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080430 Deutsche Bank Report - MWV's 1Q in 100 Words

Deutsche Bank - Equity Research

MeadWestvaco {Ticker: MWV.N, Closing Price: USD 26.30, Target Price: USD 30.00, Recommendation: Hold}.

Weak Quarter. Reported $(0.02) net of special items. However, normalizing the tax rate, it would look like $(0.06)-(0.07). DB @ 0.01, FC @ $(0.01). Comps: 4Q07 = $0.42, 1Q07=$(0.02). Squeezed by $39MM of higher y/y input costs, partially offset by special items (see "Others" below).

Packaging Resources. Weak. EBIT = $32MM, 1Q07 = 43MM, 4Q07 = $80MM. Vol growth, price/mix offset by escalating input costs. Mahrt mill outage cost $15MM. Strong gains @ Rigesa ( Brazil ).

Consumer Solutions. Disappointing. EBIT = $9MM (1.5% margin), 1Q07 = $20MM, 4Q07 = $16MM. EBITDA margin = 9%. Higher input costs, global media decline, and $5MM bad debt charge.

Consumer & Office Products. Weak. EBIT = $(3MM), 1Q07 = $(2MM), 4Q07 = $66MM. Back-to-school was solid in BZ. BZ had $3MM bad debt expense. Asian imports still hitting NA op's as is higher paper costs.

Specialty Chemicals. Strong - segment on the mend. EBIT = $12MM, 1Q07 = $4MM, 4Q07 = $6MM. EBITDA margin = 15%. Strong demand for pine chem's & non-automotive carbon. Eastman op's should be accretive in 2008.

Others: (1) Pension curtailment of $10MM helped, (2) FX gain higher by $10MM (pre-tax) y/y (3) Capex in 1Q = $64MM, guiding to $330- 340MM for '08 (4) '08 tax rate @ 28% - was 29%, (5) Pointing to 2Q profit from continuing ops at y/y levels, (6) Hinting about further restructuring/cost reduction efforts (coming soon?), (7) More forceful than most about recovering costs via price.

Change in view? Somewhat more cautious. Rising input costs creating headwinds. Trimming EPS est.: '08 goes from $1.35 to $1.15 (2Q = $0.24) and '09 goes from $1.70 to $1.45. DB forecasts going forward exclude Charleston mill.