PaperAge Magazine

Packaging Corp. of America Reports Strong Second Quarter 2018 Results on Record Sales Volumes, Pricing

Mark W. Kowlzan "Packaging segment demand remained strong with all-time record sales volumes in both our containerboard mills and corrugated products plants . . . Additionally, our price increases in the Paper segment were also realized more quickly than anticipated." – Mark Kowlzan, Chairman and CEO, Packaging Corp. of America.

July 26, 2018 - Packaging Corporation of America (NYSE: PKG) [on July 25] reported second quarter 2018 net income of $187 million, or $1.97 per share and net income of $197 million, or $2.08 per share, excluding special items. Second quarter net sales were $1.8 billion in 2018 and $1.6 billion in 2017.

Reported earnings include $.11 per share of special items expense in the second quarter of 2018, primarily for certain costs related to discontinuing paper operations associated with the previously announced conversion of the No. 3 paper machine at our Wallula, Washington mill to linerboard, and no special items expense in the second quarter of 2017. Excluding special items, the $.56 per share increase in second quarter 2018 earnings compared to second quarter 2017 was driven primarily by higher prices and mix $.47 and volumes $.26 in our Packaging segment, higher prices and mix in our Paper segment $.05, lower wood and recycled fiber costs $.07, and a favorable tax rate $.16 primarily resulting from Tax Reform changes. These items were partially offset by higher operating costs ($.24), higher freight expense ($.09), Wallula No. 3 paper machine conversion-related costs ($.04), higher converting costs ($.02), higher annual outage expenses ($.01), higher depreciation ($.02), and other costs ($.03).

Results were $.12 above second quarter guidance of $1.96 per share primarily due to higher prices and mix and higher volumes in our Packaging and Paper segments and lower mill operating costs.

In the Packaging segment, total corrugated products shipments with one additional workday were up 8.3% and shipments per day were up 6.6% over last year's second quarter. Containerboard production was 1,019,000 tons, and containerboard inventory was up 8,000 tons from the first quarter of 2018 and up 54,000 tons compared to the second quarter of 2017, partially due to the addition of recently acquired Sacramento Container. In the Paper segment, compared to the second quarter of 2017, office paper and printing and converting paper sales volumes were flat and inventories were lower by 33,000 tons.

Commenting on reported results, Mark W. Kowlzan, Chairman and CEO, said, “Packaging segment demand remained strong with all-time record sales volumes in both our containerboard mills and corrugated products plants. Our price increases in the Packaging segment were realized sooner than last year's second quarter due to the index changing a month earlier this year as well as an accelerated implementation.

“Additionally, our price increases in the Paper segment were also realized more quickly than anticipated. The benefits of these strong market conditions helped us offset higher inflation in many of our operating and converting costs and higher freight expenses. The scheduled maintenance outages at two of our containerboard mills went very well, and the first phase of our linerboard conversion work on the No. 3 paper machine at our Wallula Mill was executed extremely well both from a ramp-up curve perspective as well as an operating cost perspective.”

“Looking ahead as we move from the second and into the third quarter,” Mr. Kowlzan added, “we anticipate continued strong demand in our Packaging segment, however corrugated products shipments will have one less shipping day during the quarter. Although the majority of our previously announced price increases were recognized in the second quarter, we expect to implement most of the remaining portion during the third quarter.

“In the Paper segment, we expect to complete the implementation of our previously announced paper price increase, although volumes should be lower than normal during this seasonally stronger period as we manage our already tight inventory levels around the scheduled outage at our Jackson Mill.

“Finally, we should have lower operating costs related to the No. 3 machine at our Wallula Mill as the first phase of the conversion is now behind us. We expect continued inflation in most of our operating costs, including slightly higher recycled fiber prices and incremental wage pressure with a tighter labor market. In addition, we anticipate higher freight and logistics expenses, higher scheduled maintenance outage costs, as well as a slightly higher tax rate. Considering these items, we expect third quarter earnings of $2.14 per share.”

PCA is the third largest producer of containerboard products and the third largest producer of uncoated freesheet paper in the North America. PCA operates eight mills and 94 corrugated products plants and related facilities. To learn more, please visit: www.packagingcorp.com.

SOURCE: Packaging Corporation of America