RockTenn's fiscal Q4 net income down 8.2% year-over-year to US$83.9M, while net sales soar to US$2.46B from US$806.8M; results mainly spurred by Smurfit-Stone acquisition

Kendall Sinclair

NORCROSS, Georgia , November 9, 2011 (press release) – RockTenn (NYSE:RKT) today reported earnings for the quarter ended September 30, 2011 of $1.17 per diluted share and adjusted earnings of $1.70 per diluted share.

Fourth Quarter Results

Net sales of $2,463.5 million for the fourth quarter of fiscal 2011 increased $1,656.7 million over the fourth quarter of fiscal 2010, primarily as a result of the full quarter impact of the May 27, 2011, Smurfit-Stone acquisition.

Segment income, adjusted to eliminate $4.0 million of pre-tax acquisition inventory step-up was $241.0 million, up 81.9% over the prior year quarter, primarily as a result of the Smurfit-Stone acquisition.

RockTenn's restructuring and other costs and operating losses and transition costs due to plant closures, net of related noncontrolling interest were $0.35 per diluted share after-tax, for the fourth quarter of fiscal 2011. These costs consisted primarily of $18.0 million of pre-tax facility closure charges primarily related to former Smurfit-Stone corrugated container plants, $8.7 million of pre-tax integration costs that primarily consisted of severance and other employee costs and professional services, $4.0 million of pre-tax acquisition costs, $3.3 million pre-tax operating losses and transition costs in connection with consolidating converting facilities and a charge of $3.3 million for tax adjustments related primarily to non-deductible acquisition costs.

GAAP requires that an acquirer value inventory acquired at fair value. This reduces the profit on sales to that portion attributable to the selling effort. For us, this step-up in value reduced our income for the fourth quarter of fiscal 2011 by $4.0 million pre-tax, or $0.03 per diluted share after-tax.

During the quarter we recorded pre-tax expense of $17.3 million, or $0.15 per diluted share after-tax for the non-cash foreign currency translation loss to our U.S. lender of a Canadian intercompany loan acquired in the Smurfit-Stone acquisition. The corresponding non-cash gain to our Canadian borrower on the intercompany loan was recorded as an increase in accumulated other comprehensive income. This loan was repaid during the fourth quarter of fiscal 2011 with borrowings available to our Canadian subsidiaries under our Credit Facility.

Chairman and Chief Executive Officer's Statement

RockTenn Chairman and Chief Executive Officer James A. Rubright stated, "Our adjusted earnings of $1.70 per share reflect strong performance by all our businesses in the face of higher commodity input costs, and continued earnings accretion from the Smurfit-Stone acquisition, as synergies helped offset the higher input costs."

Segment Results

Containerboard and Paperboard Tons Produced

Total tons produced in the fourth quarter of fiscal 2011 were approximately 2.39 million tons, an increase of approximately 1.8 million tons over the prior year quarter due to the Smurfit-Stone acquisition. The increase included an increase in recycled paperboard tons and bleached paperboard tons.

Corrugated Packaging Segment

Corrugated Packaging segment net sales increased $1,407.5 million to $1,626.5 million in the fourth quarter of fiscal 2011 compared to the prior year quarter, due primarily to the Smurfit-Stone acquisition. Segment income, adjusted to eliminate $4.0 million of pre-tax acquisition inventory step-up, increased to $153.6 million in the fourth quarter of fiscal 2011 compared to $49.1 million in the prior year quarter. Corrugated segment EBITDA margin was 15.6% for the quarter.

Consumer Packaging Segment

Consumer Packaging segment net sales increased $93.2 million in the fourth quarter of fiscal 2011 compared to the prior year quarter, primarily due to increased display sales including those from the Smurfit-Stone acquisition, higher paperboard selling prices and volumes and higher folding carton and interior partition selling prices and volumes. Segment income was $82.1 million in the fourth quarter of fiscal 2011 compared to $81.9 million in the prior year quarter as increased income from higher selling prices and volumes were largely offset by higher fiber, chemical, freight and energy costs partially offset by lower virgin fiber costs.

Recycling and Waste Solutions Segment

Recycling and Waste Solutions segment net sales increased $318.7 million over the prior year fourth quarter to $355.8 million primarily due to the Smurfit-Stone acquisition and higher fiber prices. Segment income was $5.3 million in the fourth quarter of fiscal 2011 compared to $1.5 million in the fourth quarter the prior year.

Cash Provided From Operating, Financing and Investing Activities

At September 30, 2011, net debt was $3.4 billion and our Leverage Ratio (as hereinafter defined) was 2.61 times, well below our maximum credit agreement covenant of 3.75 times. We reduced net debt by $27.4 million in the September quarter. We generated $122 million in operating cash flow during the quarter and invested $92 million in capital expenditures. Operating cash flow was reduced a total of $102 million for the following three items, (i) $39 million to fund acquisition and restructuring related legacy Smurfit employee payments, (ii) $23 million to fund taking cash payment discounts on legacy Smurfit operations purchases, and (iii) $40 million in receivables and inventory primarily to support increased sales and eliminate supply constraints in our box plant system.

Conference Call

We will host a conference call to discuss our results of operations for the fourth quarter of fiscal 2011 and other topics that may be raised during the discussion at 9:00 a.m., Eastern Time, on November 10, 2011. 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 24, 2011 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, with net sales of approximately $10 billion. RockTenn's 26,000 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.

Industry Intelligence Editor's Note: In an omitted table, RockTenn reported fiscal Q4 net income of US$83.9 million. For the same period a year ago, the company recorded net income of US$91.4 million.

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