Jul 29, 2010
Executives
E. Rajkowski - Chief Financial Officer and Senior Vice President James Buzzard - President John Luke - Chairman, Chief Executive Officer and Chairman of Executive Committee Jason Thompson - Director of Investor Relations
Analysts
Peter Ruschmeier - Barclays Capital Claudia Hueston - JP Morgan Chase & Co Mark Connelly - Credit Agricole Securities (USA) Inc. Mark Wilde - Deutsche Bank AG George Staphos Chip Dillon - Crédit Suisse AG Gail Glazerman - UBS Investment Bank
Operator
Ladies and gentlemen, thank you for standing by, and welcome to the MWV Second Quarter Results Conference Call. [Operator Instructions] And I would now like to turn the conference over to our host, Director of Investor Relations, Mr.
Jason Thompson. Please go ahead, sir.
Jason Thompson
Thanks, Coleman, and good morning, everyone. This morning, we announced our results before the market opened.
The notification in this morning's call was broadly disclosed. Further, this morning's call is being webcast at mwv.com, and slides that accompany this call are available there as well.
I'll briefly remind you that certain statements we make are forward-looking and are not guarantees of future performance and are subject to known and unknown risks and uncertainties described in our public filings. Furthermore, contents contain time-sensitive information that although correct today, may change with the passage of time.
First, a brief recap of the results we reported this morning. For the second quarter, we reported net income of $50 million or $0.29 per share, this includes after-tax restructuring charges of $11 million or $0.06 per share.
Now here to tell you more about our results for the second quarter are John Luke, Chairman and CEO; Jim Buzzard, our President; and Mark Rajkowski, CFO. I'll now turn the call over to John.
John Luke
Thanks, Jason, and good morning. MWV's financial performance during the second quarter builds on the forward momentum we have established from our deliberate transformation strategies.
In this most recent period, we recorded another quarter of strong improvement across key profitability metrics, gained share in targeted end markets in each of our businesses, generated double-digit growth in our largest and most important emerging markets, Brazil and China, and delivered strong flow-through of our hard-earned cost savings and productivity gains. The result was a near doubling of our operating profit, and we further strengthened our already sound financial position.
This performance demonstrates the strategies we are executing in each of our businesses to enhance our market participation and reduce cost are improving the fundamental profitability of our company. We continue to pursue these strategies with both diligence and confidence.
We expect that they will enable MWV to continue to perform well in the present economy, will bolster relative performance should there be an economic downturn and will generate superior returns in a more robust economy. In a moment, Jim will provide you with greater detail on our strategy execution.
Mark will follow with an in-depth look at the impact of our overall financial performance. First though, I wanted to further emphasize the focused set of strategies that now characterize MWV's more profitable business model.
Each of our segments is providing demonstrable and differentiated value to our customers, delivering more profitability to the bottom line and pursuing profitable growth that we are able to invest in due to the solid financial foundation we have established and maintained throughout this difficult period. In short, MWV today is a stronger company.
Our transformation into a market-focused company is providing us sustainable competitive advantages with an enriched product mix, a growing pipeline of new products and strong positions in the most promising emerging markets. As examples, we have doubled the volume of our innovative airless dispensing products for beauty and personal care applications, a direct result of relationships we formed with our major consumer packaged goods customers to deliver solutions that are helping them win in both developed and rapidly growing emerging markets, such as China.
We also continue to expand Shellpak's position as a leading product in the healthcare market, as it has been scientifically proven to increase patient adherence to the schedule and dosage of their prescription medicine. We have produced meaningful growth and market share gains for our bleached paperboard, in many cases, earning business when brand owners specify the use of our paperboard for their highest-value products, just as they have in the food and tobacco markets.
Similarly, we have turned meaningful customer engagement efforts into growth for our MWare line of paperboard for products in the food service market. We are very encouraged by our continuing progress in Brazil, where Rigesa's differentiated product offerings and value-based selling continue to generate strong volume growth and returns for the company.
As our investors are aware, we are evaluating the possibility of additional investments in Brazil that would further extend our advantages in that attractive and growing marketplace. And our Specialty Chemical business is continuing to exploit growing global demand for infrastructure and energy.
The improved performance they demonstrate to customers with their proprietary additives is generating growth for asphalt solutions in the United States, China and other countries throughout Asia. More innovative products like MWare paperboard, airless dispensers and Evotherm asphalt additive; deeper customer partnerships, such as those with food brand owners and large retailers competing in the market for generic prescriptions using adherence packaging; and intense focus on the right opportunities for growth in emerging markets where our business grew by 17% during the second quarter.
When these examples and more are added to our relentless discipline for cost reduction and productivity improvements, our ongoing transformation is the key to the earnings improvement we have delivered. Our outlook for demand beyond the third quarter is uncertain, and our customers remain cautious about consumer spending and business investments.
However, we expect to further improve our performance by executing the same strategy that has helped us deliver successful results throughout this challenging economic environment. Sharper, more focused market participation, improved cost structure and productivity and a stronger financial position to fuel profitable growth.
This course will provide a sustainable advantage for MWV as we work to further increase the value we deliver to shareholders. I'll now turn the call over to Jim Buzzard to talk about our business results in the second quarter before Mark discusses our financial metrics and provides a more detailed outlook for the third quarter.
Jim?
James Buzzard
Thanks, John. We executed our strategies very well during the second quarter and generated strong earnings results for each of our business segments and for the company as a whole.
Across our businesses, we made gains in targeted markets and delivered further improvements as part of our strategic cost management program. The result is a more competitive set of businesses that are generating profitable growth for MWV and that are pursuing additional opportunities in the most attractive markets.
Overall sales were up 8% during the second quarter compared to last year, reflecting a determined focus to grow in our targeted global markets. We increased sales of higher value, differentiated products during the quarter and also saw some year-over-year improvement in our markets.
With growing demand for MWV's richer portfolio of products and solutions, we also had substantial bottom-line contribution from price and mix during the quarter. We also are maintaining the intensity of our cost reduction program, achieving an additional $27 million of capacity and overhead cost savings during the quarter on top of another strong productivity performance across our operations.
With continued progress in these important areas during the second quarter, adjusted earnings before interest, taxes and special items increased 81%. Let me share details about the performance and trends in each of our businesses and consumer packaging markets.
As always, you'll find additional information in the slide presentation that accompanies this call. In the Packaging Resources business, segment profit was up by 47%, with increased sales volumes of higher-value products and improvements in our manufacturing productivity, driving our earnings.
We achieved this solid improvement despite some operating challenges, including significantly higher inflation driven by the lingering impact of severe weather on our fiber costs at the mills and freight cost increases. Sales were up 10% during the quarter.
Shipments of bleached paperboard and Coated Natural Kraft were each 3% higher than last year, continuing the trend of increases since the beginning of 2010. We achieved strong pricing and mix gains as we focused on our participation in the highest-value paperboard markets we serve.
We continue to run full at our mills, with order backlogs of five to six weeks at low inventories, and we expect to continue to produce at capacity for the remainder of the year. Many of the market participation strategies that John highlighted had a measurable impact on our performance in the Packaging Resources Group.
We continue to gain market share in commercial print by using on-press comparisons to demonstrate the value of our Tango Advantage product to customers. We're accomplishing the same thing in the market for frozen food where performance characteristics, such as freeze-thaw strength and printability, are essential for demanding retail food brand owners around the world.
And our innovative MWare line of paperboard for renewable cups in the food service market is growing rapidly as we leverage growth with key quick-serve restaurant customers. We also continue to see excellent results in Rigesa, where earnings were up strongly for the quarter, driven by solid volume growth and contributions from improved pricing and productivity.
Rigesa's outstanding performance and operating record continues to make a very positive contribution to the Packaging Resources segment. And as a platform, we may look to grow, as we've mentioned, with our ongoing evaluation of a new paper machine.
The Consumer Solutions segment increased profits to $27 million during the quarter compared to $25 million last year. These better results were driven by strong volume increases and market share gains for higher-value packaging products in the personal care, healthcare and home and garden markets, as well as higher operating productivity.
And the improvement was partially offset by $3 million of costs associated with the closure of a beverage packaging facility in France and negative impact from foreign exchange. Sales in Consumer Solutions were about the same as last year, having exited certain lower margin business, we replaced nearly all of these volumes with sales of higher margin core products and solutions, improving the profitability of our revenue mix and contributing to the better performance in this segment.
Let me go through each of the consumer packaging markets we serve in this business to highlight some of the impact of our market participation strategies. In our Global Beverage business, sales were higher but earnings were down compared to a very strong second quarter last year.
During the quarter, we incurred a $3 million in cost as we completed the process to close our facility in France, and we incurred unfavorable foreign exchange. The facility closure will have an immediate impact on our productivity and results going forward, and we have successfully transitioned production to other locations and retained the customer base previously served by this beverage packaging plant.
The increase in beverage sales reflects above-market performance in Asia and North America and steady volumes in Europe. We won business in the U.S.
by converting AB InBev corrugated volume to our paperboard solution for 18- and 20-count glass packs, and also earned some small share gains from key carbonated soft drink customers. We did not, however, gain a large amount of volume from recent promotional activities in the soft drink market.
We continue to see very strong growth in Asia, where our business is up about 30% compared to last year and is maintaining a strong and steady growth trajectory with customers who continue to develop new multipack markets. In our Healthcare business, sales and earnings were down slightly during the quarter.
We had a drop-off in sales for our paperboard adherence solutions in this market and also exited from unprofitable segments of our Folding Carton business. However, Shellpak volume is up more than 50% compared to last year as the number of prescription drugs and the number of customers continues to grow.
We are in discussions with another large retailer to make Shellpak a central piece of their strategy to compete in the large and growing market for low-cost generic prescription drugs. Sales were also steady for both standard oral and nasal pumps, as well as our high-value, preservative-free pumps in Europe.
The personal care markets continue to rebound from the lows we experienced last year. As a result, our business increased earnings again during the second quarter.
Sales of our airless dispensers for skincare doubled compared to last year, as we gained market share with the biggest customers in the category. We also had very strong sales for fragrance dispensers, including our NoC pump that was recently awarded a patent in the United States and has helped us gain market share with key customers.
The Home and Garden business had strong sales and earnings during the second quarter. We had good performance in North America towards lawn maintenance and home surface cleaning, where we continue to grow with the market and see good adoption of our next generation aerosol dispenser.
Sales have increased for this innovative product in the Home Care category, and we see potential to expand into other applications as well. We want our share of titles and projects for the upcoming busy season in the Media business, an important indicator of our competitive position.
But the overall dynamics in this market continue to be very challenging. Sales and earnings were down as the market continues to decline, and we were impacted, as we were in our Other Plastics businesses, by higher prices for resin.
Turning to our Non-Packaging businesses, the Consumer & Office Products segment had earnings equal to last year even with a slight decline in sales as some retailers planned their back-to-school category closer to pulling a sell-through to the consumer in the third quarter. This business has had steady year-over-year earnings improvement over the past few quarters, and we did well to perform in line with a very strong second quarter last year, in large part due to continued productivity actions.
In the quarter, the segment sold a somewhat weaker mix of products for back-to-school season in the U.S., as the timing of shipments of our proprietary branded products shifted into the third quarter. Sales of envelopes continued to decline, while there was a small uptick in sales of early-season time management and other office products.
With the integration of Grafon's completed, we expect a solid back-to-school season in Brazil starting in the third and fourth quarters. Again, sales and earnings increased significantly in the Specialty Chemicals segment.
Strong profit of $36 million and sales of $180 million were driven by volume growth and share gains in higher-value performance chemicals and the rebounding demand for our carbon solutions due to increased auto production. Sales from emerging markets more than doubled, due in part to continued market penetration of the company's innovative asphalt solutions.
These wins highlight the value of our formulation and application-based products have with our customers through the positive performance impact on varying products. The result is a more stable customer relationships and a rich product mix in growing markets.
The Community and Land Management segment earned $12 million in the second quarter compared to just $3 million last year during a specially difficult period for the real estate market. The rural track land sales program continued with a good base of attractive deals, including $15 million of gross proceeds from 19 transactions that closed during the second quarter for an average price per acre of just under $2,600.
The pace and value of transactions this year is holding steady, and there's been a measurable increase in interest for our properties and the number and quality of inquiries on our website. We also continue to make progress on entitlements and improvements on our various development properties, including ongoing negotiations with Charleston, Dorchester Counties in South Carolina for East Edisto, preparations for another site at our distribution facility joint venture with the Rockefeller Group and the next phase of our master plan for The Parks of Berkeley development.
Now I'd like to turn the call over to Mark to discuss some of our financial metrics for the second quarter. Mark?
E. Rajkowski
Thanks, Jim. We delivered another quarter of strong improvement across all key financial measures.
Continued momentum in the execution of our market participation and business model strategies has enabled us to create a fundamentally more profitable company that we believe will provide sustainable performance improvement and deliver higher returns over the long term. The hard work to improve our competitive position in key end markets and enhance our product mix through better market participation choices were important drivers to our significant year-over-year profit growth.
We also had solid cash performance, achieving good balance between maintaining our excellent financial strength, supporting our current sales gains and funding growth initiatives. Some financial highlights from our second quarter performance include volume growth of 8% in our core product segments, 360 basis points of improvement in adjusted operating margins and a 42% improvement in adjusted net cash flow from operations.
I'll now provide more detail on each of these measures of our financial progress during the second quarter. Our overall sales growth in the second quarter was 8%.
Volume improvement of 8% in our core products, price and mix benefits of 1.5% and modestly favorable foreign exchange were partially offset by the exit from lower-return product lines. As we continue to leverage investments we've made in new product innovation, a greater mix of our revenue is now coming from higher-value new products and customers.
During the second quarter, revenues from new products continued to grow as a percentage of our overall sales. Significant contributors include our innovative dispensing solutions for global beauty and personal care markets, our higher-value paperboard for commercial print and food service markets, our performance chemicals for global energy and infrastructure markets and continued success from our Shellpak product line.
We also had a very strong contribution to growth from emerging markets. A 17% sales increase in the second quarter continues to be driven by our solid positions in China and Brazil.
At current growth rates, emerging markets revenue is on track to reach approximately 25% of our annual consolidated sales in 2010. Improved product mix and the continued benefit of our productivity and overhead cost actions resulted in year-over-year improvement of 360 basis points in our operating margins.
We're seeing clear evidence of the operating leverage we've created with our leaner cost structure. During the quarter, we achieved an additional $27 million in overhead and capacity savings, bringing the total for our strategic cost management programs to approximately $215 million to date, on track to achieve our $250 million target.
This leverage and the mix benefits from our market participation strategies drove 230 basis points of adjusted gross margin improvement to 20.5%. Our SG&A cost continued to decline, primarily from ongoing overhead cost reductions.
Our efforts to hold the line on variable cost while continuing to fund profitable revenue growth reduced adjusted SG&A as a percentage of sales by 130 basis points to 11.8%. Second quarter net cash flow from operations, which excludes the cash portion of restructuring and the fuel credits received in 2009, improved approximately $25 million or 42% over the prior year, driven by higher earnings.
Despite increased levels of investment to grow our business, we continue to drive improvement in working capital efficiency, reducing our cash-to-cash cycle by five days versus the second quarter of last year. CapEx in the second quarter was modestly lower versus the prior year as we continue to maintain our flexibility.
While we do not intend to spend ahead of the economic recovery, we do have growth investments planned in the second half of the year that are better focused on building out our new product pipeline and augmenting our strong positions in emerging markets. For the full year, we expect to generate solid positive free cash flow, which we define as cash after CapEx and dividends.
We continue to retain flexibility on our balance sheet, which we believe is prudent given the continued unsettled global economic climate. In the near term, we expect to maintain our current cash levels, and we'll continue with our balanced approach to reinvesting in our business, returning value to shareholders through our strong dividend and opportunistically reducing debt.
Our outlook for the third quarter is cautiously optimistic. We believe that the improved demand trends across our targeted businesses and markets will remain stable, at least in the short term.
With that, and the continued benefits from executing on our market participation and business model improvement strategies, we expect year-over-year earnings improvement for the third quarter. Nevertheless, we do remain cautious about longer-term demand fundamentals given the ongoing macroeconomic challenges facing key markets and geographies, particularly in North America and Europe.
As such, the degree of our improvement in the third quarter and beyond will be influenced by these factors. A more specific outlook for each of our business segments is as follows: We're expecting segment profit for Packaging Resources to be solidly above last year's level.
Backlogs at our mills in the U.S. remain strong, between five and six weeks.
The combination of strong demand, improving product mix and price, as well as ongoing productivity gains, will be the main drivers of higher earnings. We also expect continued improved profitability from Rigesa.
Partially offsetting these factors will be a planned outage at our Covington mill, as well as modestly higher input cost for freight and certain raw materials. In the Consumer Solutions Group, segment profit is expected to be modestly above year-ago levels.
Stable demand in personal care and home and garden markets and continued growth in Shellpak healthcare packaging, as well as steady beverage volumes and productivity improvement will drive improved results. We expect these gains to be partially offset by the negative exchange impact of a weaker euro.
In the Consumer & Office Products segment, we're expecting another solid back-to-school season with profits flattish compared to last year's very strong third quarter performance. In the Specialty Chemicals segment, we expect profits to be up strongly over the year-ago quarter, and we expect continued strong demand across key product lines and improved product mix and productivity gains to be partially offset by modestly higher raw materials costs.
Finally, in the Community Development and Land Management business, sales of small tracks of land will continue to be the main driver of results. We expect segment profit to be at level similar to the second quarter.
However, earnings will continue to be subject to the timing of our land sales. Now I'll turn it back to John.
John Luke
Thanks, Mark. In summary, the second quarter marked another period of strong performance for MWV.
We continue to see the benefits of a disciplined approach to our transformation strategies, including profitable sales growth, a richer mix of products and solutions, improved productivity at our operating facilities and a reduced cost structure that has brought more of our commercial success to the bottom line. While the economic outlook remains uncertain, MWV strategies have led to improved performance during what has been a challenging time, and we have confidence that continuing to execute these strategies will further strengthen our company and the returns that we deliver to shareholders.
With this, we'll conclude our prepared remarks and now be happy to answer any questions which you have.
Operator
[Operator Instructions] We have a question from the line of Claudia Hueston with JPMorgan.
Claudia Hueston - JP Morgan Chase & Co
I was hoping you could just talk a little bit more about the Chemicals business and the strengths there. The last couple of quarters, it's really exceeded our expectations.
And I was hoping, could you just elaborate a little bit on the top line's trends and then how we should think about the sort of trajectory for growth in the second half?
John Luke
Sure, Claudia, I'll ask Jim to comment on that.
James Buzzard
Thanks, John. Claudia, in really building on the work we've been doing over the last several quarters is leading to the strong performance.
As I said in my prepared comments, clearly, some of the infrastructure projects around the globe have helped in the Asphalt business. We have a very, very strong position in emerging markets, and so the growth there is delivering top line improvement for us.
We have seen a rebound in the Automotive business in North America, certainly not back to the levels that we would have seen three and four years ago but better than 2009, and that's contributed to the top line. In terms of the profit improvement, it's driven by, with the really high value-added products that add real value to our customers and our ability to capture those, as well as an ongoing productivity program and all those things that come together to help drive the growth.
And the last thing is we have made capital investments in this business. We expanded our refinery in DeRidder in 2008.
We've made some modest downstream investments, and just as the growth has allowed us to take advantage of that capacity increase as well.
John Luke
Yes, I might just comment for a moment building on what Jim has said, which I think is all spot on. The group has built on its long-standing position of highly differentiated niche position to cross a range of markets and has continued to extend, as Jim said, globally, as well as built positions in, what in recent years have been wholly new and nicely profitable business, such as the asphalt market.
And as a result, even when you see pressures in significant markets like carbon relative to historic periods, the group has continued to excel. And I think that reflects an excellent job done across that business.
E. Rajkowski
John, I'd add. We're really seeing some of the benefits from the investments we've made, not only in the refinery, as Jim mentioned, but also in China, particularly around automotive carbon and, as you mentioned, asphalt.
So I think the team is really seeing the benefits of some of that investment early on.
Claudia Hueston - JP Morgan Chase & Co
And then just on the Packaging Resources business, I was particularly impressed by the strength in margins and the price mix improvement in the business. Is there any way to just maybe give us some guidance about how we should be thinking about price versus mix and how those gains might continue going forward?
And maybe if you could just remind me of what price initiatives are still outstanding. I think there have been a couple of announcements recently.
John Luke
Claudia, I'll turn it over to Jim as well. But here again, echoing some of the same comments I offered about the Specialty Chemical business, in Packaging Resources, the folks have done a very fine job in continuing to build on the performance and quality characteristics of the paperboard, building, as we've commented in our prepared remarks, on targeted, strong and growing nicely profitable position in a variety of end markets.
And I think that has been a major contributor to the volume, as well as overall mix and less margin improvement that you've commented on. Jim?
James Buzzard
Thanks, John. Just building on it, Claudia, in terms of some of the pricing actions, as you note, we've been moving price through the first half of this year.
We do have some current announcements out, both in the SBS side and the CNK side that we're executing against. And we will continue to define the value that we provide in the markets and work to capture price as a result.
Operator
And our next question is from the line up Chip Dillon with CSFB.
Chip Dillon - Crédit Suisse AG
If you could help, I guess this is more for Mark, just on the balance sheet. I noticed that the net debt in the first half actually went up which kind of surprised me.
I show it going up $212 million roughly equal in the first and second quarter even though the working capital change was the same as it was a year ago. And of course in the first half of '09, the net debt went down.
Is some of the debt and other currencies that might have gone up? Or is there anything you can do to help us on that?
E. Rajkowski
Yes, Chip. Most of that was a function of the cash balance.
Our cash balance has come down as you know. We generally are users of cash in the first half of the year, and we are seeing some impact from currency on our cash balances as well.
But most of that change in net debt is a function of the lower cash balance.
Chip Dillon - Crédit Suisse AG
Okay. And then, I guess, getting back to Specialty Chemicals, which is obviously doing phenomenally well versus the past.
As I look back at '07, '06, '08, let's say, when before the crisis began, it looks like you're doing substantially better, and I know you touched a little bit on it before. But is there something structurally different that has occurred here that you think will lead to $100-plus million type EBIT years on a consistent basis?
James Buzzard
Chip, I think it goes back to some of the earlier things we've talked about. Clearly the business has done a nice job in their market participation strategies, both in the geographic markets we participate in.
But really in growing in new markets like oil field, the adhesives markets, asphalts, so they're really finding where they can use our products to create real value for our customers and in capturing that. So it's been a dramatic participation strategy that's been on.
Certainly, the productivity that we've been driving, we've continued to expect to deliver on that. And as I said with the capacity, both -- as Mark noted in emerging markets, particularly China and also North America, all that's contributing.
We expect that to continue going forward.
Chip Dillon - Crédit Suisse AG
On the land front, anything different as the economy suddenly recovers or maybe with Boeing building their plant, I guess, 30-or-so miles north of East Edisto, anything new there to add to how that is progressing?
John Luke
Chip, let me offer a few thoughts there. Nothing new that I would point to, specifically, but I would comment that the Charleston region continues to prosper relative to others in what arguably is a challenging real-estate-related credit market across the country.
We've got a very, very strong team that's in position to capitalize on that. Boeing has been a plus for the Charleston region as has the terrific work done by the Port of Charleston, which has been able to bring a lot of strong business into the area.
So our business outlook is good. We continue to develop sound plans.
All of this and has enabled us to selectively continue to capitalize on our rural land sales program as we continue to plan and where appropriate, get entitlement rights for projects that we have underway. So we see a good strong bright future in that region.
Operator
And our next question is from the line of Gail Glazerman with UBS.
Gail Glazerman - UBS Investment Bank
In Consumer Solutions, can you talk a little bit about where you stand on kind of the cost pass through and when we might expect to see that turn positive? In Consumer Solutions, where you stand.
James Buzzard
Sure. Certainly, you know in the resin side, we saw some increases in the early part of the second quarter.
The vast majority of our business, we have contracts tied to full resin pass through. Those do lag sometimes by 30, 60, 90 days, but we would expect to have that fundamentally recaptured in the third quarter.
Gail Glazerman - UBS Investment Bank
And can you talk a little bit about the demand trends you saw as the second quarter progressed and economic uncertainties sort of increased and what you're seeing just on a relative basis in terms of trends entering the third quarter? I guess you've used the word stable, but just maybe a little more color, any specific end markets you might call out.
John Luke
Jim, you want to take that?
James Buzzard
Sure. I would say, again, we saw demand improving throughout our second quarter and as we enter the third quarter, it remains very strong.
Our backlogs in our large paperboard mills are out five to six weeks, some machines are even longer than that. Our Chemical business is fundamentally solid for the entire quarter.
And all of our other markets, we continue to see very positive trends. So as we go into the third quarter, we feel very positive about things.
John Luke
Yes, and I would just pick up on that and reinforce what Jim has said by emphasizing what we did in our prepared remarks, and that's we have good strong confidence in the strategies we're pursuing in each of the markets. And we believe that is a factor in addition to the broader economic forces that are improving the general markets.
And I think that it is, as Jim has reinforced, there's a lot of uncertainty out there, and that's played back to us by our customers on a daily basis. But so far, we are continuing to see momentum, and I would attest that again, as I said in no small measure, that's attributable to our distinctive strategies.
Gail Glazerman - UBS Investment Bank
In the Mill business, you took a pretty big hit in the first quarter on the cost and efficiencies. And I don't think you were expecting to recoup all of that in the second quarter.
But I just want to know, of that $25 million, is there any sort of update you can give in terms of what might be lost in the third quarter to recapture?
James Buzzard
Gail, in the second quarter, we probably had around $15 million or $16 million of impact from what happened in the first quarter. We think that is fundamentally behind us now, and so that impact has really been first half impact only.
Operator
And our next question is from the line of Mark Connelly with CLSA.
Mark Connelly - Credit Agricole Securities (USA) Inc.
It seems to me that the question that is most on investors minds right now is whether you can sustain the productivity and cost reduction that you've put in place as demand comes back. I mean, sure we worry about the economy.
But can you give us some more color to give investors more confidence that what you've taken out of SG&A, for example, is not going to just creep back in as business picks up on the top line?
John Luke
Let me offer a comment or two before turning to Mark to comment further. First of all, I think that we have fundamentally resolved and are demonstrating a major change in how we are doing things.
And it's fair to say that a lot of these initiatives that you're seeing and that we're experiencing the benefits from were started before the downturn in the economy occurred. We have real disciplines in place and are absolutely committed to keeping this gearing going all while we make room to invest in growth today and invest in future growth when the economy hopefully returns to more robust levels.
So we are absolutely committed, and I'm sure Mark can reaffirm that with a bit more specific.
E. Rajkowski
Yes, I think as John mentioned, we certainly recognize that not all SG&A is created equal. And we've been on a aggressive path in terms of taking out cost generally, but certainly, very much focused on those costs that aren't adding value or essential to driving our strategy in our business model improvements.
So we will continue on that path. A lot of those costs are in the back office area, and that's going to be a relentless pursuit.
So we can, as John said, continue to fund those opportunities to profitably grow our business.
John Luke
Right. And I would just pile on by saying that the cost structure changes that you've seen really are a product of the transformation that we're committed to as opposed to something that is driven by the events of the last 18 months.
Mark Connelly - Credit Agricole Securities (USA) Inc.
You did talk about growth opportunities and particularly in emerging markets, you didn't quantify it and you have said in the past, John, that you're going to be cautious about new spending initiatives. But can you give us an idea of the kind of stuff that is on your plate?
John Luke
Well, I think in each of the areas, Mark, that we talked about as being important to our current performance and our future strategy, we actively evaluate the potential as our customers continue to grow where we see opportunities to drive growth in certain markets, here and abroad, to evaluate opportunities for expansion, just as we are in Brazil or to evaluate the potential for select strategic business acquisitions, again, where it makes sense and where valuations are attractive. And I think there are no specific areas that I would or could point to right now, but suffice to say, each of the areas that we have talked about where the end markets are attractive, ranging from personal care and fragrance to healthcare to the broad markets in Brazil, are all part of the screening we have underway.
Mark Connelly - Credit Agricole Securities (USA) Inc.
In previous commentary, you've talked about import competition in the Consumer & Office business. Is that getting better?
Or is it just less of an issue given everything else that's going on?
James Buzzard
Mark, this is Jim. We continue to face import competition.
Our brands, however, are our strength, and we've got nine of the 10 leading brands in back-to-school. So it's always that competition, but it tends to be more in the commodity end of the business, and we participate less there than we have historically.
Mark Connelly - Credit Agricole Securities (USA) Inc.
So hopefully less of an issue for you over the next year than it has been?
James Buzzard
I think that's right, yes.
Operator
And we have a question from the line of George Staphos with Bank of America Merrill Lynch.
George Staphos
I wanted to come to the Consumer Solutions segment first with my question. Could you -- you talked a lot about new products in dispensing.
Could you outline what you think the two or three most important products are for you within that category? And then with all the new products that you're discussing and the doubling of size in market, et cetera, what do you think the dollar revenue growth has been for you in dispensing systems year-on-year?
James Buzzard
George, in terms of the dispensing category, I would say the...
George Staphos
Well, but the newer products. I don't mean the trigger sprayers for long...
James Buzzard
So our airless technology is clearly an important one for us. That's one that we have brought into the personal care and healthcare markets.
It's small but it is a very advantaged capability, and we saw tremendous growth in Q2, one that we think that we will continue to build off of. Another very important market for us is the fragrance market.
I represented in my commentary, the NoC patent that we received in the United States, getting a lot of strong play from our customer base. We've taken some share in that arena.
We're not as well represented in certain geographies as we would like to be candidly, and we think we've got the products that will now let us grow in those as well. So...
George Staphos
Jim, what kind of revenue growth did you see in fragrance year-on-year?
E. Rajkowski
Double-digit.
James Buzzard
Yes, it's double digit increases. I don't have the specific number right in front of me, George, but it was very, very strong.
George Staphos
But dollar revenue is still relatively small off a small base?
James Buzzard
It is a relatively small base, highly-profitable category for us and very important to the overall results that we delivered in Q2 from an EBIT standpoint.
George Staphos
And one more question within Consumer Solutions. As you're trading business in and trading business out, if you will, optimizing the portfolio, percentage margins are up a little bit but not all that much versus the prior year.
You were in around, whatever, 4.5% on an operating margin basis. What kind of margin improvement do you expect going forward?
And I guess the question behind the question, why aren't we seeing more margin improvement now given all that optimization of the portfolio?
James Buzzard
George, I think that we referenced we had some onetime hits that caught us in Q2, particularly the decision to close our facility in France, which is about a $3 million impact to us. That's going to start to accrue to us beginning in Q3.
And candidly, we had some operating difficulties in the second quarter as well. A lot of promotional work in the beverage markets drove a different package format for us, one that is not quite as profitable, and it also meant that we were having to move our facilities around because our mix of product that we produce is quite a bit different than it has been historically.
So those things are behind us. We learned a lot, frankly, and we would enter the next promotional season a little bit differently.
So we continue to believe that we will drive improving operating margins in this business.
John Luke
Yes, and I would just punctuate that by saying that underlying what are the surface numbers as Jim has indicated is good momentum, and we have good confidence that these strategies that are being pursued will lead to the achievement of the kind of margins that we'll all be pleased with.
George Staphos
First, did you mention why CNK pricing was off a little bit, I think, sequentially in the quarter? And then given all the overhead and cost reductions, if again, I look at the corporate line buildup, it was up I think both year-on-year and sequentially.
Is that just the same accruing of, I think incentives, and other expenses this year and the underlying trend is more positive?
E. Rajkowski
George, I'll handle your last question first on the corporate line. Yes, there's always a little bit of noise relative to accruals around employee benefits, incentive, legal and environmental reserves.
And we had some credits in the first quarter of this year and a few charges in the second quarter this year, so you saw a little bit of a sequential spike up there.
George Staphos
And CNK?
James Buzzard
Yes, on that basis, George, purely mix. There's no price moves in that.
As you know, we announced for CUK, for folding carton application the price increase, and we're implementing that as we speak.
Operator
And we have a question from the line of Mark Wilde with Deutsche Bank.
Mark Wilde - Deutsche Bank AG
Is it possible within Packaging Resources to get a sense of how much of that upside was driven by Rigesa?
E. Rajkowski
Well, Rigesa, certainly, was a strong contributor. We have, and at least we're not going to start right now, Mark, breaking that out.
But I will tell you that we had very strong performance, both in terms of volume price and productivity in the Rigesa's operations.
Mark Wilde - Deutsche Bank AG
And is it possible, Mark, just going forward that we might get some more color on Rigesa just so we know how profitable the business is, particularly as you're going to be putting more capital down there in all likelihood?
E. Rajkowski
Yes, I think that is a fair request, Mark. And as John and Jim both pointed out earlier, we do see that region generally and business specifically as having great opportunity.
We are looking at deploying more capital there, and I think as we do that, that is a very fair request.
Mark Wilde - Deutsche Bank AG
Can I also ask on that, you haven't announced the machine yet, you're starting it. But have you been buying land over the last couple of years down there?
E. Rajkowski
We have not.
Mark Wilde - Deutsche Bank AG
So what's the base down there right now?
E. Rajkowski
135,000 acres.
James Buzzard
And with what we have planned down there, Mark, we will not have to make any additional land investments. Our core productivity on those forestlands and the products that we're trying to design down there, we will not need additional investments to support a new machine.
Mark Wilde - Deutsche Bank AG
And then I wonder if I could turn and just talk about the broader kind of MeadWestvaco portfolio. I mean, you're really kind of trying to turn this into much more of a packaging converting company.
And I just wonder, how does the Consumer & Office Products business in particular got a foot within that framework? And do you think there would be a value in having the company even more tightly focused on just packaging or maybe packaging plus the Specialty Chemicals business?
James Buzzard
Mark, I mean, clearly, the Consumer & Office Products business is a very good business for us. It's one that, like our Packaging business, is driven by innovation and strong products.
Their insights and access to key retailers helps us as we think about our Packaging business as well. So it is a strong portfolio of businesses with great cash generation and great returns.
So we see it as helping us in certain areas around the Packaging business and certainly not doing anything that would be negative relative to our visions for our packaging platform.
Mark Wilde - Deutsche Bank AG
Beginning about 10 or 12 years ago, you really moved the business kind of away from the mills and toward more of the Converting business. But if you look over the last couple of years, it seems like more the leverage for you on the upside is really coming from the mills now.
And I wonder to what extent you're kind of rethinking strategy because of that?
John Luke
Mark, as you know, strategy we think is a continuing process particularly in a growing rapidly changing world, certainly given the one we've all been through in the last several years. I think we have recognized, as we always have, that our mills can be a powerful contributor.
We've worked, though, based upon the knowledge we've gotten through the converting work now through our primary plastic work in targeted end markets to take our knowledge of markets where profitability can be more effectively generated in those end markets and apply even more of that to our Mill business. And so it's a combination of gains that are being generated in each segment of our business that you're seeing.
But it is fundamentally a better understanding of where the markets are representing opportunity for us to bring valued products and solutions and participate and profitably growing ways that is driving our thinking and strategizing today.
Mark Wilde - Deutsche Bank AG
So away from Rigesa, you're probably not likely to be investing in other mill operations? Is that right?
John Luke
Well, let me answer in the affirmative. The mill operations and broader packaging markets in Brazil are very, very attractive.
One, you've got substantial and attractive growth underway in Brazil and end markets that are attractive to us for a range of packaging products. And as Jim commented, the productivity in the mill operations in Brazil begin right in the forest.
Because as you know, we've got uniquely fast growing trees down there and the technology that we're employing to grow our own trees is arguably among the best in the world. And so it is from a shareholder value generation perspective, our view that the best investments one could make in heavy capital assets would be in Brazil.
Operator
And our question is from the line of Peter Ruschmeier with Barclays Capital.
Peter Ruschmeier - Barclays Capital
Quick question on the Chemicals business, we were surprised as well by the strength. If we look at the 55% year-over-year gain on the top line, can you help us to break that down between how much of that was driven by volume versus price?
E. Rajkowski
Yes, Pete, this is Mark. Roughly 45% of that was volume driven, and that was pretty evenly distributed across both our Performance Chemicals businesses as well as our Carbon business.
So most of that was volume growth, but we also saw improvement in pricing and mix as Jim mentioned earlier.
Peter Ruschmeier - Barclays Capital
And does your outlook call for Performance Chemicals and Carbon to hold onto these gains? Or is there any reason we expect for a variety of reasons those volumes to fall off?
E. Rajkowski
Well, some of this is obviously predicated upon where the economy hit. But as Jim mentioned earlier, we are running very hard to keep up with demand.
Certainly, the current trends are positive, and certainly, we expect to sustain that at least in the near term.
Peter Ruschmeier - Barclays Capital
And I have some quick cash flow items, maybe, Mark. Cash taxes in the quarter, were they materially different than your reported book tax?
E. Rajkowski
You know what, I don't believe so. But I'll make sure we get back to you on that one, Pete.
I don't think that's a big deal.
Peter Ruschmeier - Barclays Capital
And similar question on interest expense, was there any material, a timing issue that would have resulted in a different cash interest pay versus the ones you booked?
E. Rajkowski
No, pretty stable.
Peter Ruschmeier - Barclays Capital
And just lastly if I could, maybe a question for Jim or John on Consumer Solutions. Is it fair that, that business is benefiting on a one hand from initiatives you've talked about on new products and higher margins and productivity?
And on a flip side, you've got a bit of a decline and still in the Media Packaging business, is that fair that there were puts and takes? And are the improvements in growth that you've talked about enough to offset what I think is still a declining volume growth in the Media Packaging side?
John Luke
Now let me take this to the high level and encourage Jim or Mark to offer any comment. I think one of the things, and it builds a little bit off of Mark Wilde's question a moment ago as well.
The closer you get to the end markets, participate whether it's in a business like media or others, you're going to see more volatility because you're going to have shorter life cycles both in terms of products as well as in categories. What we have worked very hard to do with better understanding of the markets is build positions through establishing a much deeper market knowledge and the development of products and solutions to participate in others to more than offset declines as they come along.
And that is a key part of the strategy and is driving progress, both in Consumer Solutions, driving our strategic progress there as well certainly in our Mill-based businesses. Jim?
James Buzzard
Yes, the only thing I would add to that John is that clearly Q-over-Q, last year, we began in the back of the year an active market participation strategy where we exited certain folding carton segments, and we've been able to offset those exits with these new products and growth in the markets that we've targeted. So I think you will continue to see us push for that growth, particularly in the new products and the geographies we're targeting.
Jason Thompson
All right, Coleman, I'll take it from here. Thanks everyone for joining us, and we look forward to speaking with you next quarter.
Take care.
Operator
And ladies and gentlemen, that does conclude our teleconference call for today. Thank you for your participation, and you may now disconnect.