MeadWestvaco: Leading Innovator in Global Packaging
Dana Pruehs
November 25, 2013

MeadWestvaco Corporation (“MWV”) is a global packaging company providing innovative solutions to well-known brands in the healthcare, beauty, and personal care, food, beverage, home and garden, tobacco, and agricultural industries. In addition to these, MWV also produces specialty chemicals for the automotive, energy, and infrastructure industries, while maximizing the value of its land holdings through forestry operations, property development, and land sales. The company became incorporated in Delaware in 2001 as the successor to Westvaco Corporation and The Mead Corporation. MeadWestvaco primary markets for their products are in North America, South America, Europe, and Asia. The company operates in 30 countries, has approximately 16,000 people, and serves customers in more than 100 nations.
The Food and Beverage division produces packaging materials, as well as, designs and produces packaging for the global food, food service, beverage, dairy, tobacco end markets, and paperboard for commercial printing. In the food market arena, materials and solutions are developed for packaging frozen food, dry goods, ready-to-eat meals, drinks, and some dairy products. For the beverage market, MWV produces high-performance paperboard, carton designs, converting operations, and packaging machinery. The tobacco market produces high performance paperboard for the design and carton production of leading tobacco brands. All of the materials for this division are manufactured in the United States and the plants running these products are located in North America, Europe, and Asia.
The Home, Health, and Beauty division designs and produces packaging solutions for the global personal care, fragrance, home care, lawn and garden, prescription drug and healthcare markets. Within the beauty and personal care arena, they produce fragrance, lotion, creams and soap pumps. Also MWV produces flip-top and applicator closures for bath and body products, lotions, and paperboard and plastic packaging for hair and skin care products. Products produced in the home and garden market include trigger sprayers for surface cleaners and fabric care, aerosol actuators for air fresheners, hose-end sprayers for lawn and garden maintenance. In the healthcare segment, they produce secondary packaging to enhance patient adherence for prescription drugs. Also, this group produces paperboard packaging and closures for over-the-counter and prescription drugs. This division’s manufacturing occurs in plants located across North America, South America, Europe, and Asia.
The next segment belongs to the Industrial division which designs and produces corrugated packaging for produce, meat, consumer products, and bulk goods primarily in Brazil. This business unit contains forestlands, paperboard mills, and corrugated box plants. Also there is a portion located in India that manufacturers corrugated packaging for fresh produce growers. There are five corrugated box facilities located in Brazil and one in India as well. The other facility in India manufactures containerboard.
The Specialty Chemicals division manufactures, markets, and distributes specialty chemicals created from sawdust and other byproducts of the papermaking process in North America, Europe, South America and Asia. Some of the products include chemicals derived from pine chemicals used in printing inks, asphalt paving, and adhesives in addition to the agricultural, paper, and petroleum industries. Also, this group includes product developed through activated carbon in gas vapor emission control systems for cars and trucks.
The Community Development and Land Management segment is responsible for maximizing the value of the company’s landholdings in the U.S. Southeastern region in real estate development, forestry operations and leasing activities. Real estate development includes selling non-core forestlands primarily recreational and residential usage, improving tracts of land, and planning the timbering of landholdings. The Forestry division handles the growing and harvesting of softwood and hardwood on the company’s forestlands for external use and for the company’s mill business.
For fiscal year 2012, MeadWestvaco had total net sales of $5.46B and $697M combined business profit from all segments which was a 1% increase from 2011. Broken out by segment, sales were as follows: Food and Beverage had $3.1B, Specialty Chemicals had $940M, Home Health & Beauty had $770M, Industrial had $457M, and Land Management had $193M. Cash flow for all of the operations combined was $339M and they achieved $215M in operational productivity improvements. Also, the earnings per share were $1.20 and dividends paid totaled $173M ($1.00 per share). R&D spending for FY 2012 totaled to $45M in supporting the development of new products and new innovations. MWV is projecting annual growth of 5-10 percent with $1B of incremental revenue over the next 3-5 years by focusing on their four core growth levers – commercial excellence, innovation, emerging markets, and expanded participation.
Along with many other industries, MeadWestvaco is part of a very challenging global market place and remains competitive through quality, price, value-added products and services such as packaging solutions, customer service, innovation, technology, and product design. Each division remains competitively engaged in the market to gain shares in their respective segments. Their top three competitors include International Paper Company, RockTenn CP, LLC (privately held), and Weyerhaeuser Co. Based off the NYSE comparisons of the four companies, International Paper Company appears to be the most substantially profitable with a Net Income of $1.14B vs. MWV at $175M and Weyerhaeuser at $640M. Some of financial ratios and facts that reflect International Paper as remaining dominant include: Revenue: MWV $5.54B vs. IP $28.91B vs. WY $937.28M vs. Industry $937.28M; Market Cap: MWV $6.22B vs. IP $20.81B vs. WY $17.22B vs. Industry $388.06M ; Gross Profit Margin: MWV 0.19 vs. IP 0.27 vs. WY 0.21 vs. Industry 0.21; EBITDA (Earnings by Interest, Tax, Depreciation, and Amortization): MWV $96M vs. IP $1.14B vs. WY $640M vs. Industry $90.25M; Operating Margin: MWV 0.07 vs. IP 0.07 vs. WY 0.13 vs. Industry 0.07; EPS (Earnings Per Share Ratio) MWV $1.01 vs. IP $2.67 vs. WY $1.14 vs. Industry 0.49; P/E (Price Earnings Ratio) MWV 34.74 vs. IP 17.54 vs. WY 25.92 vs. Industry 15.86; PEG (Price/Earnings to Growth Ratio) MWV 2.68 vs. IP 0.93 vs. WY 5.07 vs. Industry 1.45, and P/S (Price to Sales Ratio) MWV 1.13 vs. IP 0.72 vs. WY 2.08 vs. Industry 0.57.
In analyzing all of the financial data, it appears that investors anticipate MWV to continue to grow significantly based off of the P/E ratio. MWV would be considered a mid-cap company due to having market cap between $2 and $10 billion. Also, the gross profit margin decreased by 2% from 2011 to 2012, but continued to remain competitive compared to IP and industry standard. The EBITDA indicates that MWV is in-line with the Industry Standard, but IP and WY have significantly greater for operating profitability, but based off of the operating margin, MWV is equal to IP and the Industry Standard for operating profitability. However based off of the concept that a favorable PEG ratio should be lower than one, it appears that the company’s calculation reflects trailing twelve months. In regards to the P/S ratio, the stock value for MWV is higher than IP’s and the industry standard which indicates successful past performance.
Not that this comes as a surprise, but MWV does have some risk factors related to their business as do many industries now days. First, the U.S. and global economic conditions could have an adverse effect on the profitability of some or all of their businesses due to the availability and cost of credit, reduced consumer spending and business investments, the volatility and strength of the capital and credit markets, and inflation all affect the business and economic environment. Second, conditions in the global capital and credit markets and the economy generally may materially adversely affect their business, results of operations, and financial position by declines in consumer and business confidence and spending domestically and internationally. These declines could affect the ability of suppliers and customers to conduct their business activities causing interruptions of production at customer facilities, the reduction, delay or cancellation of orders, delays in or the inability to obtain customer financing including bankruptcy or other related parties. Third, the company is subject to significant cost pressures which results in pricing volatility and their ability to pass higher costs onto the their customers through price increases or other adjustments is uncertain and dependent on market conditions and may materially impact our results of operations. The pricing environment for the purchasing of raw materials continues to be challenging and volatile in addition to energy and freight costs. Due to the market impact and terms on customer contracts, the company’s ability to recover these costs through price increases may be limited. Finally, the company continues to face competition in each of its businesses and competitive challenges from lower cost manufacturers in overseas markets such as Asia and elsewhere. The company operates in competitive domestic and international markets and competes with many large, well-established and highly competitive manufactures and service providers, both domestically and globally. All of these conditions can contribute to substantial pricing and demand pressures.
Being that my husband works for MWV now and my Dad retired from there, I was very intrigued to research and learn more about the company. It really was interesting to learn more about each segment of the company financially, as well as, to understand exactly what each division produces.

References

1. United Sates Securities and Exchange Commission, MeadWestvaco, Fiscal Year 2012 Annual Report

2. Yahoo Finance, http://finance.yahoo.com, November 25,2013