Pactiv Posts Second Quarter EPS of $0.56

For the quarter ended June 30, 2010, Pactiv Corporation (NYSE: PTV) today announced that income from continuing operations was $75 million, or $0.56 per share, compared with $81 million, or $0.61 per share, in 2009. Sales rose 8 percent to $973 million from $901 million, reflecting 7-percent higher volume and 1-percent higher pricing. The acquisition of PWP Industries closed April 1 and added $41 million to second quarter sales.

"We had good performance in the quarter in markets that continue to be weak. Volume growth was driven by the addition of PWP, as well as new business wins. Raw material costs were significantly higher in the first part of the quarter, but began to decline mid-quarter. Overall, we are entering the second half with good momentum and expect to perform well with volume growth of 9 to 10 percent, approximately half of which is organic,” said Richard L. Wambold, Pactiv’s chairman and chief executive officer.

Second quarter gross margin was 28.2 percent compared with 33.3 percent last year, as unfavorable spread (the difference between selling prices and raw material costs) offset higher volume. Operating margin was 14.5 percent compared with 17.0 percent. Last year’s margins were at very high levels because selling prices had not fully adjusted to reflect significantly lower raw material costs.

Selling, general, and administrative (SG&A) expense was $83 million compared with $100 million in 2009, which was unusually high. The improvement was a result of lower incentive compensation accruals. Free cash flow in the second quarter was $45 million compared with $62 million last year.

For the six-month period, income from continuing operations was $123 million, or $0.92 per share, compared with $158 million, or $1.19 per share, last year. Included in the 2010 results is a $3 million, or $0.02 per share, first-quarter charge related to reduced tax deductibility of Medicare Part D retiree drug subsidies under the Patient Protection and Affordable Care Act. Operating margin was 13.9 percent compared with 17.9 percent. Sales of $1.75 billion rose 5 percent from $1.67 billion. Gross margin was 28.1 percent versus 34.3 percent in 2009. Year-to-date free cash flow was $54 million compared with $167 million in 2009.

Business Segment Results

Hefty^® Consumer Products

Second quarter sales of $361 million rose 1 percent from $356 million, reflecting a 1-percent volume increase. The product categories in which this segment participates all declined in the quarter. Pactiv’s volume growth primarily reflected new business in store brand waste bags, which offset declines in other product lines. Pricing was positioned to respond to expected higher raw material costs. However, raw material costs began to decline sequentially mid-quarter, resulting in some lost volume due to non-competitive pricing.

Operating income was $74 million compared with $80 million last year as unfavorable spread and unfavorable product mix offset lower SG&A spending. Operating margin was 20.5 percent compared with 22.5 percent last year.

For the six-month period, sales of $652 million rose 2 percent from $639 million. Operating income was $127 million compared with $143 million last year. Operating margin was 19.5 percent compared with 22.4 percent.

Foodservice/Food Packaging

Second quarter sales of $612 million rose 12 percent from $545 million, based on 10-percent volume growth and 2-percent higher pricing. All of PWP’s sales are included in this segment. The organic volume increase of 2 percent reflected continued growth in cups and cutlery, as well as increases in produce packaging, processor trays, and paper-based items, which offset declines in some traditional product lines, such as carry-out containers.

Operating income was $69 million compared with $77 million last year, as unfavorable spread offset higher volume. Operating margin was 11.3 percent versus 14.1 percent in 2009.

For the six-month period, sales of $1.1 billion rose 7 percent from $1.0 billion in 2009. Operating income was $118 million compared with $161 million. Operating margin was 10.7 percent compared with 15.7 percent last year.

Outlook

The Company is introducing a third quarter EPS outlook in a range of $0.56 to $0.60. This outlook reflects increased advertising and promotion spending in support of the Consumer business.

The full year EPS outlook has been narrowed to a range of $2.15 to $2.30 from a range of $2.10 to $2.30. The full year outlook includes non-cash pension income of $48 million pretax, $30 million after tax, or $0.23 per share.

Full year 2010 sales are expected to increase between 8 and 9 percent based on volume growth, as pricing is expected to be flat compared with 2009. The sales growth outlook is down slightly from the outlook given in April because the overall market is recovering more slowly than expected, and a lower raw material cost outlook has reduced the magnitude of selling price increases in the second half.

SG&A expense is estimated to be between $305 million and $315 million. The 2010 tax rate is expected to be 36.5 percent. Free cash flow for 2010 is anticipated to be in a range of $330 million to $350 million. Depreciation and amortization expense is expected to be approximately $195 million, and capital expenditures are estimated to be approximately $130 million.

Other

This press release includes certain non-GAAP financial measures. A reconciliation of the non-GAAP financial measures to GAAP is shown in the attached "Regulation G GAAP Reconciliations” or in the attached "Operating Results by Segment”.

Cautionary Statements

This press release includes certain "forward-looking statements” such as those in the Outlook section, as well as "overall, we are entering the second half with good momentum and expect to perform well with volume growth of 9 to 10 percent, approximately half of which is organic.” A variety of factors may cause actual results to differ materially from these expectations including a slowdown in economic growth, changes in the competitive market, increased cost of raw materials, and changes in the regulatory environment.

More detailed information about these and other factors is contained in the Company’s Annual Report on Form 10-K at page 23 filed with the Securities and Exchange Commission as revised and updated by Forms 10-Q and 8-K as filed with the Commission.

Company Information

Pactiv Corporation (NYSE: PTV) is a leader in the consumer and foodservice/food packaging markets it serves. With 2009 sales of $3.4 billion, Pactiv derives more than 80 percent of its sales from market sectors in which it holds the No. 1 or No. 2 market-share position. Pactiv’s Hefty^® brand products include waste bags, slider storage bags, disposable tableware, and disposable cookware. Pactiv’s foodservice/food packaging offering is one of the broadest in the industry, including both custom and stock products in a variety of materials. For more information, visit www.pactiv.com.

(a) In 2009, we measured free cash flow as cash flow from operating activities excluding the change in our asset-securitization-program balance, less capital expenditures, all of which are calculated in accordance with GAAP.  However, due to changes in ASC 810 "Consolidation," securitized borrowings are now included in our consolidated financials in 2010.  Therefore, free cash flow is defined as cash flow from operating activities less capital expenditures.  We believe that free cash flow provides a useful measure of our liquidity.  We use free cash flow as a measure of cash available to fund early or required debt retirement and incremental investments such as, but not limited to, acquisitions and share repurchases. However, free cash flow has limitations, in that it does not represent residual cash flow available for discretionary expenditures.  Some of our expenditures are mandatory.  The amount of mandatory versus discretionary expenditures can vary significantly between periods.