* Q2 EPS ex-items 54 cents, matches Wall Street view
* Revenue up 9 percent to $1.56 billion, tops Street
* Price increases outpace raw material costs
* Shares down 2.9 percent
(Rewrites first two paragraphs; updates stock price)
By Roy Strom
NEW YORK, July 27 Packaging producer
MeadWestvaco Corp's MWV.N revenue beat and earnings matched
Wall Street's forecasts, but the company's shares were down
nearly 3 percent as investors fretted over rising raw material
costs and the company's increased spending.
Richmond, Virginia-based MeadWestvaco said it expects
earnings to improve "modestly" in the third quarter. It warned
that second-half comparisons would be tougher because of strong
results last year, rising raw material costs and economic
uncertainty in the United States and Europe.
The company has so far been able to fend off rising input
costs from hurting profit margins, as price rises made up 6
percent of revenue growth for the quarter. Price increases more
than doubled the rise in materials costs, Chief Financial
Officer Mark Rajkowski told Reuters.
Input cost inflation "was still stubbornly high. Our input
costs -- energy, materials and freight -- were up $40 million,"
Revenue in the company's largest segment -- food, beverage
and tobacco packaging -- grew 10 percent. Morningstar analyst
Tom Mullarkey said the growth came from strong pricing and was
helped by converting foreign currencies into the weaker U.S.
Sale volumes of cardboard in Brazil, where the company
was investing $500 million to increase production, decreased
year-over-year, Chief Executive John Luke said on a conference
call with analysts.
Luke described the lag in Brazil's sales as temporary, the
result of a "natural" slowdown in the country's economy after a
MeadWestvaco said it expects earnings in the third quarter
to improve "modestly" from a year earlier.
Third-quarter results will depend on the strength of
back-to-school spending in developed countries, said James
Buzzer, the company's president.
"We're all holding our breath now because it's up to the
consumer to come in and spend," he said.
The company's shares, which have gained about 23 percent so
far this year, were down 2.9 percent in midday trading on
Wednesday at $32.09.
Longbow Research analyst Joshua Zaret said he felt the
company had a "solid performance" in the second quarter, but
the market was reacting to the company's recent high amount of
spending. In addition to the Brazil plant, it is investing $285
million to make its Covington, Virginia, mill self-powered.
"They didn't beat expectations, which you almost expect
them to. But also people are realizing their capital
expenditure is going to be at a very elevated level," Zaret
He said a typical year's spending for MeadWestvaco is $200
million to $300 million. Next year he expects the company to
spend around $645 million, but added he thought the spending
was a good decision by management.
Second-quarter net income rose to $89 million, or 51 cents
per share, from $50 million, or 29 cents per share, a year
Excluding one-time items, the company posted earnings per
share of 54 cents, matching the figure expected by Wall Street
analysts, according to Thomson Reuters I/B/E/S.
Revenue rose 9 percent to $1.56 billion, topping the $1.52
billion analysts had expected.
(Reporting by Roy Strom; additional reporting by Matt Daily
and Ernest Scheyder; Editing by John Wallace and Maureen Bavdek)