Rock-Tenn Company : RockTenn Reports Fourth Quarter Fiscal 2012 Results

RockTenn (NYSE:RKT) today reported earnings for the fiscal year ended September 30, 2012 of $3.45 per diluted share and adjusted earnings of $4.48 per diluted share and for the quarter ended September 30, 2012 of $1.14 per diluted share and adjusted earnings of $1.39 per diluted share.

Fourth Quarter Results

• Net sales of $2,353.8 million for the fourth quarter of fiscal 2012 decreased $109.7 million compared to the fourth quarter of fiscal 2011.
• Segment income, adjusted to eliminate $0.2 million of pre-tax acquisition inventory step-up, was $208.8 million down $32.2 million or 13.4% over the prior year quarter after adjusting the prior year quarter to eliminate $4.0 million of pre-tax acquisition inventory step-up. Segment income in the fourth quarter of fiscal 2012 included $18.2 million received in connection with the termination and settlement of a paperboard supply agreement, net of legal fees in the period, that was mostly offset by $16.8 million of primarily higher start-up costs and lost production after the major capital investments at our Hodge, LA mill relative to our expectations at the beginning of the quarter.
• RockTenn's restructuring and other costs and operating losses and transition costs due to plant closures, net of related noncontrolling interest were $0.19 per diluted share after-tax, for the fourth quarter of fiscal 2012. These costs consisted primarily of $11.5 million of pre-tax integration and acquisition costs, including professional services, employee and other costs, and $11.4 million of pre-tax facility closure charges primarily related to corrugated container and recycled facilities acquired in the Smurfit-Stone Acquisition.
• RockTenn's loss on extinguishment of debt was $6.3 million, or $0.06 per diluted share in connection with the September 11, 2012 issuance of $350 million 3.50% March 2020 and $350 million 4.00% March 2023 senior notes and the extension and amendment of our Credit Agreement. The expense was primarily related to unamortized deferred financing costs.

Chairman and Chief Executive Officer's Statement

RockTenn Chairman and Chief Executive Officer James A. Rubright stated, "We are pleased with the earnings we recorded in our fourth fiscal quarter, which are up strongly over the third quarter despite the continued headwinds of the slow progress of the domestic economic recovery. During the fourth fiscal quarter, we implemented a $50 per ton increase in domestic containerboard and we are following that with price increases in boxes and sheets. Given our contractual arrangements, we expect that by the end of the March quarter we will be realizing most of the anticipated benefit of those increases, which will be partially offset by lower prices in our consumer segment and higher commodity input costs."

Segment Results

Containerboard and Paperboard Tons Produced

Total tons produced in the fourth quarter of fiscal 2012 were approximately 2.32 million tons, a decrease of approximately 72,000 tons over the prior year quarter, and a sequential increase of approximately 187,000 tons from the third quarter of fiscal 2012. The sequential quarter increase was primarily due to seasonal strength and fewer scheduled major maintenance outages at our containerboard mills.

Corrugated Packaging Segment

Corrugated Packaging segment net sales decreased $29.2 million to $1,597.3 million in the fourth quarter of fiscal 2012 compared to the prior year quarter. Segment income decreased $40.8 million to $112.8 million in the fourth quarter of fiscal 2012 compared to $153.6 million in the prior year quarter after adjusting the current year quarter and prior year quarter to eliminate $0.2 million and $4.0 million of pre-tax acquisition inventory step-up, respectively. The decrease is primarily related to $18.3 million of incremental maintenance outage expense compared to the prior year quarter, the impact of lower mill volumes and lower selling prices and start-up costs and lost production after the major capital investments at our Hodge, LA mill. Corrugated Packaging segment EBITDA margin was 13.7% for the fourth quarter of fiscal 2012.

Consumer Packaging Segment

Consumer Packaging segment net sales decreased $7.3 million in the fourth quarter of fiscal 2012 compared to the prior year quarter. Segment income was $98.8 million in the fourth quarter of fiscal 2012 compared to $82.1 million in the prior year quarter. Segment income in the fourth quarter of fiscal 2012 included $18.2 million received in connection with the termination and settlement of a paperboard supply agreement, net of legal fees in the period. Consumer Packaging segment EBITDA margin was 18.6% for the fourth quarter of fiscal 2012.

Recycling Segment

Recycling segment net sales decreased $91.4 million over the prior year fourth quarter to $264.4 million primarily as a result of lower selling prices. Segment loss was $2.8 million in the fourth quarter of fiscal 2012 compared to segment income of $5.3 million in the prior year primarily as declining recycled fiber prices compressed margins.

Cash Provided From Operating, Financing and Investing Activities

At September 30, 2012, total debt was $3.41 billion and our Leverage Ratio (as hereinafter defined) was 2.96 times, well below our maximum credit agreement covenant of 3.75 times. Net debt (as hereinafter defined) increased by $34.6 million in the September quarter to $3.38 billion. Cash provided by operations was $115.3 million in the fourth quarter of fiscal 2012, after pension funding in excess of expense of $143.1 million. We invested $104.1 million in capital expenditures, purchased $17.0 million of previously leased assets, returned $14.1 million in dividends to our shareholders and made final payments of $5.1 million on two prior period acquisitions.

Conference Call

We will host a conference call to discuss our results of operations for the fourth quarter of fiscal 2012 and other topics that may be raised during the discussion at 9:00 a.m., Eastern Time, on November 2, 2012. The conference call will be webcast live with an accompanying slide presentation, along with a copy of this press release, at www.rocktenn.com.

Investors who wish to participate in the webcast via teleconference should dial 888-790-4710 (inside the U.S.) or 773-756-0961 (outside the U.S.) at least 15 minutes prior to the start of the call and enter the passcode ROCKTENN. Replays of the call will be available through November 16, 2012 and can be accessed at 866-351-2785 (U.S. callers) and 203-369-0055 (outside the U.S.).

About RockTenn

RockTenn (NYSE:RKT) is one of North America's leading integrated manufacturers of corrugated and consumer packaging and recycling solutions. RockTenn's 26,300 employees are committed to exceeding their customers' expectations - every time. The Company operates locations in the United States, Canada, Mexico, Chile, Argentina and China. For more information, visit www.rocktenn.com.

Cautionary Statements

Statements in this release that do not relate strictly to historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on our current expectations, beliefs, plans or forecasts and use words such as will, estimate, anticipate, project, intend, or expect, or refer to future time periods, and include statements made in this report regarding, among other things our belief that we expect that by the end of the March quarter we will be realizing most of the anticipated benefit of announced corrugated price increases, including those relating to containerboard, boxes and sheets, and that those increases will be partially offset by lower prices in our consumer segment and higher commodity input costs constitute forward-looking statements within the meaning of the federal securities laws. These statements are subject to certain risks and uncertainties including with respect to our expectations regarding economic, competitive and market conditions generally; expected volumes and price levels of purchases by customers; fiber and energy costs; costs associated with facility closures; competitive conditions in our businesses and possible adverse actions of our customers, our competitors and suppliers. These expectations are based on assumptions that management believes are reasonable; however, undue reliance should not be placed on these forward-looking statements because these risks and uncertainties could cause actual results to differ materially from those contained in any forward-looking statements. There are many other factors and uncertainties that impact these forward-looking statements that we cannot predict accurately, including our ability to integrate Smurfit-Stone or to achieve benefits from the Smurfit-Stone acquisition, including synergies, performance improvements and successful implementation of capital projects. Further, our business is subject to a number of general risks that would affect any such forward-looking statements including, among others, decreases in demand for our products; increases in energy, raw materials, shipping and capital equipment costs; reduced supply of raw materials; fluctuations in selling prices and volumes; intense competition; the potential loss of certain key customers; changes in environmental and other governmental regulation; and adverse changes in general market and industry conditions. These risks are more particularly described in our filings with the Securities and Exchange Commission, including under the caption "Business?Forward-Looking Information" and "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended September 30, 2011. The information contained in this release speaks as of the date hereof and we do not undertake any obligation to update this information as future events unfold.

Non-GAAP Financial Measures and Reconciliations

We have included financial measures that are not prepared in accordance with GAAP. Any analysis of non-GAAP financial measures should be used only in conjunction with results presented in accordance with GAAP. Below, we define the non-GAAP financial measures, provide a reconciliation of each non-GAAP financial measure to the most directly comparable financial measure calculated in accordance with GAAP, and discuss the reasons that we believe this information is useful to management and may be useful to investors. These measures may differ from similarly captioned measures of other companies in our industry. The following non-GAAP measures are not intended to be substitutes for GAAP financial measures and should not be used as such.

Net Debt

We have defined the non-GAAP measure "net debt" to include the aggregate debt obligations reflected in our consolidated balance sheet, less the hedge adjustments resulting from fair value interest rate derivatives or swaps and the balance of our cash and cash equivalents.

Our management uses net debt, along with other factors, to evaluate our financial condition. We believe that net debt is an appropriate supplemental measure of financial condition because it provides a more complete understanding of our financial condition before the impact of our decisions regarding the appropriate use of cash and liquid investments. Set forth below is a reconciliation of net debt to the most directly comparable GAAP measures, Current portion of debt and Long-term debt due after one year for the current quarter and the prior quarter.