Packaging Corporation of America Reports Fourth Quarter and Full Year 2019 Results
"Our mill production supplied the necessary containerboard to achieve a new all-time quarterly record for box shipments per day and a new fourth quarter record for total box shipments." – Mark Kowlzan, Chairman and CEO, PCA.
Jan. 30, 2020 - Packaging Corporation of America (NYSE: PKG) [on Jan. 29] reported fourth quarter 2019 net income of $136 million, or $1.43 per share, and net income of $163 million, or $1.71 per share, excluding special items. Fourth quarter net sales were $1.7 billion in both 2019 and 2018. Full year 2019 net income was $696 million, or $7.34 per share, and net income of $726 million, or $7.65 per share, excluding special items. Full year net sales were $7.0 billion in both 2019 and 2018.
Reported earnings in the fourth quarter and full year 2019 include special items primarily for costs associated with the Company's November 2019 debt refinancing. These costs include redemption premiums, financing fees, and write-offs for unamortized debt issuance costs and treasury lock balances. The refinancing extended the Company's overall debt maturity from 4.1 years to 10.3 years at attractive fixed rates and the gross debt amount remained unchanged at $2.5 billion.
Excluding special items, the ($.46) per share decrease in fourth quarter 2019 earnings compared to the fourth quarter of 2018 was driven primarily by lower prices and mix in our Packaging segment ($.57) and Paper segment ($.02), higher operating costs ($.05), higher non-operating pension expense ($.02), higher depreciation expense ($.01), and other costs ($.03). These items were partially offset by higher volumes in our Packaging segment $.16 and Paper segment $.01, lower annual outage expenses $.04, and lower freight and logistics expenses $.03.
In the Packaging segment, total corrugated products shipments with one additional workday were up 2.3% and shipments per day were up 0.7% over last year's fourth quarter. Containerboard production was 1,079,000 tons, and containerboard inventory was down 31,000 tons compared to the fourth quarter of 2018 and down 6,000 tons from the third quarter of 2019.
In the Paper segment, sales volume was up 30,000 tons (excluding the discontinued paper business at the Wallula Mill) compared to the fourth quarter of 2018 and up 8,000 tons from the third quarter of 2019.
Commenting on reported results, Mark W. Kowlzan, Chairman and CEO, said, "We continued to run our containerboard system to demand in a very cost-effective manner. Our mill production supplied the necessary containerboard to achieve a new all-time quarterly record for box shipments per day and a new fourth quarter record for total box shipments, allowing us to maintain our industry leading integration rate. Our new box plant in Richland, WA had an excellent start-up during the quarter, and we are now beginning to take full advantage of the benefits from our machine conversion at the Wallula Mill.
"In our Paper segment we also ran our system to demand, however we had solid volume which came in better than anticipated, and we reduced our office paper inventory by almost 10% compared to the third quarter of 2019. Prices and mix were lower as expected, but also slightly better than anticipated. Our paper mills operated very well with great cost control throughout the quarter."
"Looking ahead to the first quarter," Mr. Kowlzan added, "in our Packaging segment we expect lower prices as the remaining impact of the published domestic containerboard price decreases from last year work through our system as well as the negative impact from the recent January decreases in the published prices for linerboard and medium. We also expect lower export prices. Containerboard volumes will be lower due to scheduled outages at our three largest mills during the quarter, but we do expect higher corrugated products shipments.
"In our Paper segment, volumes will be lower due to the better than expected levels in the fourth quarter as well as the scheduled outage we have at our Jackson Mill. Scheduled outage costs will be significantly higher with four scheduled in the first quarter versus just one in the fourth quarter of 2019. Freight costs will be higher due to rail rate increases in certain areas and scheduled outage-related increases. Labor and benefits costs will be higher with annual wage increases and other timing-related expenses. There will be inflation with purchased electricity and most of our chemical and repair and materials costs, while seasonally colder weather will increase energy and wood costs. We also expect our tax rate and depreciation expense to be slightly higher. Considering these items, we expect first quarter earnings of $1.20 per share."
PCA's complete full-year and fourth quarter 2019 financial results with tables can be found on the company's website.
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, visit: www.packagingcorp.com.
SOURCE: Packaging Corporation of America