Packaging Corporation of America (NYSE: PKG) today reported
second quarter 2018 net income of $187 million, or $1.97 per share
and net income of $197 million, or $2.08 per share, excluding
special items. Second quarter net sales were $1.8 billion in 2018
and $1.6 billion in 2017.
Diluted earnings per share attributable to
Packaging Corporation of America shareholders
Three Months Ended June 30 2018
2017 Change Reported Diluted EPS $ 1.97 $ 1.52
$ 0.45 Special Items Expense (1) 0.11 -- 0.11 Diluted
EPS excluding Special items $
2.08 $
1.52
$ 0.56 (1) For descriptions and amounts
of our special items, see the schedules with this release.
Reported earnings include $.11 per share of special items
expense in the second quarter of 2018, primarily for certain costs
related to discontinuing paper operations associated with the
previously announced conversion of the No. 3 paper machine at our
Wallula, Washington mill to linerboard, and no special items
expense in the second quarter of 2017. Excluding special items, the
$.56 per share increase in second quarter 2018 earnings compared to
second quarter 2017 was driven primarily by higher prices and mix
$.47 and volumes $.26 in our Packaging segment, higher prices and
mix in our Paper segment $.05, lower wood and recycled fiber costs
$.07, and a favorable tax rate $.16 primarily resulting from Tax
Reform changes. These items were partially offset by higher
operating costs ($.24), higher freight expense ($.09), Wallula No.
3 paper machine conversion-related costs ($.04), higher converting
costs ($.02), higher annual outage expenses ($.01), higher
depreciation ($.02), and other costs ($.03).
Results were $.12 above second quarter guidance of $1.96 per
share primarily due to higher prices and mix and higher volumes in
our Packaging and Paper segments and lower mill operating
costs.
Financial information by segment is summarized below and in the
schedules with this release.
(dollars in millions)
Three Months
Ended June 30 2018 2017 Segment
income (loss) Packaging $ 273.2 $ 226.2 Paper 16.2 27.2
Corporate and Other (19.8 ) (19.3 )
$
269.6 $ 234.1 Segment
income (loss) excluding special items Packaging $ 278.6 $ 226.7
Paper 24.4 27.2 Corporate and Other (19.6 ) (19.3 )
$ 283.4 $ 234.6
EBITDA excluding special items Packaging $ 362.8 $ 305.0
Paper 37.7 41.2 Corporate and Other (18.2 ) (17.9 )
$ 382.3 $ 328.3
In the Packaging segment, total corrugated products shipments
with one additional workday were up 8.3% and shipments per day were
up 6.6% over last year’s second quarter. Containerboard production
was 1,019,000 tons, and containerboard inventory was up 8,000 tons
from the first quarter of 2018 and up 54,000 tons compared to the
second quarter of 2017, partially due to the addition of recently
acquired Sacramento Container. In the Paper segment, compared to
the second quarter of 2017, office paper and printing and
converting paper sales volumes were flat and inventories were lower
by 33,000 tons.
Commenting on reported results, Mark W. Kowlzan, Chairman and
CEO, said, “Packaging segment demand remained strong with all-time
record sales volumes in both our containerboard mills and
corrugated products plants. Our price increases in the Packaging
segment were realized sooner than last year’s second quarter due to
the index changing a month earlier this year as well as an
accelerated implementation. Additionally, our price increases in
the Paper segment were also realized more quickly than anticipated.
The benefits of these strong market conditions helped us offset
higher inflation in many of our operating and converting costs and
higher freight expenses. The scheduled maintenance outages at two
of our containerboard mills went very well, and the first phase of
our linerboard conversion work on the No. 3 paper machine at our
Wallula Mill was executed extremely well both from a ramp-up curve
perspective as well as an operating cost perspective.”
“Looking ahead as we move from the second and into the third
quarter,” Mr. Kowlzan added, “we anticipate continued strong demand
in our Packaging segment, however corrugated products shipments
will have one less shipping day during the quarter. Although the
majority of our previously announced price increases were
recognized in the second quarter, we expect to implement most of
the remaining portion during the third quarter. In the Paper
segment, we expect to complete the implementation of our previously
announced paper price increase, although volumes should be lower
than normal during this seasonally stronger period as we manage our
already tight inventory levels around the scheduled outage at our
Jackson Mill. Finally, we should have lower operating costs related
to the No. 3 machine at our Wallula Mill as the first phase of the
conversion is now behind us. We expect continued inflation in most
of our operating costs, including slightly higher recycled fiber
prices and incremental wage pressure with a tighter labor market.
In addition, we anticipate higher freight and logistics expenses,
higher scheduled maintenance outage costs, as well as a slightly
higher tax rate. Considering these items, we expect third quarter
earnings of $2.14 per share.”
We present various non-GAAP financial measures in this press
release, including net income and 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 third 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 third quarter
events.
PCA is the third 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 2nd Quarter 2018 Earnings
Conference Call
WHEN:
Thursday, July 26, 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:
July 26, 2018 12:00 p.m. Eastern Time through August 9, 2018 11:59
p.m. Eastern Time
REBROADCAST NUMBERS:
(855) 859-2056 (U.S. and Canada) or (404) 537-3406 (International)
Passcode: 7285476
Packaging Corporation of
America Consolidated Earnings Results Unaudited
(dollars in millions, except per-share data)
Three Months Ended Six Months Ended June 30,
June 30,
2018 (1)
2017 (1) 2018 (1) 2017 (1) Net sales $ 1,767.5
$ 1,584.0 $ 3,458.1 $ 3,120.5 Cost of sales (1,346.9 )
(2)
(1,219.7 ) (2,681.4 )
(2)
$ (2,418.0 ) Gross profit 420.6 364.3 776.7 702.5 Selling, general,
and administrative expenses (137.7 ) (129.6 ) (272.6 ) (257.4 )
Other expense, net (13.3 )
(2)
(0.6 )
(3)
(21.6 )
(2)
(7.6 )
(4)
Income from operations 269.6 234.1 482.5 437.5 Interest expense,
net and other (24.3 ) (25.5 ) (50.7 )
(49.8 ) Income before taxes 245.3 208.6 431.8 387.7 Provision for
income taxes (58.7 ) (65.4 ) (105.1 )
(127.1 ) Net income $ 186.6 $ 143.2 $ 326.7 $
260.6 Earnings per share: Basic $ 1.98 $ 1.52
$ 3.46 $ 2.76 Diluted $ 1.97 $ 1.52 $
3.46 $ 2.76 Computation of diluted
earnings per share under the two class method: Net income $ 186.6 $
143.2 $ 326.7 $ 260.6 Less: Distributed and undistributed income
available to participating securities (1.4 ) (1.2 )
(2.5 ) (2.3 ) Net income attributable to PCA
shareholders $ 185.2 $ 142.0 $ 324.2 $ 258.3
Diluted weighted average shares outstanding 93.8
93.6 93.8 93.6
Diluted earnings per share $ 1.97 $ 1.52 $ 3.46
$ 2.76 Supplemental financial
information: Capital spending $ 165.9 $ 81.6 $ 273.9 $ 139.3 Cash
balance $ 199.6 $ 321.0 $ 199.6 $ 321.0
(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 second
quarter 2018 report on Form 10-Q, which we plan to file on or about
August 8, 2018.
(2) The three and six months ended June 30, 2018 include the
following: a. $0.2 million and $0.5 million, respectively, 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. $13.6 million and $22.4 million, respectively, 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 June 30, 2017 include $0.5 million of charges
consisting of closure costs related to corrugated products
facilities and integration costs related to the TimBar Corporation
and Columbus Container Inc. acquisitions. (4) The six months
ended June 30, 2017 include the following: a. $1.3 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
Six Months Ended June 30, June 30,
2018 2017 2018 2017 Segment
sales Packaging $ 1,496.2 $ 1,311.5 $
2,899.1
$ 2,568.4 Paper 250.8 253.7 520.2 512.9 Corporate and Other
20.5 18.8 38.8
39.2
$ 1,767.5 $ 1,584.0
$ 3,458.1 $
3,120.5 Segment income (loss) Packaging
$ 273.2 $ 226.2 $ 497.9 $ 418.6 Paper 16.2 27.2 23.5 55.1 Corporate
and Other (19.8 ) (19.3 ) (38.9 )
(36.2 ) Income from operations
269.6
234.1 482.5
437.5 Interest expense, net and other (24.3 )
(25.5 ) (50.7 ) (49.8 ) Income before
taxes
$ 245.3 $ 208.6
$ 431.8 $ 387.7
Segment income (loss) excluding special items (1)
Packaging $ 278.6 $ 226.7 $ 503.4 $ 423.3 Paper 24.4 27.2 40.5 55.1
Corporate and Other (19.6 ) (19.3 )
(38.5 ) (36.9 )
$ 283.4 $
234.6 $ 505.4 $
441.5 EBITDA excluding special items
(1) Packaging $ 362.8 $ 305.0 $ 670.8 $ 578.8 Paper 37.7
41.2 69.0 83.1 Corporate and Other (18.2 ) (17.9 )
(35.7 ) (34.2 )
$ 382.3
$ 328.3 $ 704.1
$ 627.7 (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 Six Months Ended June
30, June 30, 2018 2017 2018
2017 Packaging Segment income $ 273.2 $ 226.2
$ 497.9 $ 418.6 Wallula mill restructuring 5.4 $ — $ 5.4 $ —
Facilities closure, integration-related, and other costs — 0.5 0.1
1.3 DeRidder mill incident — — — 5.0 Hexacomb working capital
adjustment — — —
(1.6 ) Segment income excluding special items (1)
$
278.6 $ 226.7 $
503.4 $ 423.3
Paper Segment income $ 16.2 $ 27.2 $ 23.5 $ 55.1 Wallula
mill restructuring 8.2 — 17.0
— Segment income excluding special items (1)
$ 24.4 $ 27.2 $
40.5 $ 55.1 Corporate
and Other Segment loss $ (19.8 ) $ (19.3 ) $ (38.9 ) $ (36.2 )
Facilities closure, integration-related, and other costs 0.2 — 0.4
— Hexacomb working capital adjustment — —
— (0.7 ) Segment loss excluding special
items (1)
$ (19.6 ) $ (19.3
) $ (38.5 ) $ (36.9
) Income from operations $ 269.6
$ 234.1 $ 482.5
$ 437.5 Income from operations,
excluding special items (1) $ 283.4
$ 234.6 $ 505.4 $
441.5 (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 June 30, 2018
2017 Income before taxes Income Taxes Net
Income Diluted EPS Income before taxes Income
Taxes Net Income Diluted EPS As reported $ 245.3
$ (58.7 ) $ 186.6 $ 1.97 $ 208.6 $ (65.4 ) $ 143.2 $ 1.52 Special
items (2): Wallula mill restructuring 13.6 (3.4 ) 10.2 0.11 — — — —
Facilities closure, integration-related, and other costs 0.2
— 0.2 — 0.5 (0.1 )
0.4 — Total special items 13.8
(3.4 ) 10.4 0.11 0.5 (0.1
) 0.4 — Excluding special items
$ 259.1 $ (62.1 ) $
197.0 $ 2.08 $ 209.1
$ (65.5 ) $ 143.6
$ 1.52 Six Months Ended June 30,
2018 2017 Income before taxes Income
Taxes Net Income Diluted EPS Income
before taxes Income Taxes Net Income Diluted
EPS As reported $ 431.8 $ (105.1 ) $ 326.7 $ 3.46 $ 387.7 $
(127.1 ) $ 260.6 $ 2.76 Special items (2): Wallula mill
restructuring 22.4 (5.6 ) 16.8 0.18 — — — — Facilities closure,
integration-related, and other costs 0.5 (0.1 ) 0.4 — 1.3 (0.4 )
0.9 0.01 DeRidder mill incident — — — — 5.0 (1.7 ) 3.3 0.03
Hexacomb working capital settlement — —
— — (2.3 ) 0.8 (1.5 )
(0.01 ) Total special items 22.9 (5.7 ) 17.2
0.18 4.0 (1.3 ) 2.7
0.03 Excluding special items
$ 454.7
$ (110.8 ) $ 343.9 $
3.64 $ 391.7 $ (128.4
) $ 263.3 $ 2.79
(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 Six Months Ended June
30, June 30, 2018 2017 2018
2017 Net income $ 186.6 $ 143.2 $ 326.7 $ 260.6 Interest
expense, net and other 24.3 25.5 50.7 49.8 Provision for income
taxes 58.7 65.4 105.1 127.1 Depreciation, amortization, and
depletion 104.1 93.7 212.2 186.2
EBITDA (1) $ 373.7 $
327.8 $ 694.7 $ 623.7
Special items: Wallula mill restructuring 8.6 — 9.3 — Facilities
closure, integration-related, and other costs — 0.5 0.1 1.3
DeRidder mill incident — — — 5.0 Hexacomb working capital
adjustment — — — (2.3 )
EBITDA
excluding special items (1) $ 382.3
$ 328.3 $ 704.1 $ 627.7
(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
Six Months Ended June 30, June 30, 2018
2017 2018 2017 Packaging Segment income
$ 273.2 $ 226.2 $ 497.9 $ 418.6 Depreciation, amortization, and
depletion 84.5 78.3 167.7
155.5 EBITDA (1) 357.7 304.5
665.6 574.1 Wallula mill
restructuring 5.1 — 5.1 — Facilities closure, integration-related,
and other costs — 0.5 0.1 1.3 Expiration of timberland repurchase
option DeRidder mill incident — — — 5.0 Hexacomb working capital
adjustment — — —
(1.6 ) EBITDA excluding special items (1)
$ 362.8
$ 305.0 $ 670.8
$ 578.8 Paper Segment income $
16.2 $ 27.2 $ 23.5 $ 55.1 Depreciation, amortization, and depletion
18.0 14.0 41.3
28.0 EBITDA (1) 34.2 41.2
64.8 83.1 Wallula mill restructuring
3.5 — 4.2 — EBITDA
excluding special items (1)
$ 37.7 $
41.2 $ 69.0 $ 83.1
Corporate and Other Segment loss $ (19.8 ) $
(19.3 ) $ (38.9 ) $ (36.2 ) Depreciation, amortization, and
depletion 1.6 1.4 3.2
2.7 EBITDA (1) (18.2 ) (17.9 )
(35.7 )
(33.5
)
Hexacomb working capital adjustment — —
— (0.7 ) EBITDA excluding special items (1)
$ (18.2 ) $ (17.9 )
$ (35.7 ) $ (34.2 )
EBITDA excluding special items (1) $
382.3 $ 328.3 $
704.1 $ 627.7 (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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