MeadWestvaco Remains Neutral - Analyst Blog
April 08 2011 - 9:52AM
Zacks
We reiterate our Neutral recommendation on MeadWestvaco
Corporation (MWV), a global producer of packaging, coated
and specialty papers, consumer and office products, and specialty
chemicals.
The company reported its fourth quarter and fiscal 2010 results,
delivering an adjusted EPS of $1.54 in fiscal 2010, up 93% on a
year over year basis and outperforming the Zacks Consensus Estimate
of $1.50. The outperformance was mainly driven by strong profit
growth in Packaging and Specialty Chemicals segment.
Net sales as reported by the company increased 5% year over year
to $5.69 billion, falling behind the Zacks Consensus Estimate of $6
billion. The profits in the company’s packaging business were up
54% in the quarter and 38% in the fiscal year, indicating strong
performance in global end-markets for retail food and liquid
packaging including personal care dispensing solutions, home and
garden trigger sprayers, and corrugated packaging serving the
produce.
MeadWestvaco operates through five segments comprising packaging
resource, consumer solutions, consumer and office products,
specialty chemicals and community development and land management.
Of all the segments, Packaging, Specialty Chemicals and Community
Development drove the results of the company in the positive
direction; reporting 5%, 25% and 42%, increase in the
year-over-year quarterly sales, respectively.
Unlike its peers who generate a majority of their revenue from
paper-related products, MeadWestvaco has diversified its interests
in packaging, specialty chemicals, office supply distribution and
land management. The company now plans to extend its footprint in
growth markets, such as beverage, health care, beauty &
personal care and home & garden. It plans to accomplish this
through acquisitions, product mix improvements and new product
introductions.
MeadWestvaco keeps a continuous check on each of its businesses
and makes an effort to divest unprofitable businesses whenever
needed. This helps the company focus on its other businesses
generating attractive returns. Recently the company sold off its
envelope business - Envelope Products Group based in Stamford
divested to Connecticut based Cenveo Inc.
According to the terms of the divestiture, the company will
transfer all the operating locations and current employees working
for Envelope Products Group to Cenveo Inc. The monetary and other
terms were not disclosed.
In spite of taking all these measures, MeadWestvaco still
struggles with the problem of high unemployment levels, tight
credit markets, a weak housing market and low consumer confidence.
There still lurks the apprehension of a challenging year ahead due
to the weak U.S. economy. If the recessionary conditions extend
longer, weaker volumes would probably offset the impact of cost
reduction and productivity improvements in the company’s
earnings.
In addition, the company may have to reconsider some of its
investment plans in the near term. The company also faces intense
competition in each of its businesses, in both domestic and
international markets. The company competes with many large,
well-established companies as well as lower cost manufacturers.
Further, while moving into 2011, the company expects higher
freight costs and has already been witnessing a surge in oil
pricing. This is likely to lead to a negative impact on both input
costs and potential demand in a still fragile global economy.
For fiscal 2011 first quarter, MeadWestvaco expects stable to
strengthening demand trends in its markets. The company also
expects continued gains in productivity. Complemented by
MeadWestvaco’s financial strength, the company is in a favorable
position to capitalize on the economic recovery.
Moreover, the company has been focusing on improving its
business mix and penetrating the fast growing emerging markets. As
a result, its sales increased 15% in 2010 in Asia and Brazil. The
emerging markets contributed 27% of the company’s total sales in
2010. Thus, given these headwinds we maintain our Neutral
recommendation on MeadWestvaco.
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).
INTL PAPER (IP): Free Stock Analysis Report
MEADWESTVACO CP (MWV): Free Stock Analysis Report
SMURFIT-STN NEW (SSCC): Free Stock Analysis Report
WEYERHAEUSER CO (WY): Free Stock Analysis Report
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