Rock-Tenn Company (RKT)

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Rock-Tenn Co. (RKT)

Q2 2009 Earnings Call

April 28, 2009 09:00 AM ET

Executives

John D Stakel - Vice President, Treasurer

Steven C. Voorhees - Executive Vice President, Chief Financial Officer and Chief Administrative Officer

James A. Rubright - Chairman and Chief Executive Officer

Analysts

Claudia Shank Hueston - JPMorgan

Christopher Chun - Deutsche Bank

Joshua Zaret - Longbow Research

Chip Dillon - Credit Suisse

Presentation

Operator

Good morning. My name is Trey and I will be your conference operator today. At this time, I would like to welcome everyone to the Rock-Tenn's Second Quarter 2009 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. (Operator Instructions). As a reminder ladies and gentlemen, this call is being recorded today, April 28, 2009. (Operator Instructions). Thank you.

Your speakers for today's call are Mr. John Stakel, Vice President, Treasurer, Mr. Steven Voorhees, Chief Financial Officer, and Mr. James A. Rubright, Chairman and Chief Executive Officer. Mr. Stakel, you may begin your conference.

John D Stakel

Thank you, Trey and welcome to Rock-Tenn's fiscal 2009 second quarter earnings conference call. I'm John Stakel, Vice President, Treasurer of Rock-Tenn. Joining me 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 Laws.

For example, statements regarding our planned expectations, estimates, and beliefs related to future events, or forward-looking statements, which may 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 filings that we made with the Securities and Exchange Commission. These filings include the companies include the company's Form 10-K for the fiscal year-ended September 30, 2008 and the Form 10-Q filed for the quarter-ended December 31, 2008.

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 second quarter press release, which is available on Rock-Tenn's website at rocktenn.com.

With that out of the way I will turn the call over to Steve

Steven C. Voorhees

Thanks John. Rock-Tenn reported net income of 37.4 million or $0.97 per share, as compared to 17.1 million or $0.45 per share in the March quarter of last year.

Rock-Tenn incurred 3.2 million of pre-tax restructuring costs, including 0.8 million of integration expenses related to the Southern Container acquisition. 0.9 million primarily related to the closer of RTS Packaging plant located in Litchfield, Illinois. And the final quarter of acquisition related deferred compensation our ESU expenses of 1.4 million.

These restructuring expenses reduced by 0.3 million or the 35% minority interest in the RTS Packaging joint-venture, net to 2.9 million or $0.05 per share after-tax.

After those $0.05 adjustment, Rock-Tenn recorded $1.02 an adjusted EPS, a $0.36 improvement over the $0.66 in adjusted EPS reported last year.

Rock-Tenn reported sales of 676 million in the March quarter, a decrease of 10 million from the March quarter of last year. Corrugated Packaging sales increased 65 million over last year, a direct result of owing Southern Container for three months this year as compared to only one month last year.

Overall selling prices increased 2 to 3% on average over the last year in all of our businesses, except the Recycled Fiber business where prices declined by 47%.

Overall volumes declined by about 10% on average roughly 5 to 6% in our Consumer Packaging business and in the 12 to 15% range for the other businesses.

On a sequential quarterly basis, Rock-Tenn's sales declined by 27 million, down 4% versus the December quarter. Corrugated Packaging sales declined by the same 27 million, a 13% reduction from the December quarter, primarily due to the 33,000 ton decline in containerboard mill production to match reduced customer demands.

And the Consumer Packaging segment, folding carton volumes were flat and coated recycled board volumes increased 3% versus the December quarter.

The 6 million, a 1.6% decline in Consumer Packaging segment sales was primarily due to lower sales volume of rich paperboard and lower pricing of market pulp.

Merchandising Displays sales increased by 8 million as compared to the December quarter. For specialty paperboard products, a 5 million reduction in sales was due to a decline in sales prices in the Recycled Fiber business.

Recycled Fiber pricing declined significantly during the quarter. For Chicago and back for SEC (ph) was $30 per ton on average in the quarter, down $18 per ton from the December quarter, and $83 per ton from the March quarter of last year.

The closing price of the NYMEX natural gas contract averaged $4.94 per MMbtu during the quarter. This is down $2 from the December quarter and about $3 from the March quarter of last year. The April contract closed at $3.53 and the May contract recently at $3.25 closes later today.

July to October is the time of the year when gas prices can increase due to hurricanes and our extreme hot weather. We've got 20% of our July to October gas needs prices slightly over $4 per MMbtu. Without speculating on future gas prices, what we do when we see attractive pricing at to reduce our full exposure to weather driven winter and hurricane driven fall price spikes as we've done this year.

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