Tough times at MeadWestvaco
restructuring programme aimed at improving productivity at the firm
and boosting both earnings and cash flow, at the cost of 1,000 job
cuts and a number of facility closures.
Like many of its counterparts in the paper and packaging sectors, MeadWestvaco has suffered of late from poor returns, compounded by the post-merger difficulties associated with the marriage of Mead with Westvaco last year. The industry as a whole has suffered from a drop in demand, leaving companies with excess capacity.
The financial goals of the restructuring are ambitious; to boost operating income by $250 million (€201m) and capture $250 million in working capital improvements by the end of 2005.
The improvement in profitability is expected to be achieved through a combination of cost cutting, facility closures, headcount reductions (about 1,000 positions will be eliminated during 2004), product mix improvement (greater proportion of sales stemming from packaging, for example), and increasing sales volumes.
Over half of the $250 million in earnings improvement is likely to come from cost reductions, according to analyst Karen Gilsenan of Merrill Lynch. Cost reductions and job eliminations are likely to be made across the entire company, she added.
Working capital gains will come from traditional targets of reducing inventories and receivables and improving payables. Slightly more than 50 per cent of the earnings improvement is scheduled to accrue by the end of 2004, with the balance coming in 2005, and MeadWestvaco is not planning to make any capital expenditures to achieve the savings.
The company will take restructuring charges totaling $75-$100 million during 2004 to cover the costs associated with headcount reductions (the majority of the charges) and facility closures. Additional restructuring expenses are expected in 2005.
MeadWestvaco has a range of packaging products used by the pharmaceutical industry, including its SafePak and DosePak systems designed to improve traceability and tamper-resistance.
