Packaging Corporation of America Reports First Quarter 2019 Results

"In our Packaging segment, we had record first quarter volumes in both our containerboard mills and corrugated products plants as well as higher prices and mix, compared to the first and fourth quarters of 2018." – Mark W. Kowlzan, Chairman and CEO, Packaging Corporation of America.

April 24, 2019 (Press Release) - Packaging Corporation of America (NYSE: PKG) today reported first quarter 2019 net income of $187 million, or $1.97 per share and $1.98 per share excluding special items. First quarter net sales were $1.73 billion in 2019 and $1.69 billion in 2018.

Reported earnings in the first quarter of 2019 and 2018 include special items 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.

Excluding special items, the $.43 per share increase in first quarter 2019 earnings compared to first quarter 2018 was driven primarily by higher prices and mix $.37 and volumes $.27 in our Packaging segment, higher prices and mix in our Paper segment $.21, lower annual outage expenses $.02, and lower depreciation expense $.02. These items were partially offset by lower volumes in our Paper segment ($.13), higher indirect and converting costs ($.17), higher direct material costs ($.11), and higher fixed expenses ($.05).

Results were $.01 above first quarter guidance of $1.97 per share primarily due to higher prices and mix in both our Packaging and Paper segments.

In the Packaging segment, total corrugated products shipments and shipments per day were up 0.7% over last year's first quarter. Containerboard production was 1,037,000 tons, and containerboard inventory was up 9,000 tons from the fourth quarter of 2018 and up 42,000 tons compared to the first quarter of 2018. In the Paper segment, compared to the first quarter of 2018, sales volume was 21% lower and production volume was 14% lower, primarily due to discontinuing the paper business at the Wallula Mill.

Commenting on reported results, Mark W. Kowlzan, Chairman and CEO, said, “In our Packaging segment, we had record first quarter volumes in both our containerboard mills and corrugated products plants as well as higher prices and mix, compared to the first and fourth quarters of 2018. We ran our containerboard system to demand, and our production allowed us to supply the necessary containerboard to achieve a first quarter record for box shipments per day.

“In our Paper segment, prices and mix continued to move higher due to the successful execution of our announced price increases, and sales volume improved as we moved out of the seasonally slower fourth quarter.

“Overall, we were able to exceed our expected results even though we had to overcome significant weather-related challenges across the Company that negatively impacted us during the quarter.”

“Looking ahead to the second quarter,” Mr. Kowlzan added, “in our Packaging segment we expect seasonally higher containerboard and corrugated products shipments, with lower prices as a result of the published domestic containerboard price decreases and lower export prices.

“In our Paper segment, volume should be similar to the first quarter and we will continue implementing the previously announced paper price increases, but scheduled outage costs will be higher due to the annual shutdown at our International Falls mill.

“Across both segments we anticipate slightly higher freight, repairs, and certain fixed costs as well as higher share-based compensation costs due to the accounting treatment of restricted stock. Energy costs should improve as we move into seasonally milder weather, recycled fiber prices should be slightly lower, and our effective tax rate should be lower. Considering these items, we expect second quarter earnings of $2.05 per share.”

We present various non-GAAP financial measures in this press release, including diluted EPS excluding special items, segment income excluding special items and EBITDA excluding special items. We provide information regarding our use of non-GAAP financial measures and reconciliations of historical non-GAAP financial measures presented in this press release to the most comparable measure reported in accordance with GAAP in the schedules to this press release. We present our earnings expectation for the upcoming quarter excluding special items as special items are difficult to predict and quantify and may reflect the effect of future events. We do not currently expect special items to have a significant effect on second quarter earnings. However, additional special items may arise due to second quarter events.

Complete first quarter results with detailed tables are available on Packaging Corporation of America's website: www.packagingcorp.com.

PCA is the third largest producer of containerboard products and the third largest producer of uncoated freesheet paper in North America. PCA operates eight mills and 95 corrugated products plants and related facilities. To learn more, please visit: www.packagingcorp.com.