Industry Reports

Deutsche Bank Reports Summaries

080124 Deutsche Bank Report - Pactiv's Q4 in 100 Words

Deutsche Bank - Equity Research

Pactiv {Ticker: PTV, Closing Price: USD 26.41, Target Price: USD 35.00, Recommendation: Buy}.

* Solid Q4, '08 guidance in-line.   Call had several encouraging pts.  Q4 = $0.45.  DB & First Call @ $0.42.  Vol's relatively sluggish - no surprise. Margins pressured by resin costs - squeeze will persist in Q1 & then ease in Q2.  FY08 guidance of $2.00-2.10 is squarely on consensus and includes $0.23 ($49MM pretax, '07 = $50MM) of pension income.    PTV assumes partial implementation of Q1 resin hikes and the flat costs thereafter.

* Segments:

 Consumer/Hefty.  Sales +20%, largely driven by Prairie acq'n. Base business vol's +2% y/y.  EBIT $62MM (18.2%) vs. $54MM (19.0%).   PTV has won large retail cup account - larger than previously-announced Wal-Mart win.  Other opportunities past "prospect" stage.

Food Service/Packaging. Sales +18%, almost all Prairie.  Base vol's up slightly.  EBIT $58MM (10.8%) vs $52MM (10.8%).

Other Guidance Items: (1) '08 SG&A expected to rise $30-40MM from '07 - Prairie & incentive comp, (2) '08 Capex @ $150MM ($30MM incremental growth) v. D&A of $185MM, (3) '08 FCF target @ $200- 220MM (impacted by $60-70MM in add'l w/c) - - - once Praire is internalized, FCF should increase sharply, (4) '08 tax rate: effective = 36.5%, cash = 27%, (5) $10MM after tax restructuring charge in Q1, $0.05/share benefit in '08, $0.10/share on annualized basis.

Other items.  (1) Encouraging comments on new prospects, but no specifics beyond new larger retail.  Nothing on McD's, (2) Resin assumptions = prudent.

* Bottom line?  Encouraging call, remain positive on PTV.  Maintain Buy w/ $35/share target. Early '08 will be challenging w/ slow economy & higher resin, but underlying business trends are encouraging.    Adjusting '08 EPS estimate from $2.10 to $2.05, '09

from $2.40 to $2.30.