Pactiv Corporation (PTV) reported third-quarter net income of 54 cents per share, beating the Zacks Consensus Estimate of 51 cents as well as its own guidance of 47–51 cents. The quarterly EPS was up 38% on a year-over-year basis.
Earnings growth in the quarter was driven by higher volumes, favorable spread (the difference between selling prices and raw material costs) and lower operating costs.
Revenue in the quarter declined 9% to $839 million from $925 million in the third quarter of 2008, as a 2% in sales volumes was more than offset by unfavorable pricing (-11%) related to lower raw material costs.
The Hefty Consumer Products segment reported a 9% decline in third quarter sales to $312 million from $342 million in the comparable quarter of 2008. The segment witnessed a slight decrease in volumes (-1%) due to a decline in the waste bag market and lower shipments related to Hefty waste bag promotions in the non-grocery channels. Lower pricing, due to decline in raw material costs, had an unfavorable impact of 8% on the segment sales.
Revenue in the Foodservice/Food Packaging business was down 10% year over year at $583 million, as volume gains (+4%) were more than offset by unfavorable pricing (-13%) and negative impact of foreign exchange translation (-1%).
The company posted strong margins in the quarter as it benefited from lower raw material costs, lower operating costs and improved productivity. Gross margin in the quarter was 31.7%, compared to 23.1% last year. Operating margin increased to 16.3% from 11.0% in the third quarter of 2008.
For the full year, the company continues to expect a sales decline of 6%–7% on a year-over-year basis. This forecast is based on the assumption of 2%–3% volume gains, 8%–9% lower pricing, and unfavorable foreign exchange impact of 1%.
However, Pactiv raised its full year earnings guidance to a range of $2.44–$2.45 per share, compared to the previous guidance of $2.37–$2.45.
Despite an expected drop in sales in 2009, Pactiv is confident of posting earnings growth as the impact of soft demand conditions on the company’s earnings is expected to be offset by strong margins. The favorable spread between selling prices and raw material costs, along with lower operating expenses resulting from the company’s cost-cutting efforts, are expected to drive up margins.
We maintain a Hold recommendation on the stock.
Read the full analyst report on “PTV”
Zacks Investment Research
