Beverage segment profit to lie between $45 and $50 million, a 50% fall from the year-ago segment profit of $100 million. The projected fall is based on unexpected costs and lower productivity due to a planned major maintenance outage and subsequent start-up issues at the Covington, Va., paperboard mill. Furthermore, operational impacts related to the implementation of a new information system at the mill aggravated the decline.

This, however, does not come as a surprise. During the first quarter earnings call, MeadWestvaco had hinted that second quarter revenues would be lower year over year owing to planned major cold outage at the Covington, Va, paperboard mill and lower land sales. However, MeadWestvaco’s profitable growth strategies which will improve volume across the Packaging and Specialty Chemicals businesses, product pricing improvement and recent acquisitions in the Industrial and Specialty Chemicals businesses will help mitigate the loss.

MeadWestvaco also clarified that the start-up issues associated with the outage have been addressed. The mill is back in operation at full capacity and volumes in June are strong. The operational challenges connected to the new system are also being solved and are expected to have minimal impact moving forward. MeadWestvaco expects earnings growth to resume in the third quarter of 2013 and to log growth for the full year.

MeadWestvaco’s first-quarter 2013 adjusted earnings declined 51% to 16 cents per share compared with 33 cents in the year-ago quarter. Results were affected by lower sales of beverage packaging, home and garden packaging, and asphalt paving chemicals due to colder weather in some key regions as well as lower consumer spending in Europe, which affected sales of beauty and personal care folding carton packaging.

MeadWestvaco is planning to sell its beauty and personal care folding carton in Europe and Brazil to improve margins in its Home, Health & Beauty segment. MeadWestvaco has embarked on an enterprise-wide overhead cost reduction plan, which is expected to lead to annual cost savings between $65 and $75 million by the end of 2014. The company is refocusing and streamlining its operations as well as consolidating general and administrative support across the organization. A major portion of the plan will be completed this year and the company expects benefits of $25 to $30 million in 2013.

MeadWestvaco will benefit from its new products, profitable growth strategies, expansion in Brazil and from acquired businesses despite challenging economic conditions in Europe.

Richmond, VA.-based MeadWestvaco is a global packaging company providing innovative solutions to the world’s most admired brands in the healthcare, beauty and personal care, food, beverage, home and garden, tobacco, and agricultural industries. The company also produces specialty chemicals for the automotive, energy, and infrastructure industries.

MeadWestvaco currently retains a short-term Zacks Rank #3 (Hold). Other companies in the paper and related products industry with favorable Zacks Ranks are KapStone Paper and Packaging Corporation (KS - Free Report) and Resolute Forest Products Inc. with Zacks Rank #1 (Strong Buy), and PH Glatfelter Co. (GLT - Free Report) with a Zacks Rank #2 (Buy).

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