Exhibit 99.1
Pactiv Second Quarter Sales Grow 6 Percent; Posts Significant Free
Cash Flow
LAKE FOREST, Ill.--(BUSINESS WIRE)--July 22, 2004--For the quarter
ended June 30, Pactiv Corporation (NYSE:PTV) today announced that
sales increased 6 percent to $858 million from $810 million in 2003.
Earnings per share were $0.33. Excluding a $0.06 per share
"restructuring and other" (restructuring) charge related to the
Company's restructuring program announced March 15, earnings per share
were $0.39, an increase of 5 percent from $0.37 per share last year.
Earnings per share excluding the charge and non-cash pension income
rose 10 percent.
Net income was $52 million. Excluding the $8 million after-tax
charge, net income of $60 million rose 2 percent from $59 million as
volume growth, restructuring benefits, and the Company's ongoing
productivity efforts offset higher energy-related costs, higher
marketing support costs in Hefty(R) Consumer Products, and lower
non-cash pension income.
"Our performance in the quarter continued to reap the benefit of
the improving economic environment," said Richard L. Wambold, Pactiv's
chairman and chief executive officer. "We saw stronger broadbased
demand for our products in North America. That growth, coupled with
pricing actions, and our continuing focus on productivity improvement,
mitigated a sizeable increase in raw material costs over last year's
second quarter. Our growth and strong free cash flow generation
clearly show the health of the business. Our focus on investing in a
disciplined way and on real cash returns is creating value for our
shareholders," Wambold continued.
Free cash flow was $68 million, including $12 million after tax of
restructuring-related payments, compared with $75 million last year.
At the end of the quarter, the annualized return on capital employed
reached 11.9 percent compared with 10.7 percent last year. In the
quarter the Company repurchased 3.8 million shares of its stock. Year
to date the Company has repurchased 7.6 million shares at an average
price of $22.48.
Gross margin of 28.8 percent was even with the first quarter and
down 0.7 percentage points from 29.5 percent last year as volume
gains, pricing actions, and productivity improvements partially offset
unfavorable raw material costs, higher logistics costs, and the
integration of the Rock-Tenn asset acquisition. Operating margin
excluding the restructuring charge declined to 14.1 percent from 14.8
percent.
For the six-month period, sales of $1.63 billion rose 7 percent
from $1.53 billion. Net income was $52 million, or $0.33 per share,
compared with $103 million, or $0.64 per share, last year. Excluding
the restructuring charges, net income was $104 million, up 1 percent,
and earnings per share were $0.67, up 5 percent. After spending $21
million after tax related to the restructuring program, year-to-date
free cash flow was $132 million compared with $104 million last year,
an increase of 27 percent.
Business Segment Results
Hefty(R) Consumer Products
Sales of $237 million rose 2 percent from $232 million reflecting
a 7-percent volume increase, partially offset by higher promotion
spending. As previously announced, the Company increased promotional
support in this business during the quarter. This additional spending,
a portion of which is deducted from sales, drove healthy volume gains
in all major product lines and should also have a positive effect on
growth in the second half.
Operating income was $48 million, compared with $49 million last
year. Operating margin was 20.3 percent compared with 21.1 percent
last year primarily reflecting higher advertising and promotion
spending and higher energy-related costs.
Sales growth was led by strength in waste bags, partially driven
by Hefty(R) CinchSak(R) Ultra tall kitchen and large trash bags and
Hefty(R) HandySaks(TM) convenience bags, which were launched early in
the year. Distribution of both products to the grocery and mass
merchant channels is on track. Likewise, tableware volume increased in
both the branded and private label businesses, and food bag volume was
strong. In addition, Hefty(R) Consumer Products introduced cups to the
market in May, and this product line is performing as expected.
For the six-month period, sales of $437 million rose 4 percent
from $421 million. Operating income before the restructuring charge
was $89 million compared with $90 million last year. On the same
basis, operating margin was 20.4 percent compared with 21.4 percent.
Foodservice/Food Packaging
Sales of $385 million rose 8 percent from $355 million last year
due to volume growth in the base business and from acquisitions. The
segment posted solid volume gains driven by strength in most product
lines, particularly foodservice foam, agricultural products, and home
meal replacement products. In the first quarter the Company introduced
some new products for the fast food industry, and sales of those items
continued to benefit the second quarter.
Operating income of $50 million before the restructuring charge
was even with last year. The benefit of higher volume, productivity
improvements, and pricing actions offset higher energy-related costs.
On the same basis, operating margin was 13.0 percent compared with
14.1 percent last year.
For the six-month period, sales of $730 million increased 10
percent from $666 million. Operating income before the restructuring
charge was $85 million compared with $82 million last year. On the
same basis, operating margin was 11.6 percent compared with 12.3
percent.
Protective and Flexible Packaging
Sales for the Protective and Flexible Packaging segment of $236
million rose 6 percent from $223 million last year. The impact of
improving North American protective packaging volume and favorable
foreign exchange more than offset the effect on sales of closing the
molded fiber plant in the United Kingdom as announced in March. North
American volume growth reflected strong demand in inflatables,
polyethylene foam items, and air cushioning products.
Operating income excluding the restructuring charge was $20
million compared with $13 million last year. On the same basis,
operating margin was 8.5 percent compared with 5.8 percent. The
increase reflected higher North American volume, the benefits of the
restructuring program, and ongoing productivity improvements,
partially offset by lower European pricing.
For the six-month period, sales were $466 million, an increase of
6 percent compared with $440 million. Operating income before the
restructuring charge was $33 million compared with $27 million last
year. On the same basis, operating margin was 7.1 percent compared
with 6.1 percent.
Outlook
The volatility of raw material costs continues to be a source of
uncertainty in projecting the near term earnings performance of the
Company. Oil prices, because of concerns over supply disruptions, are
very high. Chemical intermediates, particularly benzene used in
polystyrene, have risen recently to unprecedented levels. As a result,
in the past week, plastic resin suppliers announced substantial price
increases. Market acceptance of these announced pricing actions is yet
unknown.
"We plan to react quickly to offset any additional resin cost
increases with pricing actions of our own," Wambold said. "We believe
any impact on earnings will be short-lived as our pricing actions
should offset higher costs with a short lag. With respect to the third
quarter, the target is earnings per share in a range of $0.40 to
$0.43, excluding the impact of the restructuring charge. For the full
year, while we still think we will generate earnings at the low end of
our previously stated range of $1.53 to $1.60 per share excluding
restructuring charges, we believe that it is appropriate to reflect
the additional uncertainty, especially in the fourth quarter.
Accordingly, we are revising full year earnings per share from
continuing operations excluding restructuring charges to a range of
$1.50 to $1.56 because of these recent developments. This estimate
assumes that all of the announced cost increases go through, offset by
some pricing actions and productivity gains on our part. We don't
expect this to impact the basic health of our businesses, which are
enjoying excellent growth and strong cash flow. We are revising our
free cash flow projections for the year upward to a range of $230
million to $240 million including approximately $36 million of
after-tax payments related to the restructuring, reflecting improved
working capital management," Wambold concluded.
Other
This press release includes certain non-GAAP financial measures. A
reconciliation of the non-GAAP financial measures to GAAP is shown in
the "Consolidated Statement of Income", as well as the attached
"Regulation G GAAP Reconciliation" or in the attached "Operating
Results by Segment". The "Operating Results by Segment" also details
the impact on sales of acquisitions and foreign exchange.
Cautionary Statements
This press release includes certain "forward-looking statements"
such as those in the Outlook section as well as "volume gains ...
should also have a positive effect on growth in the second half."
These statements are based on management's current reasonable and good
faith expectations. 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 56 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, a $3.1 billion company, is a leading provider
of advanced packaging solutions for the consumer, foodservice/food
packaging and protective/flexible packaging markets. The specialty
packaging leader currently operates 79 facilities in 14 countries
around the world. For more information about Pactiv, visit the
company's web site at www.pactiv.com.
Pactiv Corporation
Consolidated Statement of Income
(In millions, except per-share data)
Three months Six months
ended June 30, ended June 30,
---------------- ---------------
2004 2003 2004 2003
-------- ------- ------- -------
Sales $858 $810 $1,633 $1,527
Costs and expenses
Cost of sales (excluding depreciation
and amortization) 611 571 1,163 1,079
Depreciation and amortization 40 41 85 81
Selling, general, and administrative 85 79 166 153
Other (income) expense 1 (1) 3 (1)
-------- ------- ------- -------
Operating income before restructuring
and other 121 120 216 215
Restructuring and other 14 - 84 -
-------- ------- ------- -------
Operating income 107 120 132 215
Interest expense, net 25 24 50 48
Income tax expense 30 36 30 63
Minority interest - 1 - 1
-------- ------- ------- -------
Net income $52 $59 $52 $103
======== ======= ======= =======
Average common shares outstanding
(diluted) 154.4 160.6 155.9 160.9
Earnings per share
Income from continuing operations
before restructuring and other $0.39 $0.37 $0.67 $0.64
Restructuring and other (0.06) - (0.34) -
-------- ------- ------- -------
Net earnings per share $0.33 $0.37 $0.33 $0.64
======== ======= ======= =======
Gross margin (before deprec. &
amort.) 28.8% 29.5% 28.8% 29.3%
Operating margin
Excluding restructuring and other 14.1% 14.8% 13.2% 14.1%
Restructuring & other -1.6% 0.0% -5.1% 0.0%
Including restructuring and other 12.5% 14.8% 8.1% 14.1%
Pactiv Corporation
Consolidated Statement of Financial Position
(In millions)
June 30, December 31,
2004 2003
------------ -----------
Assets
Current assets
Cash and temporary cash investments $119 $140
Accounts and notes receivable 395 374
Inventories 398 399
Other 65 69
------------ -----------
Total current assets 977 982
------------ -----------
Property, plant, and equipment, net 1,454 1,522
------------ -----------
Other assets
Goodwill 634 643
Intangible assets, net 291 298
Pension assets, net 204 195
Other 65 66
------------ -----------
Total other assets 1,194 1,202
------------ -----------
Total assets $3,625 $3,706
============ ===========
Liabilities and shareholders' equity
Current liabilities
Short-term debt, including current
maturities of long-term debt $4 $5
Accounts payable 224 198
Other 281 271
------------ -----------
Total current liabilities 509 474
------------ -----------
Long-term debt 1,336 1,336
Pension and postretirement benefits 558 576
Other liabilities 264 251
Minority interest 9 8
Shareholders' equity 949 1,061
------------ -----------
Total liabilities and shareholders' equity $3,625 $3,706
============ ===========
Pactiv Corporation
Consolidated Statement of Cash Flows
(In millions)
Six months ended June 30, 2004 2003
------- -------
Operating activities
Income from continuing operations $52 $103
Adjustments to reconcile income from continuing
operations to cash provided by continuing operations
Depreciation and amortization 85 81
Deferred income taxes 14 30
Restructuring and other 52 -
Noncash retirement benefits, net (24) (30)
Working capital (10) (35)
Other - 6
------- -------
Cash provided by operating activities 169 155
------- -------
Investing activities
Expenditures for property, plant, and equipment (37) (51)
Other 1 1
------- -------
Cash used by investing activities (36) (50)
------- -------
Financing activities
Issuance of common stock 19 8
Purchase of common stock (171) (44)
Retirement of long-term debt - (28)
Net increase (decrease) in short-term debt, excluding
current maturities of long-term debt (1) (1)
------- -------
Cash used by financing activities (153) (65)
------- -------
Effect of foreign-currency exchange rate changes on
cash and
temporary cash investments (1) 1
------- -------
Increase (decrease) in cash and temporary cash
investments (21) 41
Cash and temporary cash investments, January 1 140 127
------- -------
Cash and temporary cash investments, June 30 $119 $168
======= =======
Pactiv Corporation
Operating Results by Segment
(In millions)
Foodservice Protective
/ &
Food Flexible
Consumer Packaging Packaging Other Total
-------- ---------- ---------- ----- -------
Three months ended June 30, 2004
- ----------------------------------
Sales $237 $385 $236 $- $858
Acquisitions (a) - (18) - - (18)
-------- ---------- ---------- ----- -------
Adjusted sales (c) 237 367 236 - 840
-------- ---------- ---------- ----- -------
Operating income before
restructuring & other $48 $50 $20 $3 $121
Restructuring & other - 7 6 1 14
-------- ---------- ---------- ----- -------
Operating income 48 43 14 2 107
-------- ---------- ---------- ----- -------
Operating margin
Excluding restructuring NA
and other 20.3% 13.0% 8.5% 14.1%
Restructuring & other 0.0% -1.8% -2.6% NA -1.6%
Including restructuring NA
and other 20.3% 11.2% 5.9% 12.5%
Three months ended June 30, 2003
- ----------------------------------
Sales $232 $355 $223 $- $810
Foreign exchange (b) - (1) 10 - 9
-------- ---------- ---------- ----- -------
Adjusted sales (c) 232 354 233 - 819
-------- ---------- ---------- ----- -------
Operating income 49 50 13 8 120
-------- ---------- ---------- ----- -------
Operating margin 21.1% 14.1% 5.8% NA 14.8%
Six months ended June 30, 2004
- ----------------------------------
Sales $437 $730 $466 $- $1,633
Acquisitions (a) - (35) - - (35)
-------- ---------- ---------- ----- -------
Adjusted sales (c) 437 695 466 - 1,598
-------- ---------- ---------- ----- -------
Operating income before
restructuring & other $89 $85 $33 $9 $216
Restructuring & other 4 26 53 1 84
-------- ---------- ---------- ----- -------
Operating income 85 59 (20) 8 132
-------- ---------- ---------- ----- -------
Operating margin
Excluding restructuring NA
and other 20.4% 11.6% 7.1% 13.2%
Restructuring & other -0.9% -3.5% -11.4% NA -5.1%
Including restructuring NA
and other 19.5% 8.1% -4.3% 8.1%
Six months ended June 30, 2003
- ----------------------------------
Sales $421 $666 $440 $- $1,527
Foreign exchange (b) - - 30 - 30
-------- ---------- ---------- ----- -------
Adjusted sales (c) 421 666 470 - 1,557
-------- ---------- ---------- ----- -------
Operating income 90 82 27 16 215
-------- ---------- ---------- ----- -------
Operating margin 21.4% 12.3% 6.1% NA 14.1%
(a) Adjustment to current year sales for incremental sales from
acquisitions.
(b) Adjustment of prior year sales to current year foreign exchange
rates.
(c) Sales adjusted for acquisitions and foreign exchange.
Pactiv Corporation
Regulation G GAAP Reconciliation
Income from Continuing Operations and Earnings per Share
(In millions, except per-share amounts)
Three months Six months
ended June ended June
30, 30,
------------- -------------
2004 2003 2004 2003
------ ------ ------ ------
Net income - US GAAP basis $52 $59 $52 $103
Adjustments (net of tax) to exclude
restructuring and other charges 8 - 52 -
------ ------ ------ ------
Income from continuing operations - US
GAAP basis excluding restructuring and
other charges 60 59 104 103
Pension income (7) (9) (15) (19)
------ ------ ------ ------
Income from continuing operations
excluding restructuring and other charges
and pension income (a) $53 $50 $89 $84
====== ====== ====== ======
Average common shares outstanding
(diluted) 154.4 160.6 155.9 160.9
Diluted earnings per share
Net - US GAAP basis $0.33 $0.37 $0.33 $0.64
Adjustments to exclude restructuring
and other charges 0.06 - 0.34 -
------ ------ ------ ------
Continuing operations excluding
restructuring and other charges 0.39 0.37 0.67 0.64
Pension income (0.05) (0.06) (0.10) (0.12)
------ ------ ------ ------
Continuing operations excluding
restructuring and other charges and
pension income (a) $0.34 $0.31 $0.57 $0.52
====== ====== ====== ======
Percent change - 2004 vs. 2003 10% 10%
(a) In accordance with generally accepted accounting principles (US
GAAP), reported net income includes the after-tax impacts of
restructuring and other charges and pension income. The company's
management believes that by adjusting reported net income to
exclude the effects of these items, the resulting earnings present
an operationally-oriented depiction of the company's performance.
The company's management uses earnings excluding restructuring and
other charges and pension income to evaluate operating
performance, to value various business units, and, along with
other factors, in determining management compensation.
Regulation G GAAP Reconciliation
Free Cash Flow
Three months Six months
ended June ended June
30, 30,
------------- -------------
2004 2003 2004 2003
------ ------ ------ ------
Cash flow provided by operating activities
- US GAAP basis $86 $99 $169 $155
Less: capital expenditures (18) (24) (37) (51)
------ ------ ------ ------
Free cash flow (b) $68 $75 $132 $104
====== ====== ====== ======
(b) Free cash flow is defined as cash flow provided by operating
activities less amounts for capital expenditures. Both of these
amounts have been calculated in accordance with US GAAP. The
company's management believes free cash flow, as defined, provides
a useful measure of the company's liquidity. The company's
management uses free cash flow as a measure of cash available to
fund required or early debt retirement, incremental investing, or
financing activities, such as, but not limited to, acquisitions
and share repurchases.
Pactiv Corporation
Regulation G GAAP Reconciliation
Return on Capital Employed (ROCE)
Dollars in millions
Last 12 Months ended 6/30/2004 6/30/2003 6/30/2002
---------- ---------- ----------
Operating income $383 $460
Restructuring & other 84 -
Other (income) expense 5 (1)
Pension income (58) (85)
---------- ----------
Pretax NOPAT 414 374
Long-term cash tax rate 30.0% 30.0%
Taxes 124 112
---------- ----------
NOPAT $290 $262
Short-term debt $4 $6 $5
Long-term debt 1,336 1,203 1,204
Minority interest 9 21 8
Shareholders' equity 949 1,008 1,725
Pension assets (204) (179) (1,101)
Pension and other postretirement
benefit liabilities 558 563 58
Deferred tax on net pension
assets/liabilities (@ 38%) (135) (146) 396
Cash (119) (168) (39)
Synthetic lease adjustment - 169 169
---------- ---------- ----------
Net capital employed $2,398 $2,477 $2,425
Average return on capital employed
(a) 11.9% 10.7%
(a) "Return on capital employed (ROCE)" is defined as net operating
profit after taxes (NOPAT) divided by the average capital employed
in the business. The numerator is a measure of the company's
profitability and is derived from operating income calculated in
accordance with US GAAP. Likewise, the denominator is derived from
the sum of the company's total debt, minority interest, and
shareholders' equity, all of which have been calculated in
accordance with US GAAP. The company's management believes ROCE,
as defined, provides a useful measure of the company's
effectiveness in managing operating assets and increasing
shareholder value. The company's management uses ROCE to evaluate
performance and, along with other factors, in determining
management compensation.
Pactiv Corporation
Regulation G GAAP Reconciliation
Outlook for 2004
Three months ended Twelve months ended
September 30, 2004 December 31, 2004
-------------------- --------------------
Diluted earnings per share Low High Low High
estimate estimate estimate estimate
-------------------- --------------------
Continuing operations - US
GAAP basis $0.39 $0.42 $1.11 $1.17
Adjustments to exclude
restructuring
and other charges 0.01 0.01 0.39 0.39
-------------------- --------------------
Continuing operations
excluding restructuring and
other charges (a) $0.40 $0.43 $1.50 $1.56
==================== ====================
Twelve months ended
December 31, 2004
--------------------
Free cash flow (in millions) Low High
estimate estimate
--------------------
Cash flow provided by
operating activities - US
GAAP basis $340 $350
Less: capital expenditures (110) (110)
--------------------
Free cash flow (b) $230 $240
====================
(a) In accordance with generally accepted accounting principles (US
GAAP), reported net income from continuing operations includes the
after-tax effects of restructuring and other charges. The
company's management believes that by adjusting reported net
income from continuing operations to exclude the effects of these
items, the resulting earnings present an operationally-oriented
depiction of the company's performance. The company's management
uses earnings excluding restructuring and other charges to
evaluate operating performance, to value various business units,
and, along with other factors, in determining management
compensation.
(b) Free cash flow is defined as cash flow provided by operating
activities less amounts for capital expenditures. Both of these
amounts have been calculated in accordance with US GAAP. The
company's management believes free cash flow, as defined, provides
a useful measure of the company's liquidity. The company's
management uses free cash flow as a measure of cash available to
fund required or early debt retirement, incremental investing, or
financing activities, such as, but not limited to, acquisitions
and share repurchases.
CONTACT: Pactiv Corporation
Investor Relations Contact:
Christine Hanneman, 847-482-2429
channeman@pactiv.com
or
Media Relations Contact:
Lisa Foss, 847-482-2704
lfoss@pactiv.com