MeadWestvaco reported a year-on-year decline in its Q2 food and beverage and Industrial profits and warned it expected lower earnings in Q3 due to weak global demand.
The Food and Beverage segment profit declined 5% to $100m in Q2 2012 compared to Q2 2011 due to higher costs for some raw materials and freight and lower overall volume.
However, sales grew 5% to $808m in the business led by improved pricing and product mix from Polytop, the caps and closures business, acquired in Q4 2011.
Food and beverage packaging volumes declined and continued to be impacted by the ongoing global economic climate, particularly in Europe; however, volumes outperformed industry trends driven by growth in North America and Asia.
In food packaging, strong volumes in differentiated frozen food and liquid packaging were more than offset by volume declines in more standard food packaging.
Sales in all food and beverage packaging markets were negatively impacted by unfavourable foreign currency exchange compared to 2011.
John A. Luke, Jr., chairman and chief executive officer of MWV said it continued to navigate through a difficult economic environment.
“In many cases we are outperforming the broader market with our strategy targeting end markets and geographies with our differentiated solutions.
“Though we expect a continued slowdown in economic activity through the second half of the year, we are confident that success with our profitable growth strategy, coupled with disciplined execution on the controllable elements of our business, will enable us to continue to make steady progress.”
Industrial segment suffers
In the industrial segment sales declined 15% to $111m in Q2 2012 but MWV said the segment continued to increase its share of corrugated packaging for targeted meat, produce, raw materials and consumer products end markets.
Despite lower overall growth in Brazil, the segment’s volumes strongly outpaced the growth rate of the corrugated industry.
These were offset by unfavourable foreign currency exchange and by the negative mix impact from initial volumes which consist of more standard solutions, from the segment’s new box plant in Araçatuba.
Profit slumped 36% to $14m because of labour costs, unfavourable foreign currency exchange and product mix.
The segment will start-up its new paperboard machine in Tres Barras at the end of July 2012 and expects significant earnings and cash flow contribution from the Brazil expansion project in 2013.
The firm said it expects “earnings to be lower compared to year-ago levels on a continuing operations basis due to weakening global demand, unfavourable foreign currency and lower land sales.
“Start-up expenses related to the new paperboard machine in Brazil will also significantly impact Industrial segment third quarter earnings. The new machine will begin operating at the end of July 2012 and is expected to contribute significant earnings and cash flow in 2013.”