July 25, 2022 - Packaging Corporation of America today reported second quarter 2022 net income of $301 million, or $3.20 per share, and net income of $304 million, or $3.23 per share, excluding special items. Second quarter net sales were $2.2 billion in 2022 and $1.9 billion in 2021.
Reported earnings in the second quarter of 2022 include special items primarily for certain costs at the Jackson, Alabama mill for paper-to-containerboard conversion related activities. Excluding special items, the $1.06 per share increase in second quarter 2022 earnings compared to the second quarter of 2021 was driven primarily by higher prices and mix $2.04 and volume $.12 in the Packaging segment, higher prices and mix in the Paper segment $.18, lower scheduled outage expenses $.08, lower interest expense $.03, a lower share count resulting from 2021 share repurchases $.03, and other items $.03. These items were partially offset by higher operating costs ($.95), higher freight and logistics expenses ($.25), higher converting costs ($.10), higher depreciation expense ($.08), lower volume in the Paper segment ($.06), and a higher tax rate ($.01).
Results were $.40 above second quarter guidance of $2.83 per share primarily due to higher prices and mix in the Packaging segment, lower scheduled outage expenses, and lower fiber and energy costs resulting from efficiency and usage initiatives.
In the Packaging segment, total corrugated products shipments and shipments per day were flat (0.18%) compared to last year's second quarter, which was up 9.6% versus the previous year. Containerboard production was 1,256,000 tons, and containerboard inventory was up 2,000 tons versus the first quarter of 2022 and up 5,000 tons compared to the second quarter of 2021.
In the Paper segment, sales volume was down 17,000 tons compared to the second quarter of 2021 and down 10,000 tons from the first quarter of 2022.
Commenting on reported results, Mark W. Kowlzan, Chairman and CEO, said, "Results for the quarter were excellent as we once again improved our margins while continuing to experience significant cost inflation across the Company as well as various supply chain challenges. We had great execution of our previously announced price increases in both the Packaging and Paper segments.
"Demand in our Packaging segment was solid with corrugated demand flat with last year's record second quarter, which was up almost 10% versus the prior year, along with demand out of our containerboard mills generating new second quarter production and sales volume records.
"Even with record production from our mills, we still ended the quarter with weeks of containerboard inventory supply below our historical levels due to both internal and external demand needs. The scheduled outages in our containerboard mills were performed very well, but we had to postpone the scheduled outage at our International Falls paper mill due to excessive flooding in the area just prior to the outage. We have rescheduled this work to be completed in the third quarter.
"Employees across the Company continued to do an outstanding job of meeting our customers' needs and delivering on the numerous initiatives and projects to reduce costs and improve efficiencies across all of our facilities."
"Looking ahead as we move from the second and into the third quarter," Mr. Kowlzan added, "in our Packaging segment, although the majority of our previously announced price increases were recognized in the second quarter, the remaining portion will be implemented during the third quarter.
"In our Paper segment, we will continue implementing our previously announced price increases, and earlier today we notified customers of an additional $60 per ton price increase on all paper grades, effective with shipments beginning September 6th.
"We began the third quarter with containerboard inventories below our target, so we plan to build inventory ahead of the fourth quarter outage at our Jackson Mill for the first phase of the No. 3 machine conversion to virgin linerboard.
"With economic conditions continuing to be negatively impacted by broad-based inflation and aggressive interest rate increases, we see corrugated products growth as softening in the quarter but demand still firm as certain end markets work through their current supply of inventory. We expect continued inflation in most all of our operating and converting costs to be the primary driver of our third quarter results. Higher gas, purchased electricity, and chemical prices along with higher labor costs are expected to be the key areas during the quarter. Continued rail service challenges along with rail fuel surcharges that typically lag diesel fuel prices by 30-60 days should also result in higher freight and logistics expenses.
"And finally, scheduled outage costs will be higher due to the International Falls mill outage that was postponed from the second to the third quarter. Considering these items, we expect third quarter earnings of $2.80 per share."
Packaging Corporation of America (NYSE: PKG) is the third largest producer of containerboard products and a leading producer of uncoated freesheet paper in North America. PCA operates eight mills and 90 corrugated products plants and related facilities. To learn more, visit: www.packagingcorp.com
SOURCE: Packaging Corporation of America (PCA)
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