McDERMOTT COLUMN: MeadWestvaco’s chemical unit bruises profits; land business may burnish them
MeadWestvaco shed its Cooper River paper mill five years ago, but it didn’t pack its bags and sever its lengthy ties to the Charleston area.
Far from it. The Lowcountry is the corporate home to two of the packaging company’s main business lines: chemicals and real estate. Both, it turned out, had an eventful 2013 first quarter, though for completely different reasons.
MeadWestvaco isn’t known for making surprise announcements, but it sprung a few unanticipated nuggets on investors Tuesday, when it reported a disappointing $11 million profit. First-quarter earnings tumbled 77 percent from the first three months of 2012, well below projections.
“There were a number of factors that led to lower profits in our businesses, many of them unexpected,” said CEO John A. Luke Jr.
Among them: Colder weather negatively affected the beverage and home and garden packaging business. Weak economic conditions in Europe hurt results. Higher expenses for energy, raw materials and transportation chiseled away at profits.
Another big factor was a series of hiccups at the company’s regarded MWV Specialty Chemicals unit, which develops wood-based asphalt additives, inks and other products.
Despite solid sales, the North Charleston-based group earned $49 million in the first quarter, or $9 million less than a year ago. Jim Buzzard, president of MeadWestvaco, didn’t mince words.
“Our operating performance in Specialty Chemicals unfortunately did not match our commercial performance in the quarter,” Buzzard said during a conference call with analysts.
One reason was that the North Charleston chemical refinery “was shut down longer than expected following a planned maintenance outage,” the company said. Two other plants the division runs in Louisiana and Virginia also went idle for extended periods during the quarter.
Combined, the shutdowns shaved about $6 million from the bottom line.
MeadWestvaco spokesman Tucker McNeil declined to specify the problems. As to the Virginia Avenue refinery, he would only say it didn’t fire up as expected after maintenance work.
“When we flip the switch back on, sometimes they start up and purr.” McNeil said Thursday. “Other times, it takes more effort to get them to up to speed. That was the case this time.”
The company said it’s already borne the brunt of the costs of the three outages, and it doesn’t expect additional expenses to bleed over into this quarter.
On the flip side of the ledger, 14 property sales lifted profits at Summerville-based MWV Community Development and Land Management by 14 percent to $16 million.
But the bigger surprise was the announcement that MeadWestvaco has hired investment bankers to line up financial partners to “unlock the value” of that business, which oversees about 650,000 acres of timberland and other property in five Southeastern states.
An outright sale of some or all of the undeveloped acreage is likely. Also in the mix is the possibility of raising capital from outsiders to help fund the large-scale Nexton and East Edisto projects in the Charleston region, with MeadWestvaco maintaining controlling stakes.
“We’ve done a lot of work over the last several months with our advisers and our internal team, and we’re very enthusiastic about the potentials,” Luke, the CEO, told analysts last week.
MeadWestvaco always planned to review the “strategic options” for the six-year-old real estate arm “when the timing was appropriate,” he said.
Given the other unexpected surprises, Tuesday was as good a time as any.
Contact John McDermott at 937-5572.