"We have made good progress and continue to see significant potential in driving profitable growth in our targeted markets through our four growth pillars—commercial excellence, innovation, emerging markets, and expanded participation," said John A. Luke Jr., chairman and CEO. "We are eager to accelerate our progress and substantially improve our margins and cash flow through a more streamlined and efficient organization and cost structure. We are seeing measurable success with our previously announced cost reduction initiatives, and this new program will further improve our performance in packaging.
"These initiatives, coupled with the increasingly strong performance in our Specialty Chemicals business, will generate significant progress this year in the form of increased earnings and free cash flow, as well as solidify the establishment of a leading business platform that we expect will deliver consistently growing returns to shareholders," Luke added.
The program savings are in addition to MWV’s previously announced overhead reduction actions targeting $75 million to $80 million by the end of 2014. Total combined annual cost savings from the two programs is expected to reach more than $200 million (before program-related charges) by the end of 2015, with at least an additional $75 million expected in 2014 from the new program. Free cash flow (cash flow after capital expenditures) is expected to increase by at least $100 million in 2014 from higher expected after-tax earnings and a $50 million reduction in capital expenditures to approximately $350 million.
By the end of 2015, MWV expects to have significantly improved the EBITDA margins of the Food & Beverage and Home, Health & Beauty packaging segments. Industrial Packaging, after initial start-up costs associated with the expansion of the Tres Barras mill in Brazil, is performing well and is expected to achieve EBITDA margins of at least 25% by the end of 2014.
MWV has already begun implementing key components of the program, which the company began formulating in connection with the sale of its forestland assets to Plum Creek Timber Co. (Dec. 6, 2013). Dr. Robert K. Beckler, who recently relocated to Richmond from Brazil to assume broader business responsibilities within MWV, is leading all aspects of the new program. Beckler has been with MWV for more than 26 years, including as president of MWV Rigesa and president of MWV Specialty Chemicals.
"Bob’s success in leading MWV’s business expansion in Brazil and transformation of our Specialty Chemicals segment to an industry leading, market-focused business positions him well for these important initiatives," continued Luke.
MWV is increasing to $700 million (previously $665 million) the amount of value it expects to return to shareholders, primarily from the recently closed forestland assets sale. In the fourth quarter of 2013, the company repurchased 3.75 million shares of common stock for $131 million. The company will provide details on the form of shareholder returns for the remaining $570 million in the near term.
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