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MeadWestvaco's Cost-Saving Program in Place

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On Feb 21, 2014, we issued an updated research report on MeadWestvaco Corporation . The global producer of packaging, coated and specialty papers, consumer and office products and specialty chemicals reported fourth-quarter 2013 earnings of 29 cents per share and a positive earnings surprise of 26% on Jan 29, reversing the year-ago quarter’s loss of 5 cents. This was driven by growth across targeted packaging and specialty chemicals end markets, improved pricing and operational performance.

MeadWestvaco did not provide any specific guidance for 2014, but expects higher earnings over the prior year. This will be driven by continued volume improvement across its targeted paperboard packaging solutions and high value dispensing, pine chemicals and carbon technologies solutions as well as increased price realizations across key consumer and industrial paperboard packaging grades. Furthermore, improved productivity in major domestic mills and significant productivity benefits from higher production in the Brazilian operation and savings from its overhead reduction initiative will also boost earnings.

MeadWestvaco had embarked on an enterprise-wide overhead cost reduction plan in Apr 2013. It is expected to lead to annual cost savings of around $75 million by the end of 2014. Savings associated with the initiative were $43 million in 2013. The company remains on track to achieve its target of $75 million by the end of 2014.

The company, in January, announced a new program that will simplify the structure of its packaging businesses and save $100 million to $125 million by 2015. Of this, at least $75 million is expected to be realized in 2014. Key elements of the margin-improvement program include implementing a leaner organizational design across the packaging businesses to simplify the structure, speed up decision making and align the corporate infrastructure to the revenue base. The company will focus on attractive markets within the packaging industry that provide the greatest opportunity for profitable growth and prioritize capital on the highest return projects to improve free cash flow.

The company continues to expand its presence in the emerging markets. Growth in emerging markets continued to produce favorable results with revenues accounting for 25% of the company’s total sales.

MeadWestvaco currently carries a Zacks Rank #3 (Hold).

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