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MWV highlights packaging positives as it posts Q4 loss and forecasts tough 2012

By Rory Harrington , 26-Jan-2012

Tough economic conditions in the fourth quarter of 2011 will spill over into this year, said MeadWestvaco (MWV) as it posted a fourth quarter loss of US$9m (€6.8m).

But full year sales rose 6% and the 15% overall pre-tax income jump to $840m had been driven by “significant profits improvements” in its packaging operations, said the US-based company.

The first half of 2012 was also likely to be tough with higher input costs, weaker demand and a strong US dollar all hitting the bottom line. The firm has already forecast that Q1 results would fail to match those from 2011.

Beverage packaging and emerging markets

MWV last week served notice to the market that a drop in packaging demand in the US and Europe had hit figures in the three months to the end of December. However, it said picture was a mixed one with much of this decline coming from the non-food and drink sectors, such as personal care.

“We had a very good performance in global markets for food and beverage packaging with our Coated Natural Kraft product lines,” said company president Jim Buzzard.

New contracts secured with major brand owners, such as Dr Pepper, had underpinned good performance in the packaging segment

He added that while Q4 packaging earnings were “well below last year’s level”, full year figures had jumped 25% on returns in 2010 to $322m.

Buzzard said it had also gained business by tapping into the trend of “converting multipacks of large glass bottles from corrugated to paperboard solutions”.

Strong full year growth in emerging markets had further been key, said the company. While Q4 sales in these geographical segments had fallen slightly, emerging market growth reached 10% in 2011 – representing 28% of total company sales, with Chinese expansion noticeable.

Buzzard added: “In addition to gaining share in developed soft drink and beer markets, we're also growing aggressively in emerging markets, especially China where cans are becoming the preferred format and where suppliers and customers are making large investments in canned production and fulfilment. This trend favours our multipack solutions and is part of the reason our machine replacement are up strongly around the world, including China and other emerging markets.”

Outlook for 2012 – challenging demand, rising costs

Despite MWV’s overall buoyant assessment of 2011, it acknowledged that the downturn of Q4 would continue into 2012.

Chief financial officer Mark Rajkowski said the company expected global demand to remain “challenging” this year, especially in North America and Europe. This would be coupled with increased overhead costs and a robust dollar - making exports more expensive.

“We expect demand to remain weak in several of our markets, at least through the first half of the year due to on-going global macroeconomic developments, with the greatest risk and uncertainty in Europe,” he added. “We also expect continued upward pressure on input costs and a negative impact from the stronger dollar. As a result, we expect earnings to decline in the first quarter compared to our very strong results last year.”