Packaging Corporation of America : Reports Second Quarter 2017 Results

Packaging Corporation of America (NYSE: PKG) today reported second quarter 2017 net income of $143 million, or $1.52 per share and $1.52 per share excluding special items. Second quarter net sales were $1.6 billion in 2017 and $1.4 billion in 2016.

Excluding special items, the $.27 per share increase in second quarter 2017 earnings compared to the second quarter of 2016, was driven primarily by higher prices and mix ($.25), sales volumes ($.09), and production volumes ($.03) in our Packaging segment, lower annual maintenance outage costs ($.05), lower taxes ($.06) and a partial insurance recovery related to the DeRidder Mill incident ($.02). These items were partially offset by higher costs for energy ($.06), fiber ($.05), labor ($.03) and chemicals ($.01), higher freight ($.02), interest ($.02), depreciation ($.02) and other expenses ($.01), and lower Paper segment prices and mix ($.01).

Results were $.07 per share above the second quarter guidance primarily due to higher Packaging segment sales prices and volume ($.03), a lower tax rate ($.03), and a partial insurance recovery related to the DeRidder incident ($.02), partly offset by higher recycled fiber prices ($.01).

Financial information by segment is summarized below and in the schedules with this release.

In the Packaging segment, total corrugated products shipments with one less workday were up 10.0% and shipments per day were up 11.7% over last year’s second quarter. Containerboard production was 947,000 tons, and containerboard inventory was down 25,000 tons compared to the second quarter of 2016 and 14,000 tons below the first quarter of 2017. In the Paper segment, price and mix as well as sales volumes were lower than the second quarter of 2016 and the first quarter of 2017.

Commenting on the quarter, Mark W. Kowlzan, Chairman and CEO, said, “Our results were driven by continued strong demand as well as from the benefits of our recent TimBar and Columbus Container acquisitions. The containerboard and corrugated products price increases were implemented as planned, which helped us offset higher inflation in many of our manufacturing and converting costs and higher freight costs. Our containerboard inventory levels were below those of a year ago and year-end levels despite the additional containerboard inventory requirements of our acquisitions.”

“Looking ahead to the third quarter,” Mr. Kowlzan added, “we expect to realize the vast majority of our previously announced packaging segment price increases, and we expect higher containerboard and corrugated products shipments resulting from strong demand. White paper sales volumes should be seasonally higher, although price and mix should move lower. We also anticipate continued price inflation in recycled fiber and certain chemicals, higher freight costs and a higher tax rate. Considering these items, we expect third quarter earnings of $1.68 per share. This does not include any potential additional costs or anticipated recoveries related to the Deridder Mill insurance claim.”

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. Additional special items may arise due to third quarter events.

PCA is the fourth largest producer of containerboard and corrugated packaging products and the third largest producer of uncoated freesheet paper in the United States. PCA operates eight mills and 93 corrugated products plants and related facilities.

Some of the statements in this press release are forward-looking statements. Forward-looking statements include statements about our future earnings and financial condition, expected benefits from acquisitions and facility closures, our industry and our business strategy. Statements that contain words such as “ will”, “should”, “anticipate”, “believe”, “expect”, “intend”, “estimate”, “hope” or similar expressions, are forward-looking statements. These forward-looking statements are based on the current expectations of PCA. Because forward-looking statements involve inherent risks and uncertainties, the plans, actions and actual results of PCA could differ materially. Among the factors that could cause plans, actions and results to differ materially from PCA’s current expectations include the following: the impact of general economic conditions; conditions in the paper and packaging industries, including competition, product demand and product pricing; fluctuations in wood fiber and recycled fiber costs; fluctuations in purchased energy costs; the possibility of unplanned outages or interruptions at our principal facilities; and legislative or regulatory requirements, particularly concerning environmental matters, as well as those identified under Item 1A. Risk Factors in PCA’s Annual Report on Form 10-K for the year ended December 31, 2016 filed with the Securities and Exchange Commission and available at the SEC’s website at “www.sec.gov”.

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