Pactiv Posts Third Quarter EPS Growth of 35 Percent to $0.54
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Strong Cash Generation Continues
LAKE FOREST, Ill.--(BUSINESS WIRE)-- For the quarter ended September 30, Pactiv Corporation (NYSE: PTV) today announced that income from continuing operations was $73 million, or $0.54 per share, compared with $54 million, or $0.40 per share on a reported basis, or $0.39 per share excluding a restructuring credit, in 2008. Sales declined 9 percent to $839 million from $925 million, reflecting 2-percent higher volume and 11-percent lower pricing. The price decline reflects normal reductions as a result of lower year-over-year raw material costs.
"We continued to perform well in the third quarter. Our volume growth and productivity programs accounted for almost half of our year-over-year gross profit improvement. Our Foodservice segment posted strong volume growth, and, while our Consumer segment volume was slightly negative, we expect to see a rebound in the fourth quarter. During the year we made substantial progress on the asset side of our pension funding issue. Interest rate declines have masked some of this benefit, but we expect our progress will become more apparent as rates rise with an economic recovery," said Richard L. Wambold, Pactiv's chairman and chief executive officer.
Third quarter gross margin was 31.7 percent compared with 23.1 percent in 2008. Operating margin was 16.3 percent compared with 11.0 percent on a reported basis and 10.8 percent excluding the restructuring credit last year. Both increases reflected lower operating expenses, favorable spread (the difference between selling prices and raw material costs), and higher volume.
Selling, general, and administrative (SG&A) expense was $83 million compared with $67 million last year. The increase primarily was a result of a return to more normal advertising spending and incentive compensation accruals this year, as well as lower pension income.
After a pension contribution of $200 million pretax and related favorable cash tax effects of $30 million, free cash flow in the third quarter was a use of $31 million compared with a source of $88 million in 2008. Excluding the after-tax cash effect of the pension contribution, free cash flow in the third quarter of 2009 would have been $139 million.
For the nine-month period, income from continuing operations was $261 million, or $1.96 per share, compared with $153 million, or $1.15 per share, last year on a reported basis, and $1.22 per share excluding the restructuring charge. Sales of $2.51 billion decreased 7 percent from $2.68 billion. Gross margin was 35.3 percent compared with 25.0 percent, while operating margin was 19.3 percent versus 11.5 percent. Excluding the restructuring charge, 2008 operating margin was 12.0 percent. After pension contributions of $400 million pretax and related favorable cash tax effects of $100 million, year-to-date 2009 free cash flow was $136 million compared with $82 million last year. Excluding the after-tax cash effect of the pension contributions, 2009 free cash flow for the nine-month period would have been $436 million.
Business Segment Results
Hefty(R) Consumer Products
Third quarter sales declined 9 percent to $312 million from $342 million, reflecting 8-percent unfavorable pricing and a 1-percent volume decline. The price decline reflects normal reductions due to lower year-over-year raw material costs. Volume was negatively impacted by a decline in the waste bag market, as well as lower shipments related to Hefty(R) waste bag promotions in the non-grocery channels. Tableware sales, including cups, cutlery, and plates, continued to be strong.
Third quarter operating income was $72 million compared with $51 million on a reported basis, or $48 million excluding a restructuring credit last year. The increase resulted from favorable spread, as well as lower operating costs. Operating margin was 23.1 percent compared with 14.9 percent. Excluding the restructuring credit, 2008 operating margin was 14.0 percent.
For the nine-month period, sales of $951 million declined 4 percent from $990 million. Operating income was $240 million compared with $142 million on a reported basis, and $146 million excluding the restructuring charge in 2008. Operating margin was 25.2 percent compared with 14.3 percent. Excluding the restructuring charge, 2008 operating margin was 14.7 percent.
Foodservice/Food Packaging
Third quarter sales of $527 million declined 10 percent from $583 million, reflecting a 4-percent volume increase, 13-percent lower pricing, and 1-percent unfavorable foreign exchange. The volume increase represents continued growth in cups and cutlery, as well as growth in a number of other product areas, including polypropylene and paper-based items. The lower pricing is a result of normal price declines related to lower year-over-year raw material costs.
Third quarter operating income increased to $70 million from $52 million on a reported basis, and $53 million excluding a restructuring charge last year. The increase reflects the impact of higher volume and lower operating expenses. Operating margin was 13.3 percent compared with 8.9 percent. Excluding the restructuring charge, 2008 operating margin was 9.1 percent.
For the nine-month period, sales of $1.56 billion declined 8 percent from $1.69 billion. Operating income was $254 million versus $167 million on a reported basis, and $176 million excluding the restructuring charge in 2008. Operating margin was 16.3 percent compared with 9.9 percent. Excluding the restructuring charge, 2008 operating margin was 10.4 percent.
Outlook
The Company's fourth quarter EPS outlook is a range of $0.48 to $0.52. Raw material costs are expected to be similar to third quarter 2009 levels. The full year EPS outlook has been raised to a range of $2.44 to $2.48 from $2.37 to $2.45, and includes non-cash pension income of $37 million pretax, $23 million after tax, or $0.17 per share.
Full year 2009 sales are expected to decline in a range of 6 percent to 7 percent. The sales outlook incorporates a volume increase of 2 percent to 3 percent, a price decline in a range of 8 percent to 9 percent, and unfavorable foreign exchange of approximately 1 percent.
SG&A expense is estimated to be approximately $340 million, and the 2009 tax rate is expected to be 37.0 percent.
After pension contributions of $400 million pretax, or $300 million after tax, free cash flow for 2009 is anticipated to be in a range of $200 million to $210 million, up from a range of $170 million to $190 million due to higher earnings and improved working capital. Before pension contributions, the full year free cash flow estimate is $480 million to $490 million. Depreciation and amortization expense is expected to be approximately $185 million, and capital expenditures are estimated to be approximately $130 million, up from $120 million.
Other
This press release includes certain non-GAAP financial measures. A reconciliation of the non-GAAP financial measures to GAAP is shown in the attached "Regulation G GAAP Reconciliations" or in the attached "Operating Results by Segment".
Cautionary Statements
This press release includes certain "forward-looking statements" such as those in the Outlook section, as well as "...we expect to see a rebound in the fourth quarter" and "...we expect our progress will become more apparent as rates rise with an economic recovery." A variety of factors may cause actual results to differ materially from these expectations including a slowdown in economic growth, changes in the competitive market, increased cost of raw materials, and changes in the regulatory environment.
More detailed information about these and other factors is contained in the Company's Annual Report on Form 10-K at page 22 filed with the Securities and Exchange Commission as revised and updated by Forms 10-Q and 8-K as filed with the Commission.
Company Information
Pactiv Corporation (NYSE: PTV) is a leader in the consumer and foodservice/food packaging markets it serves. With 2008 sales of $3.6 billion, Pactiv derives more than 80 percent of its sales from market sectors in which it holds the No. 1 or No. 2 market-share position. Pactiv's Hefty(R) brand products include waste bags, slider storage bags, disposable tableware, and disposable cookware. Pactiv's foodservice/food packaging offering is one of the broadest in the industry, including both custom and stock products in a variety of materials. For more information, visit www.pactiv.com.
Pactiv Corporation
Consolidated Statement of Income
(In millions, except Three months ended September Nine months ended September
per share data) 30, 30,
2009 2008 2009 2008
Sales $ 839 $ 925 $ 2,506 $ 2,684
Costs and expenses
Cost of sales
(excluding
depreciation
and amortization) 573 711 1,621 2,013
Depreciation and 46 46 138 138
amortization
Selling, general, and 83 67 263 208
administrative
Other expense - 1 1 1
Operating income
before restructuring
and other 137 100 483 324
Restructuring and - (2 ) - 14
other
Operating income 137 102 483 310
Other income/
(expense)
Interest income - 1 1 2
Interest expense, net
of capitalized (23 ) (25 ) (70 ) (79 )
interest
Income before income 114 78 414 233
taxes
Income tax expense 41 24 153 80
Income from 73 54 261 153
continuing operations
Discontinued
operations, net of 15 - 14 (4 )
tax (a)
Net $ 88 $ 54 275 149
income
Less: Net income
attributable to
noncontrolling 1 1 1 1
interest
Net income
attributable to $ 87 $ 53 $ 274 $ 148
Pactiv
Amounts attributable
to Pactiv common
shareholders
Income from
continuing $ 72 $ 53 $ 260 $ 152
operations, net of
tax
Discontinued
operations, net of 15 - 14 (4 )
tax (a)
Net income $ 87 $ 53 $ 274 $ 148
Average common shares 133.2 132.1 132.8 132.1
outstanding (diluted)
Diluted earnings per
share of common stock
attributable to
Pactiv common
shareholders:
Income from
continuing operations
excluding
restructuring and $ 0.54 $ 0.39 $ 1.96 $ 1.22
other
Restructuring and - 0.01 - (0.07 )
other, net of tax
Income from 0.54 0.40 1.96 1.15
continuing operations
Discontinued
operations, net of 0.11 - 0.10 (0.03 )
tax (a)
Net $ 0.65 $ 0.40 $ 2.06 $ 1.12
income
Gross margin (before 31.7 % 23.1 % 35.3 % 25.0 %
deprec. & amort.)
Operating
margin
Excluding
restructuring and 16.3 % 10.8 % 19.3 % 12.0 %
other
Restructuring & other 0.0 % 0.2 % 0.0 % -0.5 %
Including
restructuring and 16.3 % 11.0 % 19.3 % 11.5 %
other
(a) Income from discontinued operations in the third quarter of 2009 related to
the expiration of statute of limitations on the 2005 tax year.
Pactiv Corporation
Consolidated Statement of Financial Position
(In millions)
September 30, 2009 December 31, 2008
Assets
Current assets
Cash and temporary cash investments $ 104 $ 80
Accounts and notes receivable (a) 275 311
Inventories 375 344
Other 21 30
Total current assets 775 765
Property, plant, and equipment, net 1,181 1,209
Other assets
Goodwill 1,129 1,124
Intangible assets, net 379 396
Other 99 231
Total other assets 1,607 1,751
Total assets $ 3,563 $ 3,725
Liabilities and equity
Current liabilities
Accounts payable $ 147 $ 115
Other 262 218
Total current liabilities 409 333
Long-term debt 1,275 1,345
Pension and postretirement benefits 798 1,266
Other liabilities 113 126
Pactiv shareholders' equity 952 639
Noncontrolling interest 16 16
Total liabilities and equity $ 3,563 $ 3,725
(a) At September 30, 2009, receivables totaling $110 million were sold,
while receivables totaling $130 million were sold at December 31, 2008.
Pactiv Corporation Consolidated Statement of Cash Flows (In millions) Nine months ended September 30, 2009 2008 Operating activities Net income $ 275 $ 149 Less results from discontinued (14 ) 4 operations Income from continuing operations 261 153 Adjustments to reconcile income from continuing operations to cash provided (used) by continuing operations Depreciation and amortization 138 138 Deferred income taxes 114 41 Restructuring and other (1 ) 13 Noncash pension income (27 ) (37 ) Noncash compensation expense 13 12 Working capital 92 (104 ) Pension contribution (400 ) - Other 4 (5 ) Cash provided (used) by operating activities - continuing 194 211 operations Cash provided (used) by operating activities - discontinued (3 ) (7 ) operations Cash provided (used) by operating $ 191 $ 204 activities Investing activities Expenditures for property, plant, and (78 ) (109 ) equipment Acquisitions of businesses and (20 ) - assets Other continuing operations investing 2 - activities Cash provided (used) by investing $ (96 ) $ (109 ) activities Financing activities Issuance of common stock 2 2 Purchase of common stock - (2 ) Revolving credit facility payments (70 ) (150 ) Dividends paid to noncontrolling (1 ) (1 ) interest Other (2 ) (1 ) Cash provided (used) by financing $ (71 ) $ (152 ) activities Effect of foreign-currency exchange rate changes on cash and temporary cash investments - (1 ) Increase (decrease) in cash and temporary cash investments 24 (58 ) Cash and temporary cash investments, 80 95 January 1 Cash and temporary cash investments, $ 104 $ 37 September 30
Pactiv Corporation
Operating Results by Segment
(In millions)
Foodservice /
Consumer Food Packaging Other Total
Three months ended September
30, 2009
Sales $ 312 $ 527 $ - $ 839
Operating income (loss) $ 72 $ 70 $ (5 ) $ 137
Operating margin 23.1 % 13.3 % 16.3 %
Three months ended September
30, 2008
Sales $ 342 $ 583 $ - $ 925
Operating income (loss)
before
restructuring & other $ 48 $ 53 $ (1 ) $ 100
Restructuring & other (3 ) 1 - (2 )
Operating income (loss) $ 51 $ 52 $ (1 ) $ 102
Operating margin
Excluding restructuring and 14.0 % 9.1 % 10.8 %
other
Restructuring & other 0.9 % -0.2 % 0.2 %
Including restructuring and 14.9 % 8.9 % 11.0 %
other
Nine months ended September
30, 2009
Sales $ 951 $ 1,555 $ - $ 2,506
Operating income (loss) $ 240 $ 254 $ (11 ) $ 483
Operating margin 25.2 % 16.3 % 19.3 %
Nine months ended September
30, 2008
Sales $ 990 $ 1,694 $ - $ 2,684
Operating income (loss)
before
restructuring & other $ 146 $ 176 $ 2 $ 324
Restructuring & other 4 9 1 14
Operating income (loss) $ 142 $ 167 $ 1 $ 310
Operating margin
Excluding restructuring and 14.7 % 10.4 % 12.0 %
other
Restructuring & other -0.4 % -0.5 % -0.5 %
Including restructuring and 14.3 % 9.9 % 11.5 %
other
Pactiv Corporation
Regulation G GAAP Reconciliations
Income from Continuing Operations and Earnings per Share
(In millions,
except Three months ended September 30, Nine months ended September
per-share 30,
amounts)
2009 2008 2009 2008
Income from
continuing
operations $ 72 $ 53 $ 260 $ 152
attributable
to Pactiv -
GAAP basis
Adjustments
(net of tax)
to exclude:
Restructuring
and other - (1 ) - 9
charges
Income from
continuing
operations
attributable
to Pactiv $ 72 $ 52 $ 260 $ 161
excluding
restructuring
and other
charges(a)
Average common
shares 133.2 132.1 132.8 132.1
outstanding
(diluted)
Diluted
earnings per
share
EPS from
continuing $ 0.54 $ 0.40 $ 1.96 $ 1.15
operations -
GAAP basis
Adjustments
(net of tax)
to exclude:
Restructuring
and other - (0.01 ) - 0.07
charges
EPS from
continuing
operations
excluding $ 0.54 $ 0.39 $ 1.96 $ 1.22
restructuring
and other
charges(a)
Free Cash Flow
Three months ended September 30, Nine months ended September
30,
(In millions) 2009 2008 2009 2008
Cash flow
provided by
operating
activities $ (21 ) $ 141 $ 194 $ 211
from
continuing
operations -
GAAP basis
Capital
expenditures - (29 ) (23 ) (78 ) (109 )
continuing
operations
(Increase)
decrease in
asset 19 (30 ) 20 (20 )
securitization
program
Free cash flow $ (31 ) $ 88 $ 136 $ 82
(b)
Add back
pretax pension 200 - 400 -
contribution
Less cash tax (30 ) - (100 ) -
benefits
Free cash flow
excluding
pension $ 139 $ 88 $ 436 $ 82
contributions
(b)
Outlook for
Twelve months ended December 31,
2009
(In millions) Low estimate High estimate
Cash flow
provided by
operating
activities $ 310 $ 320
from
continuing
operations -
GAAP basis
Capital
expenditures - (130 ) (130 )
continuing
operations
(Increase)
decrease in
asset 20 20
securitization
program
Free cash flow $ 200 $ 210
(b)
Add back
pretax pension 400 400
contribution
Less cash tax (120 ) (120 )
benefits
Free cash flow
excluding
pension $ 480 $ 490
contributions
(b)
(a) In accordance with generally accepted accounting principles (GAAP),
income from continuing operations and reported earnings per share include the
after-tax impact of restructuring and other charges. The company's management
believes that by adjusting income from continuing operations and reported
earnings per share to exclude the effect of these infrequently occurring,
non-operational items, the resulting income from operations and earnings per
share present a more meaningful, operationally-oriented depiction of company
performance. The company's management excludes these items from income from
continuing operations and earnings per share when evaluating operating
performance and, along with other factors, in determining management
compensation.
(b) Free cash flow is defined as cash flow from operating activities
excluding the change in our asset-securitization-program balance, less
capital expenditures, all of which are calculated in accordance with GAAP. We
believe that free cash flow provides a useful measure of our liquidity. We
use free cash flow as a measure of cash available to fund early or required
debt retirement and incremental investments such as, but not limited to,
acquisitions and share repurchases. However, free cash flow has limitations,
in that it does not represent residual cash flow available for discretionary
expenditures. Some of our expenditures are mandatory. The amount of mandatory
versus discretionary expenditures can vary significantly between periods. We
have also shown free cash flow excluding pension contributions in order to
have a comparable liquidity measure to prior years when no pension
contributions were made.
Source: Pactiv Corporation
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