Rock-Tenn Company RKT has trimmed its second-quarter fiscal 2015 earnings per share guidance to a range of 70 cents to 75 cents citing varied reasons like inclement weather, after effect of an electrical failure at its Panama City mill and lower promotional activity that led to reduced sales in the merchandising displays business. Shares of Rock-Tenn fell 1.23% on the news.
Rock-Tenn had earlier guided earnings per share for the second quarter in the 80 cents to 90 cents range. Elaborating on the above mentioned reasons, the company stated that the impact of winter weather led to natural gas curtailment and challenging logistics execution, costing the company 6 cents per share. In early February, a substantial electrical failure at its Panama City mill resulted in lost production and increased maintenance costs of approximately 4 cents per share.
On top of this, lower promotional activity reduced sales in the merchandising displays business compared with the prior-year quarter. This, along with operating challenges related to new business that was onboarded in 2014 is expected to affect the segment’s profitability in the quarter.
On a brighter note, Rock-Tenn stated that its corrugated packaging business continues to perform well as corrugated container shipments have grown during the quarter compared with the prior-year period. Container shipments for January and Feb 2015 were 7.2% higher on an average week basis and 2.1% on an actual shipment basis. Rock-Tenn’s performance on the volume front exceeded comparable industry reported statistics by more than 200 basis points. Container shipments for the March interim period reflecting shipments through Mar 27, 2015, were approximately 2.5% higher than average per day container shipments in Mar 2014. However, the spike in volume was not enough to offset the negative impact of the aforementioned events.
Rock-Tenn’s first-quarter 2015 earnings per share of 96 cents were up 16% year over year. Total revenue increased 6.4% year over year to $2.51 billion on the back of the Tacoma Mill and display acquisitions completed in fiscal 2014 and higher corrugated and folding carton volumes.
In its first-quarter conference call, Rock-Tenn announced that it has entered into a definitive merger agreement with MeadWestvaco Corporation MWV to form a new company worth $16 billion. The merger will create the second-largest U.S. packaging company, falling only below International Paper Company IP which has a market capitalization of nearly $23 billion. The combined company will have net sales of $15.7 billion and adjusted EBITDA of $2.9 billion. This includes the impact of $300 million in estimated annual synergies, to be achieved over 3 years.