Business News

Smurfit-Stone Reports Second Quarter 2008 Results

Tuesday 29. July 2008 - - Adjusted net loss of $0.12 per share reflects higher energy, freight and chemical costs - Announced price initiatives to offset cost inflation and restore margins - Company expects improved sequential results in third quarter 2008

2Q 2008 1Q 2008 2Q 2007 Net income (loss) available to common stockholders per diluted share $(0.16) $(0.06) $(0.02) Non-cash foreign currency exchange (gains) losses – Canadian dollar 0.02 (0.06) 0.08 Restructuring charges 0.02 0.01 0.01 Loss on early extinguishment of debt – – 0.01 Other – 0.02 (0.02) Adjusted net income (loss) available to common stockholders per diluted share $(0.12) $(0.09) $0.06

Smurfit-Stone Container Corporation (NASDAQ:SSCC) today reported a second quarter 2008 adjusted net loss of $31 million, or $0.12 per diluted share. Results compare to adjusted net income of $15 million, or $0.06 per share, in the second quarter 2007 and an adjusted net loss of $24 million, or $0.09 per share, in the first quarter 2008. Adjusted net income (loss) reflects adjustments to net income (loss) available to common stockholders per diluted share, as detailed in the chart above.

Sales of $1.8 billion for the second quarter 2008 were comparable to both the prior year quarter and first quarter 2008.

Commenting on the company’s second quarter performance, Patrick J. Moore, chairman and CEO, said, “We are seeing unprecedented cost inflation. As a result, our second quarter earnings were negatively impacted by higher-than-expected commodity costs including energy, freight and chemicals. We are raising our selling prices to offset this higher cost inflation, restore profit margins, and improve cash flow in the second half of 2008. In addition, I am pleased with the excellent progress we are making on our transformation plan. We remain on track to complete this program and realize $525 million in cumulative savings this year.”

Second quarter operating highlights

— $55 per ton containerboard and corresponding box price increases
announced
— Per-day US box shipments increased 0.7 percent sequentially
— Significantly higher cost inflation impacted operating profit $47
million compared to first quarter 2008
— Announced permanent closure of Snowflake, AZ, containerboard machine
— 5 box plant closures completed or announced year-to-date
— Reduced headcount by 150 in second quarter; 5,725 since 2005




Commenting on second quarter operations, Steven J. Klinger, president and COO, said: “Given sequentially higher box shipments and lower mill production due to additional maintenance downtime, we ended the second quarter with record low containerboard inventories. While our average domestic linerboard and box prices were essentially flat with the first quarter, we are implementing price increases for both products starting in July.”

Smurfit-Stone’s per-day US box shipments increased 0.7 percent from the first quarter but were down 5 percent year-over-year. When adjusted to exclude the impact of box plant closures and efforts to improve low margin accounts, shipments were down 3 percent year-over-year. Adjusted shipments compare favorably to the overall US market, which declined 3.7 percent as reported by the Fibre Box Association.

“Sharply higher cost inflation impacted our operating profits by $47 million, or $0.11 per share, compared to the first quarter, primarily due to higher energy and freight costs,” Klinger said. “Despite higher costs, we made continued progress transforming our operations in the second quarter. We announced the closure of the Snowflake mill paper machine effective in October. Since July 2005, we have closed 29 box plants and 4 additional plant closures have been announced. Our new box plant in the Chicago area commenced operations in the second quarter and we expect the new Los Angeles plant will be operational in the third quarter. Our transformation efforts reduced headcount by 150 positions in the second quarter and by 5,725, or 22 percent, since 2005. Overall, our transformation efforts remain on track.”

Second quarter financial highlights

Commenting on the company’s financial position, Charles A. Hinrichs, senior vice president and CFO said, “Reflecting significant cost inflation and higher capital spending, our debt increased in the second quarter. However, we expect to generate positive free cash flow in the second half of 2008 as we raise our selling prices and achieve additional benefits from our strategic initiatives. As a result, we are comfortable with our liquidity and expect to remain in compliance with our financial covenants in 2008.”

Outlook – improved financial performance

Higher average selling prices and increased mill production, due to less maintenance downtime, should drive sequentially higher earnings in the third quarter of 2008, despite continued cost inflation. Commenting on Smurfit-Stone’s outlook, Moore said, “Our earnings in the first half of 2008 were impacted by unprecedented cost inflation and a slow economy. Facing these challenges, the company is taking action to drive profitable growth and restore margins. We are aggressively implementing our previously announced $55 per ton containerboard and corresponding box price increases. Furthermore, we expect additional savings as we complete our transformation program. Longer term, we will leverage one of the most modern converting operations and our productive mill system to improve profitability and build shareholder value.”