Packaging Corporation of America (NYSE: PKG) today reported
third quarter 2019 net income of $180 million, or $1.89 per share,
and net income of $182 million, or $1.92 per share, excluding
special items. Third quarter net sales were $1.8 billion in 2019
and 2018.
Diluted earnings
per share attributable to Packaging Corporation of America
shareholders
Three Months Ended
September 30
2019
2018
Change
Reported Diluted EPS
$
1.89
$
2.18
$
(0.29)
Special Items Expense (1) (2)
0.02
0.05
(0.02)
Diluted EPS excluding Special items(2)
$
1.92
$
2.23
$
(0.31)
(1) For descriptions and amounts of our
special items, see the schedules with this release.
(2) Amounts may not foot due to
rounding.
Reported earnings include $.02 per share of special items
expense in the third quarter of 2019, primarily for the disposal of
certain fixed assets related to the previously completed conversion
of the No. 3 paper machine at our DeRidder, Louisiana mill to
containerboard, and $.05 per share in the third quarter of 2018,
primarily for certain costs related to discontinuing paper
operations associated with the conversion of the No. 3 paper
machine at our Wallula, Washington mill to linerboard. Excluding
special items, the ($.31) per share decrease in third quarter 2019
earnings compared to the third quarter of 2018 was driven primarily
by lower prices and mix ($.36), and lower volume ($.03), in our
Packaging segment, lower volume in our Paper segment ($.03), higher
converting costs ($.06), higher operating costs ($.01), and other
costs ($.02). These items were partially offset by higher prices
and mix in our Paper segment $.09, lower annual outage expenses
$.09, and lower freight and logistics expenses $.02.
Financial information by segment is summarized below and in the
schedules with this release.
(dollars in millions)
Three Months Ended
September 30
2019
2018
Segment income (loss)
Packaging
$ 235.1
$ 284.4
Paper
48.1
32.3
Corporate and Other
(20.4)
(18.2)
$ 262.8
$ 298.5
Segment income (loss) excluding special
items
Packaging
$ 238.1
$ 289.9
Paper
48.1
32.9
Corporate and Other
(20.4)
(18.4)
$ 265.8
$ 304.4
EBITDA excluding special items
Packaging
$ 324.6
$ 378.2
Paper
57.7
44.1
Corporate and Other
(18.6)
(16.5)
$ 363.7
$ 405.8
In the Packaging segment, corrugated products shipments were up
1.9% in total and per day, over last year’s third quarter.
Containerboard production was 1,070,000 tons, and containerboard
inventory was down 30,000 tons from the second quarter of 2019 and
down 51,000 tons compared to the third quarter of 2018. In the
Paper segment, lower volumes in the third quarter of 2019 compared
to last year were primarily due to discontinuing the paper business
at the Wallula Mill.
Commenting on reported results, Mark W. Kowlzan, Chairman and
CEO, said, “In our Packaging segment, we continued to run our
containerboard system to demand in a very cost-effective manner.
Our mills supplied the necessary containerboard to achieve new
shipment records in our box plants, and our inventory was below
last year’s and second quarter levels. Average domestic prices were
about where we expected based on the changes in the published
domestic containerboard prices from earlier this year, however our
corrugated products mix was slightly better. In the Paper segment,
volumes for our office paper and converting grades were slightly
above the third quarter of 2018. Prices and mix were higher than
last year’s third quarter, but moved lower compared to the second
quarter of 2019, although at a slower rate than the published index
prices.”
“Looking ahead to the fourth quarter,” Mr. Kowlzan added, “in
our Packaging segment we expect slightly lower prices as the
remaining impact of the published domestic containerboard price
decreases from earlier this year work through our system, and lower
export prices. We also expect a seasonally less rich mix in
corrugated products and slightly lower shipments with one less
shipping day. Containerboard sales volume will be lower as we
continue to run to demand and work towards building some inventory
prior to year-end in preparation for first quarter 2020 scheduled
maintenance outages at our three largest containerboard mills. In
our Paper segment, volumes are expected to be seasonally lower
along with lower average prices. With anticipated colder weather,
energy costs will be higher, and we expect certain other operating
and converting costs to be higher as well, which includes the costs
associated with the start-up of our new Richland, WA box plant
during the quarter. Scheduled maintenance outage costs are also
expected to be higher than the third quarter. Considering these
items, we expect fourth quarter earnings of $1.70 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 do not currently expect special items to have a significant
effect on fourth quarter earnings. However, additional special
items may arise due to fourth quarter events.
PCA is the third largest producer of containerboard products and
the third largest producer of uncoated freesheet paper in 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, 2018 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 3rd
Quarter 2019 Earnings Conference Call
Conference ID: 1278882
WHEN:
Thursday, October 24, 2019 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 INFO:
http://www.packagingcorp.com; Investor
Relations
REBROADCAST DATES:
October 24, 2019 2:00 p.m. Eastern Time
through November 7, 2019 11:59 p.m. Eastern Time
REBROADCAST NUMBERS:
(855) 859-2056 (U.S. and Canada) or (404)
537-3406 (International)
Passcode: 1278882
Packaging Corporation of America Consolidated Earnings
Results Unaudited (dollars in millions, except per-share
data)
Three Months Ended Nine Months Ended
September 30, September 30,
2019
2018
2019
2018
Net sales
$
1,750.7
$
1,809.9
$
5,244.3
$
5,268.1
Cost of sales
(1,339.3
)
(1,366.7
)
(3)
(3,983.6
)
(2)
(4,048.2
)
(3)
Gross profit
411.4
443.2
1,260.7
1,219.9
Selling, general, and administrative expenses
(136.9
)
(134.2
)
(3)
(420.6
)
(406.7
)
(3)
Other expense, net
(11.7
)
(1)
(10.5
)
(3)
(21.5
)
(1)(2)
(32.2
)
(3)
Income from operations
262.8
298.5
818.6
781.0
Non-operating pension expense
(1.9
)
(0.5
)
(6.0
)
(1.6
)
Interest expense, net
(21.6
)
(23.9
)
(68.0
)
(73.4
)
Income before taxes
239.3
274.1
744.6
706.0
Provision for income taxes
(59.5
)
(67.4
)
(184.4
)
(172.6
)
Net income
$
179.8
$
206.7
$
560.2
$
533.4
Earnings per share: Basic
$
1.90
$
2.19
$
5.93
$
5.65
Diluted
$
1.89
$
2.18
$
5.91
$
5.64
Computation of diluted earnings per share under the two
class method: Net income
$
179.8
$
206.7
$
560.2
$
533.4
Less: Distributed and undistributed income available to
participating securities
(1.3
)
(1.6
)
(4.2
)
(4.1
)
Net income attributable to PCA shareholders
$
178.5
$
205.1
$
556.0
$
529.3
Diluted weighted average shares outstanding
94.3
94.0
94.1
93.9
Diluted earnings per share
$
1.89
$
2.18
$
5.91
$
5.64
Supplemental financial information: Capital spending
$
92.9
$
130.4
$
263.8
$
404.3
Cash balance
$
738.3
$
293.8
$
738.3
$
293.8
(1)
The three and nine months ended September 30, 2019 include $3.0
million of charges for the disposal of fixed assets related to the
containerboard mill conversion at our DeRidder, Louisiana mill,
which were recorded within “Other expense, net”.
(2)
The nine months ended September 30, 2019 include $0.6 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 and nine months ended September 30, 2018 include the
following: a. $4.0 million and $26.4 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. b. $1.3 million and $1.8
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”, “Selling, general, and administrative expenses”, and “Cost of
sales”, as appropriate. c. $0.5 million of costs for the property
damage insurance deductible for a weather-related incident at one
of the corrugated products facilities, which were recorded in
“Other expense, net”. d. $0.1 million of charges related to recent
acquisitions, which were recorded in “Other expense, net”.
Packaging Corporation of America Segment Information
Unaudited (dollars in millions)
Three Months
Ended Nine Months Ended September 30,
September 30,
2019
2018
2019
2018
Segment sales Packaging
$
1,489.9
$
1,535.1
$
4,472.1
$
4,434.2
Paper
242.8
254.3
720.3
774.5
Corporate and Other
18.0
20.5
51.9
59.4
$
1,750.7
$
1,809.9
$
5,244.3
$
5,268.1
Segment income (loss) Packaging
$
235.1
$
284.4
$
748.6
$
782.3
Paper
48.1
32.3
132.5
55.7
Corporate and Other
(20.4
)
(18.2
)
(62.5
)
(57.0
)
Income from operations
262.8
298.5
818.6
781.0
Non-operating pension expense
(1.9
)
(0.5
)
(6.0
)
(1.6
)
Interest expense, net
(21.6
)
(23.9
)
(68.0
)
(73.4
)
Income before taxes
$
239.3
$
274.1
$
744.6
$
706.0
Segment income (loss) excluding special items (1)
Packaging
$
238.1
$
289.9
$
752.0
$
793.3
Paper
48.1
32.9
132.7
73.3
Corporate and Other
(20.4
)
(18.4
)
(62.5
)
(56.8
)
$
265.8
$
304.4
$
822.2
$
809.8
EBITDA excluding special items (1) Packaging
$
324.6
$
378.2
$
1,007.0
$
1,049.0
Paper
57.7
44.1
160.8
113.0
Corporate and Other
(18.6
)
(16.5
)
(57.3
)
(52.1
)
$
363.7
$
405.8
$
1,110.5
$
1,109.9
(1)
Segment income (loss) excluding special items, earnings before
non-operating pension expense, 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 Nine Months Ended September 30,
September 30,
2019
2018
2019
2018
Packaging Segment income
$
235.1
$
284.4
$
748.6
$
782.3
DeRidder mill fixed asset disposals
3.0
—
3.0
—
Wallula mill restructuring
—
3.4
0.4
8.8
Facilities closure and other costs
—
1.5
—
1.6
Insurance deductible for property damage
—
0.5
—
0.5
Acquisition and integration related costs
—
0.1
—
0.1
Segment income excluding special items (1)
$
238.1
$
289.9
$
752.0
$
793.3
Paper Segment income
$
48.1
$
32.3
$
132.5
$
55.7
Wallula mill restructuring
—
0.6
0.2
17.6
Segment income excluding special items (1)
$
48.1
$
32.9
$
132.7
$
73.3
Corporate and Other Segment loss
$
(20.4
)
$
(18.2
)
$
(62.5
)
$
(57.0
)
Facilities closure and other costs
—
(0.2
)
—
0.2
Segment loss excluding special items (1)
$
(20.4
)
$
(18.4
)
$
(62.5
)
$
(56.8
)
Income from operations
$
262.8
$
298.5
$
818.6
$
781.0
Income from operations, excluding special items (1)
$
265.8
$
304.4
$
822.2
$
809.8
(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
September 30,
2019
2018
IncomebeforeTaxes IncomeTaxes Net Income
DilutedEPS IncomebeforeTaxes IncomeTaxes
Net Income DilutedEPS As reported
$
239.3
$
(59.5
)
$
179.8
$
1.89
$
274.1
$
(67.4
)
$
206.7
$
2.18
Special items (2): DeRidder mill fixed asset disposals
3.0
(0.7
)
2.3
0.02
—
—
—
—
Wallula mill restructuring
—
—
—
—
4.0
(1.1
)
2.9
0.04
Facilities closure and other costs
—
—
—
—
1.3
(0.3
)
1.0
0.01
Insurance deductible for property damage
—
—
—
—
0.5
(0.1
)
0.4
—
Acquisition and integration related costs
—
—
—
—
0.1
—
0.1
—
Total special items
3.0
(0.7
)
2.3
0.02
5.9
(1.5
)
4.4
0.05
Excluding special items
$
242.3
$
(60.2
)
$
182.1
$
1.92 (3
)
$
280.0
$
(68.9
)
$
211.1
$
2.23
Nine Months Ended September 30,
2019
2018
IncomebeforeTaxes IncomeTaxes Net Income
DilutedEPS IncomebeforeTaxes IncomeTaxes
Net Income DilutedEPS As reported
$
744.6
$
(184.4
)
$
560.2
$
5.91
$
706.0
$
(172.6
)
$
533.4
$
5.64
Special items (2): DeRidder mill fixed asset disposals
3.0
(0.7
)
2.3
0.02
—
—
—
—
Wallula mill restructuring
0.6
(0.1
)
0.5
0.01
26.4
(6.6
)
19.8
0.22
Facilities closure and other costs
—
—
—
—
1.8
(0.5
)
1.3
0.01
Insurance deductible for property damage
—
—
—
—
0.5
(0.1
)
0.4
—
Acquisition and integration related costs
—
—
—
—
0.1
—
0.1
—
Total special items
3.6
(0.8
)
2.8
0.03
28.8
(7.2
)
21.6
0.23
Excluding special items
$
748.2
$
(185.2
)
$
563.0
$
5.94
$
734.8
$
(179.8
)
$
555.0
$
5.87
(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.
(3 )
Amount does not foot due to rounding.
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 non-operating pension expense, interest, income taxes, and
depreciation, amortization, and depletion. The following table
reconciles net income to EBITDA and EBITDA excluding special items:
Three Months Ended Nine Months Ended September
30, September 30,
2019
2018
2019
2018
Net income
$
179.8
$
206.7
$
560.2
$
533.4
Non-operating pension expense
1.9
0.5
6.0
1.6
Interest expense, net
21.6
23.9
68.0
73.4
Provision for income taxes
59.5
67.4
184.4
172.6
Depreciation, amortization, and depletion
97.9
101.5
288.5
313.7
EBITDA (1)
$
360.7
$
400.0
$
1,107.1
$
1,094.7
Special items: DeRidder mill fixed asset disposals
3.0
—
3.0
—
Wallula mill restructuring
—
3.7
0.4
13.0
Facilities closure and other costs
—
1.5
—
1.6
Insurance deductible for property damage
—
0.5
—
0.5
Acquisition and integration related costs
—
0.1
—
0.1
EBITDA excluding special items (1)
$
363.7
$
405.8
$
1,110.5
$
1,109.9
(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) The following table
reconciles segment income (loss) to EBITDA excluding special items:
Three Months Ended Nine Months Ended
September 30, September 30,
2019
2018
2019
2018
Packaging Segment income
$
235.1
$
284.4
$
748.6
$
782.3
Depreciation, amortization, and depletion
86.5
88.6
255.2
256.3
EBITDA (1)
321.6
373.0
1,003.8
1,038.6
DeRidder mill fixed asset disposals
3.0
—
3.0
—
Wallula mill restructuring
—
3.1
0.2
8.2
Facilities closure and other costs
—
1.5
—
1.6
Insurance deductible for property damage
—
0.5
—
0.5
Acquisition and integration related costs
—
0.1
—
0.1
EBITDA excluding special items (1)
$
324.6
$
378.2
$
1,007.0
$
1,049.0
Paper Segment income
$
48.1
$
32.3
$
132.5
$
55.7
Depreciation, amortization, and depletion
9.6
11.2
28.1
52.5
EBITDA (1)
57.7
43.5
160.6
108.2
Wallula mill restructuring
—
0.6
0.2
4.8
EBITDA excluding special items (1)
$
57.7
$
44.1
$
160.8
$
113.0
Corporate and Other Segment loss
$
(20.4
)
$
(18.2
)
$
(62.5
)
$
(57.0
)
Depreciation, amortization, and depletion
1.8
1.7
5.2
4.9
EBITDA (1)
(18.6
)
(16.5
)
(57.3
)
(52.1
)
EBITDA excluding special items (1)
$
(18.6
)
$
(16.5
)
$
(57.3
)
$
(52.1
)
EBITDA excluding special items (1)
$
363.7
$
405.8
$
1,110.5
$
1,109.9
(1) See footnote (1) on page 3, for a discussion of non-GAAP
financial measures.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20191023005928/en/
Barbara Sessions Packaging Corporation of America INVESTOR
RELATIONS: (877) 454-2509 PCA’s Website: www.packagingcorp.com
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