Packaging of America : Reports Record Second Quarter 2014 Results

Packaging Corporation of America (NYSE: PKG) today reported second quarter net income of $100 million, or $1.01 per share. Second quarter net income included after-tax charges for the Boise integration and DeRidder mill restructuring of $14 million, or $0.15 per share, including cash charges of $2 million, or $0.03 per share, and non-cash charges of $12 million, or $0.12 per share. Excluding special items, second quarter 2014 net income was $114 million, or $1.16 per share, compared to second quarter 2013 net income of $71 million, or $0.73 per share, and first quarter 2014 net income of $106 million, or $1.08 per share. Details of special items are shown in the schedules included with this press release. Second quarter net sales were $1,468 million compared to second quarter 2013 net sales of $800 million and first quarter 2014 net sales of $1,431 million.

Excluding special items, the $0.08 per share increase in second quarter 2014 earnings, compared to first quarter 2014 earnings, was driven by increased sales volume ($0.07), lower energy costs ($0.07) and improved prices and mix ($0.05), partially offset by higher annual outage repair costs ($0.04), a higher tax rate ($0.02), increased depreciation expense ($0.02) and higher inventory consumption costs from extreme weather that were capitalized in inventory in the first quarter ($0.03).

In the packaging segment, EBITDA in the second quarter of 2014, excluding special items, was $259 million on sales of $1,145 million. Corrugated products shipments were up 4.8% compared to the first quarter, and excluding Boise, PCA shipments were up 5.5% in total and 3.8% per workday compared to the second quarter last year. With strong internal demand, PCA reduced its outside sales of containerboard by 8,000 tons compared to last year’s second quarter. Containerboard production was 846,000 tons, up 25,000 tons compared to the first quarter of this year.

In the paper segment, EBITDA in the second quarter of 2014, excluding special items, was $45 million on sales of $295 million. Office paper shipments were down 2%, or 4,000 tons, compared to last year’s second quarter, and printing and converting and pressure sensitive paper shipments decreased by 26,000 tons as a result of the fourth quarter 2013 paper machine closures at the International Falls, Minnesota mill.

Commenting on reported results, Mark W. Kowlzan, Chief Executive Officer of PCA, said “We had an outstanding quarter driven by strong corrugated products volume, higher prices and lower costs. We also successfully completed annual maintenance outages at three of our mills. Synergy realization from the Boise acquisition at both our mills and box plants was also ahead of our projections as we continued to implement a broad range of actions to improve productivity and reduce costs. While office papers volume declined slightly, our overall paper segment EBITDA margins improved to over 15%.”

“Looking ahead to the third quarter, we expect higher sales volumes and lower operating costs from both higher synergies and less scheduled annual mill maintenance downtime. These items will be partially offset by higher amortization of annual outage repair costs, higher electricity prices, higher freight and chemical costs, and increased depreciation expense. Considering these items, we expect third quarter earnings of $1.25 per share.”

PCA is the fourth largest producer of containerboard and corrugated packaging products in the United States and the third largest producer of uncoated freesheet paper in North America. PCA operates eight mills and 100 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, 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, 2013 filed with the Securities and Exchange Commission and available at the SEC’s website at “www.sec.gov”.

Non-GAAP measures used in this press release are reconciled to the most comparable measure reported in accordance with GAAP in the schedules to this press release.