Packaging Corporation of America (NYSE: PKG) today reported
first quarter 2018 net income of $140 million, or $1.48 per share
and $1.55 per share excluding special items. First quarter net
sales were $1.7 billion in 2018 and $1.5 billion in 2017.
Diluted earnings per share attributable to
Packaging Corporation of America shareholders
Three Months Ended March 31 2018
2017 Change Reported Diluted EPS $ 1.48 $ 1.24
$ 0.24 Special Items Expense (1) 0.07 0.03 0.04
Diluted EPS excluding Special items $
1.55 $
1.27 $ 0.28 (1) For descriptions
and amounts of our special items, see the schedules with this
release.
Reported earnings include $.07 per share of special items
expense in the first quarter of 2018 and $.03 per share of special
items expense in the first quarter of 2017. Excluding special
items, the $.28 per share increase in first quarter 2018 earnings
compared to first quarter 2017 was driven primarily by higher
prices and mix $.39 and volumes $.19 in our Packaging segment,
higher volumes in our Paper segment $.02, and a favorable tax rate
$.19 resulting from Tax Reform changes. These items were partially
offset by lower prices and mix ($.05) in our Paper segment, higher
operating costs ($.22), higher annual outage expenses ($.11),
higher freight expense ($.07), higher converting costs ($.02),
higher depreciation ($.03) and higher interest expense ($.01).
Results were $.03 above first quarter guidance of $1.52 per
share primarily due to higher volumes and prices and mix in our
Packaging and Paper segments, partially offset by higher than
expected freight costs and operating costs.
Financial information by segment is summarized below and in the
schedules with this release.
(dollars in millions)
Three Months Ended March
31 2018 2017 Segment income (loss)
Packaging $ 224.7 $ 192.5 Paper 7.2 27.9 Corporate and Other
(19.0) (17.0)
$ 212.9 $ 203.4
Segment income (loss) excluding special items
Packaging $ 224.8 $ 196.7 Paper 16.0 27.9 Corporate and Other
(18.8) (17.7)
$ 222.0 $
206.9 EBITDA excluding special items Packaging
$ 307.9 $ 273.9 Paper 31.3 41.9 Corporate and Other (17.4)
(16.4)
$ 321.8 $ 299.4
In the Packaging segment, total corrugated products shipments
with one less workday were up 6.0% and shipments per day were up
7.7% over last year’s first quarter. Containerboard production was
953,000 tons, and containerboard inventory was down 23,000 tons
from the fourth quarter of 2017 and up 31,000 tons compared to the
first quarter of 2017, primarily due to the addition of recently
acquired Sacramento Container. In the Paper segment, office paper
and printing and converting paper sales volumes were up 33,000 tons
compared to the first quarter of 2017, and production volume was up
10,000 tons primarily due to no scheduled maintenance outages in
the first quarter of 2018.
Commenting on reported results, Mark W. Kowlzan, Chairman and
CEO, said, “Demand in our Packaging segment remained strong with
record first quarter sales volumes in both our containerboard mills
and corrugated products plants as well as improved prices and mix
compared to the first quarter of 2017. In our Paper segment,
volumes were above year ago levels and although prices and mix were
still below last year’s levels, we began to realize some of our
announced paper price increases. The scheduled maintenance outages
at three of our containerboard mills went very well, and the
production optimization work performed during the DeRidder Mill
outage was extremely successful with very strong performance
immediately after start-up. Year over year inflation in our
freight, chemicals, labor and benefits, and other operating costs
came in a bit higher than we were expecting, and we also
experienced weather-related issues that impacted costs at some of
our mills and box plants during the quarter.”
“Looking ahead as we move from the first and into the second
quarter,” Mr. Kowlzan added, “we expect continued strong demand in
our Packaging segment to result in higher corrugated products and
containerboard shipments, and we will continue to implement our
previously announced Packaging segment price increases. In our
Paper segment, we expect volumes to be lower as we begin the
conversion of the No. 3 machine in our Wallula Mill from paper to
linerboard, and we will continue implementing the previously
announced paper price increases. We also anticipate continued price
inflation in chemical and freight costs, incremental wage pressure
with a tighter labor market, but slightly lower recycled fiber
costs and improving energy costs as we move into seasonally milder
weather. Scheduled maintenance outage costs should move lower and
we expect a slightly lower tax rate as well. Considering these
items, we expect second quarter earnings of $1.96 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 currently expect special items in the second quarter to include
accounting charges, fees, and expenses related to the Wallula Mill
paper machine conversion from paper to linerboard. Additional
special items may arise due to second quarter events.
PCA is the fourth largest producer of containerboard products
and the third largest producer of uncoated freesheet paper in the
North America. PCA operates eight mills and 94 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 restructuring activities, 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, 2017 filed with the Securities and Exchange Commission
and available at the SEC’s website at “www.sec.gov”.
Conference Call
Information:
WHAT:
Packaging Corporation of America’s 1st Quarter 2018 Earnings
Conference Call
WHEN:
Wednesday, April 25, 2018 at 9:00 a.m. Eastern Time
CALL-IN
(855) 730-0288 (U.S. and Canada) or (832) 412-2295 (International)
NUMBER:
Dial in by 8:45 a.m. Eastern Time Conference Call Leader: Mr. Mark
Kowlzan
WEBCAST:
http://www.packagingcorp.com
REBROADCAST DATES:
April 25, 2018 12:00 p.m. Eastern Time through May 9, 2018 11:59
p.m. Eastern Time
REBROADCAST NUMBERS:
(855) 859-2056 (U.S. and Canada) or (404) 537-3406 (International)
Passcode: 4539018
Packaging
Corporation of America Consolidated Earnings Results
Unaudited (dollars in millions, except per-share data)
Three Months Ended March 31, 2018 (1)
2017 (1) Net sales $ 1,690.6 $ 1,536.5 Cost of sales
(1,334.5 )
(2)
(1,198.3 ) Gross profit 356.1 338.2 Selling, general, and
administrative expenses (134.9 ) (127.8 ) Other expense, net
(8.3 )
(2)
(7.0 )
(3)
Income from operations 212.9 203.4 Interest expense, net and other
(26.3 ) (24.3 ) Income before taxes 186.6 179.1
Provision for income taxes (46.5 ) (61.7 ) Net income
$ 140.1 $ 117.4 Earnings per share: Basic $ 1.48
$ 1.25 Diluted $ 1.48 $ 1.24
Computation of diluted earnings per share under the two
class method: Net income $ 140.1 $ 117.4 Less: Distributed and
undistributed income available to participating securities
(1.1 ) (1.0 ) Net income attributable to PCA shareholders $
139.0 $ 116.4 Diluted weighted average shares
outstanding 93.8 93.6 Diluted earnings
per share $ 1.48 $ 1.24 Supplemental
financial information: Capital spending $ 108.0 $ 57.8 Cash balance
$ 102.4 $ 254.0 (1)
Effective January 1, 2018, the Company
adopted ASU 2014-09 (Topic 606): Revenue from Contracts with
Customers using the modified retrospective method. The new revenue
standard provides additional clarity concerning contract
fulfillment costs, which resulted in certain costs being classified
as Cost of Sales rather than Selling, General, and Administrative
expenses in the current period reflected herein. The Company also
adopted ASU 2017-07, Compensation: Improving the Presentation of
Net Periodic Pension Cost and Net Periodic Postretirement Benefit
Cost on January 1, 2018 and applied this standard retrospectively
to the prior period reflected herein. This new standard requires
the presentation of non-service cost components of net periodic
pension expense to be shown separately outside the subtotal of
operating income in the income statement. For more information, see
Note 2, New and Recently Adopted Accounting Standards, of the
Condensed Notes to Unaudited Quarterly Consolidated Financial
Statements in “Part I, Item 1. Financial Statements” of our first
quarter 2018 report on Form 10-Q, which we plan to file on or about
May 9, 2018.
(2) The three months ended March 31, 2018 include the following: a.
$0.3 million of charges consisting of closure costs related to
corrugated products facilities and a corporate administration
facility, which were recorded in “Other expense, net” and “Cost of
sales”, as appropriate. b. $8.8 million of charges related to the
announced second quarter 2018 discontinuation of uncoated free
sheet and coated one-side grades at the Wallula, Washington mill
associated with the conversion of the No. 3 paper machine to a
high-performance 100% virgin kraft linerboard machine. The costs
were recorded within “Other expense, net” and “Cost of sales”, as
appropriate. (3) The three months ended March 31, 2017 include the
following: a. $0.8 million of charges consisting of closure costs
related to corrugated products facilities, integration costs
related to the TimBar Corporation and Columbus Container Inc.
acquisitions, and costs related to a lump sum settlement payment of
a multiemployer pension plan withdrawal liability for one of our
corrugated products facilities. b. $5.0 million of costs for the
property damage and business interruption insurance deductible
corresponding to the February 2017 explosion at our DeRidder,
Louisiana mill. c. $2.3 million of income related to a working
capital adjustment from the April 2015 sale of our Hexacomb
corrugated manufacturing operations in Europe and Mexico.
Packaging Corporation of America Segment
Information Unaudited (dollars in millions)
Three Months Ended March 31, 2018 2017
Segment sales Packaging $ 1,402.9 $ 1,257.0 Paper 269.4
259.2 Corporate and Other 18.3 20.3
$ 1,690.6 $ 1,536.5
Segment income (loss) Packaging $ 224.7 $ 192.5 Paper
7.2 27.9 Corporate and Other (19.0 ) (17.0 ) Income
from operations
212.9 203.4
Interest expense, net and other (26.3 ) (24.3
) Income before taxes
$ 186.6 $
179.1 Segment income (loss) excluding
special items (1) Packaging $ 224.8 $ 196.7 Paper 16.0 27.9
Corporate and Other (18.8 ) (17.7 )
$
222.0 $ 206.9 EBITDA
excluding special items (1) Packaging $ 307.9 $ 273.9
Paper 31.3 41.9 Corporate and Other (17.4 ) (16.4 )
$ 321.8 $ 299.4
(1) Segment income (loss) excluding special items, earnings before
interest, income taxes, and depreciation, amortization, and
depletion (EBITDA), and EBITDA excluding special items are non-GAAP
financial measures. Management excludes special items as it
believes these items are not necessarily reflective of the ongoing
results of operations of our business. We present these measures
because they provide a means to evaluate the performance of our
segments and our company on an ongoing basis using the same
measures that are used by our management, because these measures
assist in providing a meaningful comparison between periods
presented and because these measures are frequently used by
investors and other interested parties in the evaluation of
companies and the performance of their segments. The tables
included in "Reconciliation of Non-GAAP Financial Measures" on the
following pages reconcile the non-GAAP measures with the most
directly comparable GAAP measures. Any analysis of non-GAAP
financial measures should be done only in conjunction with results
presented in accordance with GAAP. The non-GAAP measures are not
intended to be substitutes for GAAP financial measures and should
not be used as such.
Packaging Corporation of
America Reconciliation of Non-GAAP Financial Measures
Unaudited (dollars in millions)
Three Months
Ended March 31, 2018 2017 Packaging
Segment income $ 224.7 $ 192.5 Facilities closure,
integration-related, and other costs 0.1 0.8 DeRidder mill incident
— 5.0 Hexacomb working capital adjustment —
(1.6 ) Segment income excluding special items (1)
$
224.8 $ 196.7
Paper Segment income $ 7.2 $ 27.9 Wallula mill restructuring
8.8 — Segment income excluding special
items (1)
$ 16.0 $ 27.9
Corporate and Other Segment loss $ (19.0 ) $ (17.0 )
Facilities closure, integration-related, and other costs 0.2 —
Hexacomb working capital adjustment — (0.7 )
Segment loss excluding special items (1)
$ (18.8
) $ (17.7 ) Income
from operations $ 212.9 $
203.4 Income from operations,
excluding special items (1) $ 222.0
$ 206.9 (1) See footnote (1) on page 3,
for a discussion of non-GAAP financial measures.
Packaging Corporation
of America Reconciliation of Non-GAAP Financial Measures
Unaudited
(dollars in millions)
Net Income and EPS Excluding Special
Items (1)
Three Months Ended March 31,
2018 2017 Income Income before
Income Diluted before Income Net
Diluted taxes Taxes Net Income
EPS taxes Taxes Income EPS As
reported $ 186.6 $ (46.5 ) $ 140.1 $ 1.48 $ 179.1 $ (61.7 ) $ 117.4
$ 1.24 Special items (2): Facilities closure, integration-related,
and other costs 0.3 (0.1 ) 0.2 — 0.8 (0.3 ) 0.5 0.01 Wallula mill
restructuring 8.8 (2.2 ) 6.6 0.07 — — — — DeRidder mill incident —
— — — 5.0 (1.9 ) 3.1 0.03 Hexacomb working capital settlement
— — — — (2.3 ) 0.9
(1.4 ) (0.01 ) Total special items 9.1
(2.3 ) 6.8 0.07 3.5 (1.3
) 2.2 0.03 Excluding special items
$ 195.7 $ (48.8 ) $
146.9 $ 1.55 $ 182.6
$ (63.0 ) $ 119.6
$ 1.27 (1) Net income and
earnings per share excluding special items are non-GAAP financial
measures. Management excludes special items as it believes these
items are not necessarily reflective of the ongoing results of
operations of our business. We present these measures because they
provide a means to evaluate the performance of our company on an
ongoing basis using the same measures that are used by our
management, because these measures assist in providing a meaningful
comparison between periods presented and because these measures are
frequently used by investors and other interested parties in the
evaluation of companies and their performance. Any analysis of
non-GAAP financial measures should be done only in conjunction with
results presented in accordance with GAAP. The non-GAAP measures
are not intended to be substitutes for GAAP financial measures and
should not be used as such. (2) Pre-tax special items
are tax-effected at a combined federal and state income tax rate in
effect for the period the special items were recorded and this rate
is adjusted for each subsequent quarter to be consistent with the
estimated annual effective tax rate, in accordance with ASC 270,
Interim Reporting, and ASC 740-270, Income Taxes – Intra Period Tax
Allocation. For all periods presented, income taxes on pre-tax
special items represent the current amount of tax. For more
information related to these items, see the footnotes to the
Consolidated Earnings Results on page 1.
Packaging
Corporation of America Reconciliation of Non-GAAP Financial
Measures Unaudited (dollars in millions)
EBITDA and
EBITDA Excluding Special Items (1) EBITDA represents
income before interest, income taxes, and depreciation,
amortization, and depletion. The following table reconciles net
income to EBITDA and EBITDA excluding special items:
Three Months Ended March 31, 2018 2017
Net income $ 140.1 $ 117.4 Interest expense, net and other 26.3
24.3 Provision for income taxes 46.5 61.7 Depreciation,
amortization, and depletion 108.1 92.5
EBITDA (1) $ 321.0 $
295.9 Special items: Facilities closure,
integration-related, and other costs 0.1 0.8 Wallula mill
restructuring 0.7 — DeRidder mill incident — 5.0 Hexacomb working
capital adjustment — (2.3 )
EBITDA excluding
special items (1) $ 321.8 $
299.4 (1) See footnote (1) on page 3, for a
discussion of non-GAAP financial measures.
Packaging Corporation of America Reconciliation of
Non-GAAP Financial Measures Unaudited (dollars in
millions) The following table reconciles segment income
(loss) to EBITDA excluding special items:
Three Months
Ended March 31, 2018 2017 Packaging
Segment income $ 224.7 $ 192.5 Depreciation, amortization, and
depletion 83.1 77.2 EBITDA (1)
307.8 269.7 Facilities closure,
integration-related, and other costs 0.1 0.8 DeRidder mill incident
— 5.0 Hexacomb working capital adjustment —
(1.6 ) EBITDA excluding special items (1)
$ 307.9
$ 273.9 Paper Segment
income $ 7.2 $ 27.9 Depreciation, amortization, and depletion
23.4 14.0 EBITDA (1) 30.6
41.9 Wallula mill restructuring 0.7
— EBITDA excluding special items (1)
$
31.3 $ 41.9 Corporate
and Other Segment loss $ (19.0 ) $ (17.0 ) Depreciation,
amortization, and depletion 1.6 1.3
EBITDA (1) (17.4 ) (15.7 ) Hexacomb working capital
adjustment — (0.7 ) EBITDA excluding special items (1)
$
(17.4 ) $ (16.4 )
EBITDA excluding special items (1) $
321.8 $ 299.4 (1) See
footnote (1) on page 3, for a discussion of non-GAAP financial
measures.
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Packaging Corporation of AmericaBarbara SessionsINVESTOR
RELATIONS: (877) 454-2509PCA’s Website: www.packagingcorp.com
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