Rock-Tenn Company (RKT)

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Industry: Consumer Durables
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Rock-Tenn Co. (RKT)

F4Q08 (Qtr End 09/30/08) Earnings Call

November 4, 2008 9:30 am ET

Executives

John Spiegel - VP and Treasurer

James Rubright - Chairman and CEO

Steven Voorhees - EVP and CFO

Analysts

Claudia Hueston - JPMorgan

Christopher Chun - Deutsche Bank

Cameron Newton - Wachovia

Matthew Clark - Prudential Financial

Bill Hoffman - UBS

Mark Wilde - Deutsche Bank

Presentation

Operator

At this time, I would like to welcome everyone to the Rock-Tenn fourth quarter 2008 Earnings Call.

(Operator Instructions)

Your speaker for today's call, are Mr. John Spiegel, Vice President, Treasurer, Mr. Steve Voorhees, Chief Financial Officer, and Mr. James Rubright, Chairman and Chief Executive Officer.

Mr. Spiegel, you may begin your conference.

John Spiegel

Thank you, Trey. Welcome to Rock-Tenn's fiscal fourth quarter 2008 conference call. I am John Spiegel, Vice President and Treasurer of Rock-Tenn. Also joining me on the call are Jim Rubright, CEO and Steve Voorhees, CFO.

During the course of the conference call we may make statements that are not historical in nature and may involve forward looking statements, within the meaning of Federal Securities law. For example, statements regarding our plans, expectations, estimates and beliefs related to future events are forward-looking statements, which involve a number of risks and uncertainties. Many of which are beyond our control and that could cause actual results to differ materially from those discussed.

Additional information regarding these risks and uncertainties is contained in the documents that we filed with the Securities and Exchange Commission. These documents include the company's Form 10-K filed for the year ended September 30, 2007, and our subsequent Form 10-Q since that date.

During the call, we will be referring to non-GAAP financial measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are contained in the fourth quarter press release, which is available on Rock-Tenn's website at rocktenn.com. Also during the call we will be referring to credit agreement EBITDA for 2007. Reconciliation to this measure can be found in our August 2008, Investor Presentation located at rocktenn.com

I will now turn the call over to Steve Voorhees, who will review our financial results. Steve.

Steve Voorhees

Thanks John. Rock-Tenn reported another quarter of record revenue, of $786 million, up 30% over the last year and 2% over the last quarter.

Strong sales growth in consumer packaging and corrugated packaging and pricing improvements in our businesses enabled us to outrun very high input costs during the quarter, and our newly acquired corrugated packaging operations continued to exceed our expectation.

Rock-Tenn reported fourth quarter net income of $28 million or $0.74 per share. On an adjusted basis, Rock-Tenn earned $0.90 per share, 58% more than the $0.57 per share reported in the fourth quarter of last year.

Rock-Tenn reported $8.1 million of restructuring cost, consisting primarily of acquisition integration cost of $1.8 million, the cost of corrugated plant consolidations of $2.3 million, and the amortization of acquisition related deferred, compensation expenses of $2.1 million. We refer to this $2.1 million as ESU expenses during our conference calls earlier this year.

We also incurred $2.1 million of restructuring costs from the closing of our folding carton plant in Baltimore.

During the September quarter, we adjusted the value assigned to the inventory at the time of Southern Container acquisition. This increased the purchasing accounting step up in the value of the acquired inventory by $1.3 million. This was expensed during the quarter and adjusted out, as we did in the second and third quarters.

The integration of Southern Container and Rock-Tenn has continued to proceed very successfully. During the quarter we consolidated our Greenville and Spartanburg, South Carolina sheet plants. We have now fully integrated our legacy corrugated operations into the Southern Container box plant system. We expect to achieve $15 million in annual rate run synergies by June of next year.

Rock-Tenn's results this quarter reflect our new segment reporting structure. Before, reporting segments included consumer packaging, which consist of the folding carton business, and six coated paperboard mills, corrugated packaging, which includes Solvay and St. Paul containerboard mills, and our corrugated converting operation, our Merchandising Displays business, and four Specialty Paperboard Products, which include five Specialty Paperboard mills, 16 converting locations, and our recycled fiber procurement and trading activities.

Turning back to the consolidated results for the quarter; non-allocated expenses increased by $2 million to $8.9 million in the quarter. The increase was primarily due to higher accounting audit and systems cost, driven by the size of the company after the Southern Container acquisition. Perspectively we expect these costs to run at a rate of about $8 million per quarter.

Capital expenditures for the quarter were $24.5 million, below depreciation and amortization of $38.7 million. For the full year, capital expenditures of $84 or $51 million are below depreciation, amortization of $135 million, and below our prior guidance of $90 million.

So fiscal year 2009, we expect to invest $90 million of capital in our business, below the full year depreciation amortization expense of approximately $155 million.

Turning to our defined benefit retirement plans were $256 million at the end of September. This compares to $326 million projected benefit obligation at the end of September.

For fiscal year 2009, we expect our book expense related to these plans to be approximately $17 million, as compared to $7 million in fiscal year 2008. We expect to contribute $25 million to our defined benefit retirement plans in fiscal year 2009.

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