EXHIBIT 99.1
Pactiv Sales Rise 9 Percent on Strong Volume Growth;
Reports Significant Free Cash Flow
LAKE FOREST, Ill.--(BUSINESS WIRE)--Oct. 20, 2004--For the quarter
ended September 30, Pactiv Corporation (NYSE:PTV) today announced a
9-percent sales increase to $865 million from $793 million primarily
based on strong volume growth. Earnings per share were $0.37 compared
with $0.16 last year. Excluding a $0.01 per share "restructuring and
other" (restructuring) charge related to the Company's restructuring
program announced March 15, as well as $0.22 per share related to a
litigation settlement in the third quarter of 2003, earnings per share
of $0.38 were even with last year. Excluding these items and non-cash
pension income, earnings per share rose 3 percent. Net income was $56
million compared with $26 million last year. Excluding the impact of
the restructuring and litigation items, net income was $57 million
compared with $61 million in 2003.
"Our businesses remain healthy, as demonstrated by the broad-based
sales growth and significant free cash flow generation we experienced
in the quarter. Our performance reflects continued volume strength, as
well as the impact of pricing actions and productivity gains that
partially offset substantially higher raw material costs," said
Richard L. Wambold, Pactiv's chairman and chief executive officer.
Free cash flow (cash from operating activities less capital
expenditures) grew significantly to $114 million compared with $90
million last year primarily because of improved operating working
capital management. At the end of the quarter, the annualized return
on capital employed reached 12.0 percent compared with 11.3 percent
last year. In the quarter the Company repurchased 2.5 million shares
of its stock. Year to date the Company has repurchased 10.1 million
shares at an average price of $22.71.
Gross margin was 27.2 percent compared with 30.6 percent last year
due to the impact of higher raw material costs, partially offset by
pricing improvement. Operating margin excluding the restructuring and
litigation charges was 13.4 percent compared with 15.4 percent last
year.
For the nine-month period, sales of $2.50 billion increased 8
percent from $2.32 billion. Net income was $108 million, or $0.70 per
share, compared with $129 million, or $0.80 per share, last year.
Excluding the impact of the 2004 restructuring charges and the 2003
litigation settlement, year-to-date 2004 net income was $162 million,
or $1.05 per share, compared with $164 million, or $1.02 per share, in
2003. Excluding these items and non-cash pension income, earnings per
share rose 7 percent. Nine-month free cash flow was $246 million, up
27 percent compared with $194 million in 2003.
Business Segment Results
Hefty(R) Consumer Products
Third quarter sales of $238 million increased 6 percent from $224
million last year, reflecting sound volume growth. The Company
experienced volume increases in all product lines, led by gains in
tableware and waste bags. Rollout of Hefty(R) Ultra Flex(TM), the
Company's new strong and stretchable waste bag, is on track, and
advertising and promotion support will begin in November. In the
quarter, Hefty(R) Consumer Products also introduced extensions to its
Hefty(R) Zoo Pals(R) line of plates with new bowls and utensils.
Operating income of $44 million decreased 8 percent compared with
$48 million last year. Operating margin was 18.5 percent compared with
21.4 percent last year primarily due to higher energy-related costs. A
price increase on tableware products to lessen the impact of higher
resin costs will be effective in the fourth quarter, and additional
pricing actions in this segment are being considered for 2005.
For the nine-month period, sales of $675 million rose 5 percent
from $645 million. Operating income before the restructuring charge
was $133 million, a decline of 4 percent from $138 million last year.
On the same basis, operating margin was 19.7 percent compared with
21.4 percent.
Foodservice/Food Packaging
Third quarter sales of $386 million rose 10 percent from $351
million last year driven by strong volume and pricing gains. The sales
growth was led by increases in foodservice foam, agricultural
products, home meal replacement items, and processor trays. Operating
income before the restructuring charge was $46 million, a decline of
13 percent compared with $53 million last year due to higher
energy-related costs. On the same basis, operating margin was 11.9
percent compared with 15.1 percent last year.
For the nine-month period, sales of $1.12 billion rose 10 percent
from $1.02 billion. Operating profit of $131 million before
restructuring charges decreased 3 percent from $135 million. On the
same basis, operating margin was 11.7 percent compared with 13.3
percent in 2003.
This segment has been successful in raising prices throughout 2004
and expects to raise prices in the fourth quarter to offset the
unprecedented increases in raw material costs.
Protective and Flexible Packaging
Third quarter sales for the Protective and Flexible Packaging
segment of $241 million increased 11 percent compared with $218
million last year driven by volume and price increases in North
America, volume growth in Europe, and favorable foreign exchange.
Demand was broad-based, including strong growth in inflatables, air
cushioning, polyethylene foam, and micro-foam products.
Operating income grew substantially to $23 million compared with
$15 million last year. Operating margin was 9.5 percent compared with
6.9 percent last year. The profit improvement reflects the impact of
restructuring initiatives, as well as volume and pricing gains.
For the nine months, sales rose 7 percent to $707 million from
$658 million. Excluding restructuring charges, operating profit of $56
million rose 33 percent versus $42 million last year. On the same
basis, operating margin was 7.9 percent compared with 6.4 percent.
Outlook
The Company reiterates its 2004 outlook for earnings per share
excluding restructuring charges in a range of $1.40 to $1.45. At this
point, with high oil prices and the potential cost pass through from
resin suppliers, as well as additional promotional spending to support
the launch of Hefty(R) Ultra Flex(TM), the Company is most comfortable
with the low end of the range. The Company is increasing its estimate
for 2004 free cash flow to a range of $265 million to $275 million
from a range of $230 million to $240 million primarily due to better
operating working capital management.
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 "additional pricing
actions in this segment are being considered for 2005", and "expects
to raise prices in the fourth quarter". 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 Nine months
ended ended
September 30, September 30,
--------------- ---------------
2004 2003 2004 2003
------- ------- ------- -------
Sales $865 $793 $2,498 $2,320
Costs and expenses
Cost of sales (excluding depreciation
and amortization) 630 550 1,793 1,629
Depreciation and amortization 42 41 127 122
Selling, general, and administrative 77 80 243 233
Other (income) expense - - 3 (1)
------- ------- ------- -------
Operating income before restructuring
and other 116 122 332 337
Restructuring and other 2 - 86 -
------- ------- ------- -------
Operating income 114 122 246 337
Tenneco Packaging litigation settlement
and other - 56 - 56
Interest expense, net 25 23 75 71
Income tax expense 33 17 63 80
Minority interest - - - 1
------- ------- ------- -------
Net income $56 $26 $108 $129
======= ======= ======= =======
Average common shares outstanding
(diluted) 151.7 159.2 154.6 160.3
Diluted earnings per share
Before restructuring and other $0.38 $0.16 $1.05 $0.80
Restructuring and other (0.01) - (0.35) -
------- ------- ------- -------
Net $0.37 $0.16 $0.70 $0.80
======= ======= ======= =======
Gross margin (before deprec. & amort.) 27.2% 30.6% 28.2% 29.8%
Operating margin
Excluding restructuring and other 13.4% 15.4% 13.3% 14.5%
Restructuring & other -0.2% 0.0% -3.5% 0.0%
Including restructuring and other 13.2% 15.4% 9.8% 14.5%
Pactiv Corporation
Consolidated Statement of Financial Position
(In millions)
September 30, 2004 December 31, 2003
------------------ -------------------
Assets
Current assets
Cash and temporary cash
investments $181 $140
Accounts and notes receivable 404 374
Inventories 415 399
Other 61 69
------------------ -------------------
Total current assets 1,061 982
------------------ -------------------
Property, plant, and equipment,
net 1,434 1,522
------------------ -------------------
Other assets
Goodwill 646 643
Intangible assets, net 287 298
Pension assets, net 208 195
Other 66 66
------------------ -------------------
Total other assets 1,207 1,202
------------------ -------------------
Total assets $3,702 $3,706
================== ===================
Liabilities and shareholders'
equity
Current liabilities
Short-term debt, including
current maturities of
long-term debt $5 $5
Accounts payable 244 198
Other 318 271
------------------ -------------------
Total current liabilities 567 474
------------------ -------------------
Long-term debt 1,336 1,336
Pension and postretirement
benefits 547 576
Other liabilities 277 251
Minority interest 9 8
Shareholders' equity 966 1,061
------------------ -------------------
Total liabilities and
shareholders' equity $3,702 $3,706
================== ===================
Pactiv Corporation
Consolidated Statement of Cash Flows
(In millions)
Nine months ended September 30, 2004 2003
--------- ---------
Operating activities
Net income $108 $129
Adjustments to reconcile net income to cash
provided by operating activities
Depreciation and amortization 127 122
Deferred income taxes 29 43
Restructuring and other 40 -
Noncash pension income, net (37) (45)
Working capital 44 19
Other 2 7
--------- ---------
Cash provided by operating activities 313 275
--------- ---------
Investing activities
Expenditures for property, plant, and equipment (67) (81)
Acquisitions of businesses and assets - (22)
Other 1 -
--------- ---------
Cash used by investing activities (66) (103)
--------- ---------
Financing activities
Issuance of common stock 24 12
Purchase of common stock (230) (59)
Retirement of long-term debt - (67)
Net increase (decrease) in short-term debt,
excluding current maturities of long-term debt - (1)
--------- ---------
Cash used by financing activities (206) (115)
--------- ---------
Effect of foreign-currency exchange rate changes
on cash and temporary cash investments - 2
--------- ---------
Increase (decrease) in cash and temporary cash
investments 41 59
Cash and temporary cash investments, January 1 140 127
--------- ---------
Cash and temporary cash investments, September 30 $181 $186
========= =========
Pactiv Corporation
Operating Results by Segment
(In millions)
Foodservice/ Protective
Food & Flexible
Consumer Packaging Packaging Other Total
---------- ------------ ---------- -------- --------
Three months ended
September 30, 2004
- -------------------
Sales $238 $386 $241 $- $865
Acquisitions (a) - (20) - - (20)
---------- ------------ ---------- -------- --------
Adjusted sales (c) 238 366 241 - 845
---------- ------------ ---------- -------- --------
Operating income
before
restructuring
& other $44 $46 $23 $3 $116
Restructuring &
other - 1 - 1 2
---------- ------------ ---------- -------- --------
Operating income 44 45 23 2 114
---------- ------------ ---------- -------- --------
Operating margin
Excluding
restructuring
and other 18.5% 11.9% 9.5% NA 13.4%
Restructuring
& other 0.0% -0.2% 0.0% NA -0.2%
Including
restructuring
and other 18.5% 11.7% 9.5% NA 13.2%
Three months ended
September 30, 2003
- ------------------
Sales $224 $351 $218 $- $793
Foreign exchange (b) - (1) 11 - 10
---------- ------------ ---------- -------- --------
Adjusted sales (c) 224 350 229 - 803
---------- ------------ ---------- -------- --------
Operating income 48 53 15 6 122
---------- ------------ ---------- -------- --------
Operating margin 21.4% 15.1% 6.9% NA 15.4%
Nine months ended
September 30, 2004
- ------------------
Sales $675 $1,116 $707 $- $2,498
Acquisitions (a) - (55) - - (55)
---------- ------------ ---------- -------- --------
Adjusted sales (c) 675 1,061 707 - 2,443
---------- ------------ ---------- -------- --------
Operating income
before
restructuring &
other $133 $131 $56 $12 $332
Restructuring &
other 4 27 53 2 86
---------- ------------ ---------- -------- --------
Operating income 129 104 3 10 246
---------- ------------ ---------- -------- --------
Operating margin
Excluding
restructuring
and other 19.7% 11.7% 7.9% NA 13.3%
Restructuring &
other -0.6% -2.4% -7.5% NA -3.5%
Including
restructuring
and other 19.1% 9.3% 0.4% NA 9.8%
Nine months ended
September 30, 2003
- ------------------
Sales $645 $1,017 $658 $- $2,320
Foreign exchange (b) - (1) 41 - 40
---------- ------------ ---------- -------- --------
Adjusted sales (c) 645 1,016 699 - 2,360
---------- ------------ ---------- -------- --------
Operating income 138 135 42 22 337
---------- ------------ ---------- -------- --------
Operating margin 21.4% 13.3% 6.4% NA 14.5%
(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
Net Income and Earnings per Share
(Dollars in millions, except per-share amounts)
Three months Nine months
ended ended
September 30, September 30,
----------------- -----------------
2004 2003 2004 2003
-------- -------- -------- --------
Net income - US GAAP basis (a) $56 $26 $108 $129
Excluding:
Tenneco Packaging litigation
settlement and other - 35 - 35
Restructuring and other charges 1 - 54 -
-------- -------- -------- --------
Net income - US GAAP basis
excluding restructuring and other
charges and Tenneco Packaging
litigation settlement and other 57 61 162 164
Excluding:
Pension income (8) (10) (23) (29)
-------- -------- -------- --------
Net income excluding restructuring
and other charges, Tenneco
Packaging litigation settlement
and other, and pension income $49 $51 $139 $135
======== ======== ======== ========
Average common shares outstanding
(diluted) 151.7 159.2 154.6 160.3
Diluted earnings per share
Net - US GAAP basis (a) $0.37 $0.16 $0.70 $0.80
Excluding:
Tenneco Packaging litigation
settlement and other - 0.22 - 0.22
Restructuring and other charges 0.01 - 0.35 -
-------- -------- -------- --------
Net - US GAAP basis excluding
restructuring and other charges
and Tenneco Packaging litigation
settlement and other 0.38 0.38 1.05 1.02
Excluding:
Pension income (0.05) (0.06) (0.15) (0.18)
-------- -------- -------- --------
Net - US GAAP basis excluding
restructuring and other charges,
Tenneco Packaging litigaton
settlement and other, and pension
income $0.33 $0.32 $0.90 $0.84
======== ======== ======== ========
Percent change - 2004 vs. 2003 3% 7%
(a) In accordance with generally accepted accounting principles (US
GAAP), reported net income and earnings per share include the
after- tax impacts of 2004 restructuring and other charges, 2003
Tenneco Packaging litigation settlement and other, and pension
income. The company's management believes that by adjusting
reported net income and diluted earnings per share to exclude the
effects of these items, the resulting metrics reflect the
company's operating performance. The company's management uses
these metrics 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 Nine months
ended ended
September 30, September 30,
----------------- -----------------
2004 2003 2004 2003
-------- -------- -------- --------
Cash flow provided by operating
activities - US GAAP basis $144 $120 $313 $275
Less: capital expenditures (30) (30) (67) (81)
-------- -------- -------- --------
Free cash flow (b) $114 $90 $246 $194
======== ======== ======== ========
(b) Free cash flow is defined as cash flow provided by operating
activities less capital expenditures. Both of these amounts are
calculated in accordance with US GAAP. The company's management
believes free cash flow, as defined, is 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 investments, or financing activities, such
as, but not limited to, acquisitions and share repurchases.
Pactiv Corporation
Regulation G GAAP Reconciliation
Average Return on Capital Employed
Dollars in millions
Last 12 months ended 9/30/2004 9/30/2003 9/30/2002
--------- --------- ---------
Operating income $375 $460
Restructuring & other 86 -
Other (income) expense 4 -
Pension income (56) (73)
----------------------
Pretax NOPAT 409 387
Long-term cash tax rate 30.0% 30.0%
Taxes 123 116
----------------------
NOPAT $286 $271
----------------------
Short-term debt $5 $4 $5
Long-term debt 1,336 1,168 1,204
Minority interest 9 8 8
Shareholders' equity 966 1,021 864
Pension assets (208) (184) (162)
Pension and other postretirement
benefit liabilities 547 551 575
Deferred tax on net pension
assets/liabilities (@ 38%) (129) (139) (157)
Cash (181) (186) (133)
Synthetic lease adjustment - 169 169
---------------------------------
Net capital employed $2,345 $2,412 $2,373
---------------------------------
Average return on capital employed (a) 12.0% 11.3%
(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 that
ROCE, as defined, is 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
December 31, 2004 December 31, 2004
--------------------- ---------------------
Diluted earnings per share Low High Low High
estimate estimate estimate estimate
---------- ---------- ---------- ----------
Net - US GAAP basis (a) $0.31 $0.36 $1.01 $1.06
Adjustments to exclude
restructuring
and other charges 0.04 0.04 0.39 0.39
---------- ---------- ---------- ----------
Net - US GAAP basis
excluding restructuring
and other charges $0.35 $0.40 $1.40 $1.45
========== ========== ========== ==========
Twelve months ended
December 31, 2004
---------------------
Free cash flow (in millions) Low High
estimate estimate
---------- ----------
Cash flow provided by
operating activities - US
GAAP basis $365 $375
Less: capital expenditures (100) (100)
---------- ----------
Free cash flow (b) $265 $275
========== ==========
(a) In accordance with generally accepted accounting principles (US
GAAP), reported earnings per share include the after-tax effects
of restructuring and other charges. The company's management
believes that by adjusting reported earnings per share to exclude
the effects of these items, the resulting metric reflects the
company's operating performance. The company's management uses
this metric 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 capital expenditures. Both of these amounts are
calculated in accordance with US GAAP. The company's management
believes free cash flow, as defined, is 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 investments, or financing activities, such
as, but not limited to, acquisitions and share repurchases.
CONTACT: Pactiv Corporation
Christine Hanneman (Investor Relations), 847-482-2429
channeman@pactiv.com
or
Lisa Foss (Media Relations), 847-482-2704
lfoss@pactiv.com