Packaging Corporation of America (NYSE: PKG) today reported
first quarter 2020 net income of $142 million, or $1.49 per share,
and net income of $143 million, or $1.50 per share, excluding
special items. First quarter net sales were $1.7 billion in 2020
and 2019.
Diluted earnings
per share attributable to Packaging Corporation of America
shareholders
Three Months Ended
March 31
2020
2019
Change
Reported Diluted EPS
$
1.49
$
1.97
$
(0.48
)
Special Items Expense (1)
0.01
0.01
-
Diluted EPS excluding Special items
$
1.50
$
1.98
$
(0.48
)
(1) For descriptions and amounts of our
special items, see the schedules with this release.
Reported earnings in the first quarter of 2020 include special
items primarily for certain costs related to the impact of the
COVID-19 pandemic on our business.
Excluding special items, the ($.48) per share decrease in first
quarter 2020 earnings compared to the first quarter of 2019 was
driven primarily by lower prices and mix in our Packaging segment
($.64) and Paper segment ($.05), lower volumes in our Paper segment
($.03), higher annual outage expenses ($.04), higher depreciation
expense ($.04), other expenses ($.01), and a higher tax rate
($.01).
These items were partially offset by higher volumes in our
Packaging segment $.14, lower operating costs $.09, lower
converting costs $.04, lower freight and logistics costs $.01, and
lower interest expense $.04 and non-operating pension expense
$.02.
Results were $.30 above first quarter guidance of $1.20 per
share primarily due to higher volumes in our Packaging $.03 and
Paper $.01 segments, higher prices and mix in our Packaging segment
$.02, lower operating costs $.15, lower freight and logistics costs
$.03, lower converting costs $.02, lower annual outage costs $.02,
and other expenses $.02.
Financial information by segment is summarized below and in the
schedules with this release.
(dollars in millions)
Three Months Ended
March 31
2020
2019
Segment income (loss)
Packaging
$
199.8
$
249.6
Paper
32.5
45.6
Corporate and Other
(23.2)
(19.8)
$
209.1
$
275.4
Segment income (loss) excluding special
items
Packaging
$
200.9
$
250.0
Paper
32.6
45.8
Corporate and Other
(23.2)
(19.8)
$
210.3
$
276.0
EBITDA excluding special items
Packaging
$
289.9
$
333.8
Paper
42.0
54.9
Corporate and Other
(21.3)
(18.1)
$
310.6
$
370.6
In the Packaging segment, total corrugated products shipments
with one additional workday were up 5.6% and shipments per day were
up 3.9% over last year’s first quarter. Containerboard production
was 1,047,000 tons, and containerboard inventory was down 79,000
tons compared to the first quarter of 2019 and down 39,000 tons
from the fourth quarter of 2019. In the Paper segment, sales volume
was down 14,000 tons compared to the first quarter of 2019 and down
26,000 tons from the fourth quarter of 2019.
Commenting on reported results, Mark W. Kowlzan, Chairman and
CEO, said, “Strong demand in our Packaging segment drove first
quarter results. We had record first quarter volume in our
containerboard mills and a new all-time quarterly volume record in
our corrugated products plants. The integration rate of our mill’s
volume into our plants was 95% and our containerboard inventory was
at the lowest level since our acquisition of the Boise packaging
business. In our Paper segment, volume and prices were lower as
expected, but both were slightly better than anticipated. The
scheduled maintenance outages at all mills went very well, which
helped us meet the better than expected demand in our Packaging and
Paper segments. Both the mills and the corrugated products plants
did a great job of running their operations safely, and in a
cost-effective manner, while facing the unprecedented conditions
brought on by the COVID-19 pandemic. All facilities operated in
adherence to CDC guidelines and followed a strict protocol for
workplace operations as well as notification of and response to
potential issues. So far, we have not experienced any material
disruption in our operations or our supply chain due to the
pandemic. I am extremely proud of the effort, responsiveness, and
sacrifices displayed by all PCA employees as well as our customers
and suppliers.”
Mr. Kowlzan added, “These may be the most unpredictable and
unprecedented times that, hopefully, we will ever encounter. Not a
day passes that we realize something new being impacted in a way we
had never thought of or imagined. Our consistent approach towards
prudent capital allocation and sound financial governance has
served us well for many years, and is certainly helpful in times
like this. PCA entered these uncertain economic times brought on by
the COVID-19 crisis from a position of financial and balance sheet
strength. Our focus has been and will remain on preserving that
strength through the actions and decisions we make as a management
team. Our Company’s liquidity position has never been higher, nor
has our confidence in the future success of PCA. We are
well-positioned to manage whatever lies ahead, while ensuring we
take care of the needs and expectations of our employees,
customers, suppliers and shareholders.”
“However, this confidence does not translate to the same degree
of short-term predictability or guidance specifics that we normally
provide at this time,” Mr. Kowlzan continued. “Due to the uncertain
scope and duration of the pandemic, and the timing of the global
recovery and economic normalization, we are not able to properly
quantify our guidance for the second quarter. We have already
announced the actions being taken in our Paper business, and we
believe these actions will position us properly for what we
anticipate right now for the second half of 2020. However, nothing
is certain, especially now, and it may require further action to be
taken. We know that we experienced a demand surge in our Packaging
business in the first quarter, and the second quarter has also
begun quite strong as well. Our containerboard inventory at the end
of the first quarter was at the lowest levels, both in total and in
weeks-of-supply, since our acquisition of the packaging business
from Boise. And while recycled fiber prices began moving
significantly higher during the first quarter, our position as a
primarily virgin fiber producer minimizes this impact compared to
other producers. However, it only makes logical sense that demand
in certain end markets will return to more normal growth trends at
some point, although we have been successful at securing new
business in end markets with a stronger demand outlook versus
markets whose demand may be impacted more negatively. Also, it is
impossible to predict what additional health-related measures will
be or must be taken, or dictated to us by the various state and
local governments where we operate. Such events and actions could
adversely impact the operation of not only our facilities, but also
the availability of services and products we rely upon from our
suppliers.”
“That being said, it is also a fact that the products our
company provides are essential to the response efforts, recovery,
and well-being of our country. The need for our cost-effective,
sustainable, and renewable products will continue. While no one
knows the severity or longevity of the virus’ impact on the global
economy, it is my belief, that this need will be even more in
demand as the world recovers from this crisis,” Mr. Kowlzan
concluded.
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.
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, the impact of the COVID-19
pandemic on our business, 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 the COVID-19
pandemic on the health of our employees and on the employees of our
suppliers and customers, on our ability to operate our business,
and on economic conditions affecting our business and demand for
our products; 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, 2019 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 2020 Earnings Conference Call
Conference ID: 7987477
WHEN:
Tuesday, April 28, 2020 at 9:00am Eastern
Time
CALL-IN
(855) 730-0288 (U.S. and Canada) or (832)
412-2295 (International)
NUMBER:
Dial in by 8:45am Eastern Time
Conference Call Leader: Mr. Mark
Kowlzan
WEBCAST INFO:
http://www.packagingcorp.com
REBROADCAST DATES:
April 28, 2020 at 12:00pm Eastern Time
through May 12, 2020 11:59pm Eastern Time
REBROADCAST NUMBERS:
(855) 859-2056 (U.S. and Canada) or (404)
537-3406 (International)
Passcode: 7987477
Packaging Corporation of America Consolidated Earnings
Results Unaudited (dollars in millions, except per-share
data)
Three Months Ended
March 31,
2020
2019
Net sales
$ 1,708.7
$ 1,733.7
Cost of sales
(1,343.7)
(1)
(1,312.3)
(2)
Gross profit
365.0
421.4
Selling, general, and administrative expenses
(145.9)
(140.0)
Other expense, net
(10.0)
(1)
(6.0)
(2)
Income from operations
209.1
275.4
Non-operating pension income (expense)
0.6
(2.0)
Interest expense, net
(19.6)
(24.1)
Income before taxes
190.1
249.3
Provision for income taxes
(48.4)
(62.5)
Net income
$ 141.7
$ 186.8
Earnings per share: Basic
$ 1.50
$ 1.98
Diluted
$ 1.49
$ 1.97
Computation of diluted earnings per share under the two
class method: Net income
$ 141.7
$ 186.8
Less: Distributed and undistributed income available to
participating securities
(1.2)
(1.4)
Net income attributable to PCA shareholders
$ 140.5
$ 185.4
Diluted weighted average shares outstanding
94.3
94.0
Diluted earnings per share
$ 1.49
$ 1.97
Supplemental financial information: Capital spending
$ 70.5
$ 78.8
Cash balance
$ 764.0
$ 442.4
(1)
The three months ended March 31, 2020 include the following: a.
$0.8 million of incremental, out-of-pocket costs related to
COVID-19, including supplies, cleaning and sick pay, which were
recorded in "Cost of sales". b. $0.4 million of charges consisting
of closure costs related to corrugated products facilities, which
were recorded in “Other expense, net”.
(2)
The three months ended March 31, 2019 include $0.6 million of
charges related to the 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 produce virgin kraft linerboard. The costs were recorded
within “Other expense, net” and “Cost of sales”, as appropriate.
Packaging Corporation of America Segment Information
Unaudited (dollars in millions)
Three Months Ended
March 31,
2020
2019
Segment sales Packaging
$
1,467.5
$
1,477.6
Paper
217.4
239.7
Corporate and Other
23.8
16.4
$
1,708.7
$
1,733.7
Segment income (loss) Packaging
$
199.8
$
249.6
Paper
32.5
45.6
Corporate and Other
(23.2
)
(19.8
)
Income from operations
209.1
275.4
Non-operating pension income (expense)
0.6
(2.0
)
Interest expense, net
(19.6
)
(24.1
)
Income before taxes
$
190.1
$
249.3
Segment income (loss) excluding special items (1)
Packaging
$
200.9
$
250.0
Paper
32.6
45.8
Corporate and Other
(23.2
)
(19.8
)
$
210.3
$
276.0
EBITDA excluding special items (1) Packaging
$
289.9
$
333.8
Paper
42.0
54.9
Corporate and Other
(21.3
)
(18.1
)
$
310.6
$
370.6
(1)
Segment income (loss) excluding special items, earnings before
non-operating pension income (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
March 31,
2020
2019
Packaging Segment income
$
199.8
$
249.6
Incremental costs for COVID-19
0.7
-
Facilities closure and other costs
0.4
-
Wallula mill restructuring
-
0.4
Segment income excluding special items (1)
$
200.9
$
250.0
Paper Segment income
$
32.5
$
45.6
Incremental costs for COVID-19
0.1
-
Wallula mill restructuring
-
0.2
Segment income excluding special items (1)
$
32.6
$
45.8
Corporate and Other Segment loss
$
(23.2
)
$
(19.8
)
Segment loss excluding special items (1)
$
(23.2
)
$
(19.8
)
Income from operations
$
209.1
$
275.4
Income from operations, excluding special items (1)
$
210.3
$
276.0
(1) See footnote (1) on page 2, 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,
2020
2019
Incomebeforetaxes IncomeTaxes NetIncome
DilutedEPS Incomebeforetaxes IncomeTaxes
NetIncome DilutedEPS As reported
$
190.1
$
(48.4
)
$
141.7
$
1.49
$
249.3
$
(62.5
)
$
186.8
$
1.97
Special items (2): Incremental costs for COVID-19
0.8
(0.2
)
0.6
0.01
-
-
-
-
Facilities closure and other costs
0.4
(0.1
)
0.3
-
-
-
-
-
Wallula mill restructuring
-
-
-
-
0.6
(0.1
)
0.5
0.01
Total special items
1.2
(0.3
)
0.9
0.01
0.6
(0.1
)
0.5
0.01
Excluding special items
$
191.3
$
(48.7
)
$
142.6
$
1.50
$
249.9
$
(62.6
)
$
187.3
$
1.98
(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 non-operating pension income
(expense), interest, income taxes, anddepreciation, amortization,
and depletion. The following table reconciles net income to EBITDA
andEBITDA excluding special items:
Three Months Ended
March 31,
2020
2019
Net income
$
141.7
$
186.8
Non-operating pension (income) expense
(0.6
)
2.0
Interest expense, net
19.6
24.1
Provision for income taxes
48.4
62.5
Depreciation, amortization, and depletion
100.3
94.8
EBITDA (1)
$
309.4
$
370.2
Special items: Incremental costs for COVID-19
0.8
-
Facilities closure and other costs
0.4
-
Wallula mill restructuring
-
0.4
EBITDA excluding special items (1)
$
310.6
$
370.6
(1) See footnote (1) on page 2, 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,
2020
2019
Packaging Segment income
$
199.8
$
249.6
Depreciation, amortization, and depletion
89.0
84.0
EBITDA (1)
288.8
333.6
Incremental costs for COVID-19
0.7
-
Facilities closure and other costs
0.4
-
Wallula mill restructuring
-
0.2
EBITDA excluding special items (1)
$
289.9
$
333.8
Paper Segment income
$
32.5
$
45.6
Depreciation, amortization, and depletion
9.4
9.1
EBITDA (1)
41.9
54.7
Incremental costs for COVID-19
0.1
-
Wallula mill restructuring
-
0.2
EBITDA excluding special items (1)
$
42.0
$
54.9
Corporate and Other Segment loss
$
(23.2
)
$
(19.8
)
Depreciation, amortization, and depletion
1.9
1.7
EBITDA (1)
(21.3
)
(18.1
)
EBITDA excluding special items (1)
$
(21.3
)
$
(18.1
)
EBITDA excluding special items (1)
$
310.6
$
370.6
(1) See footnote (1) on page 2, for a discussion of non-GAAP
financial measures.
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Barbara Sessions Packaging Corporation of America INVESTOR
RELATIONS: (877) 454-2509 PCA’s Website: www.packagingcorp.com
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