Packaging Corporation of America (NYSE: PKG) today reported
second quarter 2020 net income of $57 million, or $0.59 per share,
and net income of $132 million, or $1.38 per share, excluding
special items. Second quarter net sales were $1.54 billion in 2020
and $1.76 billion in 2019.
Diluted earnings
per share attributable to Packaging Corporation of America
shareholders
Three Months Ended
June 30
2020
2019
Change
Reported Diluted EPS
$
0.59
$
2.04
$
(1.45
)
Special Items Expense (1)
0.79
0.00
0.79
Diluted EPS excluding Special items
$
1.38
$
2.04
$
(0.66
)
(1) For descriptions and amounts of our
special items, see the schedules with this release.
Reported earnings in the second quarter of 2020 include $.79 per
share of special items expense primarily for the impairment of
goodwill associated with our Paper segment (as described below),
the previously reported closure of our corrugated products
production facility in San Lorenzo, CA, and costs and expenses
associated with the COVID-19 pandemic.
During the second quarter of 2020, with the exacerbated
deterioration in uncoated freesheet market conditions arising from
the COVID-19 pandemic and its estimated impact on our Paper segment
and the projected future results of operations, we identified a
triggering event indicating possible impairment of goodwill and our
long- lived assets within our Paper segment. Due to this triggering
event and a more likely than not assessment that an impairment of
goodwill occurred, an interim quantitative impairment analysis as
of May 31, 2020 was performed. Based on this evaluation, we
determined that goodwill was fully impaired for the Paper segment
and recognized a non-cash impairment charge totaling $55.2 million.
The impairment charge is not tax deductible. As a result of the
triggering event described above, we also performed a
recoverability test on the long-lived assets within our Paper
segment, including long-lived intangible assets, as of May 31,
2020. The results of the recoverability test indicated that the
long-lived assets, inclusive of the long-lived intangible assets,
were 100% recoverable.
Excluding special items, the ($.66) per share decrease in second
quarter 2020 earnings compared to the second quarter of 2019 was
driven primarily by lower prices and mix in our Packaging segment
($.66) and Paper segment ($.05), lower volumes in our Paper segment
($.40), and higher depreciation expense ($.04). These items were
partially offset by lower operating costs $.33, lower annual outage
expenses $.10, lower converting costs $.03, lower freight expense
$.02 and other costs $.01.
Financial information by segment is summarized below and in the
schedules with this release.
(dollars in millions)
Three Months Ended
June 30
2020
2019
Segment income (loss)
Packaging
$
197.6
$
263.9
Paper
(61.4)
38.8
Corporate and Other
(20.1)
(22.3)
$
116.1
$
280.4
Segment income (loss) excluding special
items
Packaging
$
223.6
$
263.9
Paper
(5.7)
38.8
Corporate and Other
(20.1)
(22.3)
$
197.8
$
280.4
EBITDA excluding special items
Packaging
$
312.5
$
348.6
Paper
4.7
48.2
Corporate and Other
(18.2)
(20.6)
$
299.0
$
376.2
In the Packaging segment, total corrugated products shipments
and shipments per day were up 1.2% over last year’s second quarter.
Containerboard production was 1,073,000 tons, and containerboard
inventory was down 33,000 tons from the second quarter of 2019 and
up 42,000 tons compared to the first quarter of 2020. In the Paper
segment, sales volume was down 103,000 tons compared to the second
quarter of 2019 and down 93,000 tons from the first quarter of 2020
due to the previously announced downtime at our Jackson, AL
mill.
Commenting on reported results, Mark W. Kowlzan, Chairman and
CEO, said, “In the Packaging segment, our mills supplied the
necessary containerboard to achieve a second quarter record for box
shipments per day. We ran our containerboard system to demand while
building some much-needed inventory as we began the second quarter
with containerboard inventories at our lowest levels since the
Boise acquisition and ended the quarter with our weeks-of-inventory
supply still below our average over the last five years. All of our
mills and corrugated products plants exhibited outstanding cost
control throughout the quarter. In addition, we are seeing the
benefits of our corrugated products capital spending strategy
reflected in our box plant volume improvement as well as operating
and converting cost reductions and efficiencies. We also saw the
benefits from some of our mill cost reduction projects especially
in the areas of energy and fiber. As previously communicated in
April and again in late June, market conditions in the Paper
segment continue to be challenged as nationwide responses to help
control the spread of the COVID-19 virus have resulted in a
dramatic decrease in demand for our cut-size office papers. Our
Jackson, AL mill was temporarily idled for two months during the
second quarter, and we expect the mill to stay down at least
through the end of August.”
Mr. Kowlzan added, “As in the first quarter, the employees at
all of our manufacturing and office locations ran their operations
safely, and in a cost-effective manner, while facing the
unprecedented conditions brought on by the COVID-19 pandemic. All
facilities continued to operate in adherence to CDC guidelines and
followed a strict protocol for workplace operations as well as
notification of and response to potential issues. Although we did
experience some challenges during the second quarter, we have not
experienced any material disruption in our operations or our supply
chain due to the pandemic. The accomplishments by our employees
during this period, with the help of our customers and suppliers,
were truly amazing.”
Mr. Kowlzan continued, “Looking ahead to the third quarter, we
will stay focused on preserving our financial and balance sheet
strength during these uncertain times. We will remain
well-positioned to manage whatever lies ahead, while ensuring we
take care of the needs and expectations of our employees,
customers, suppliers and shareholders. During these unprecedented
times, corrugated products demand has performed quite well so far
this year, and we expect the third quarter to be even stronger. We
began the third quarter with replenished, yet still relatively low,
containerboard inventories and our expectation is that we will end
the quarter at levels below where we started while managing
scheduled outages at two of our mills. We have already announced
the actions being taken in our Paper business, and we will continue
to evaluate the demand for our paper products throughout the third
quarter. However, shelter-in-place and lockdown conditions continue
to change constantly across the country, and such events and
actions could adversely impact these expectations and the operation
of not only our facilities, but also the availability of services
and products we rely upon from our suppliers. As a result, we are
not able to appropriately quantify our guidance for the third
quarter.”
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 93 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 2nd
Quarter 2020 Earnings Conference Call
Conference ID: 8785211
WHEN:
Wednesday, July 29, 2020 at 9:00am Eastern
Time
CALL-IN NUMBER:
(855) 730-0288 (U.S. and Canada) or (832)
412-2295 (International)
Dial in by 8:45am Eastern Time
Conference Call Leader: Mr. Mark
Kowlzan
WEBCAST INFO:
http://www.packagingcorp.com
REBROADCAST DATES:
July 29, 2020 at 12:00pm Eastern Time
through August 12, 2020 11:59pm Eastern Time
REBROADCAST NUMBERS:
(855) 859-2056 (U.S. and Canada) or (404)
537-3406 (International)
Passcode: 8785211
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,
2020
2019
2020
2019
Net sales
$
1,541.6
$
1,759.9
$
3,250.3
$
3,493.6
Cost of sales
(1,215.8
)
(1)
(1,332.0
)
(2,559.6
)
(1)
(2,644.3
)
(3)
Gross profit
325.8
427.9
690.7
849.3
Selling, general, and administrative expenses
(136.3
)
(1)
(143.7
)
(282.2
)
(1)
(283.7
)
Goodwill impairment
(55.2
)
(2)
-
(55.2
)
(2)
-
Other expense, net
(18.2
)
(1)
(3.8
)
(28.1
)
(1)
(9.8
)
(3)
Income from operations
116.1
280.4
325.2
555.8
Non-operating pension income (expense)
0.6
(2.0
)
1.1
(4.1
)
Interest expense, net
(25.1
)
(22.4
)
(44.6
)
(46.4
)
Income before taxes
91.6
256.0
281.7
505.3
Provision for income taxes
(34.9
)
(62.4
)
(83.4
)
(124.9
)
Net income
$
56.7
$
193.6
$
198.3
$
380.4
Earnings per share: Basic
$
0.60
$
2.05
$
2.09
$
4.03
Diluted
$
0.59
$
2.04
$
2.08
$
4.02
Computation of diluted earnings per share under the two
class method: Net income
$
56.7
$
193.6
$
198.3
$
380.4
Less: Distributed and undistributed income available to
participating securities
(0.5
)
(1.5
)
(1.8
)
(2.9
)
Net income attributable to PCA shareholders
$
56.2
$
192.1
$
196.5
$
377.5
Diluted weighted average shares outstanding
94.4
94.0
94.4
94.0
Diluted earnings per share
$
0.59
$
2.04
$
2.08
$
4.02
Supplemental financial information: Capital spending
$
80.8
$
92.1
$
151.2
$
170.9
Cash balance
$
853.3
$
569.4
$
853.3
$
569.4
(1)
The three months and six months ended June 30, 2020 include the
following:
a. $20.4 million and $20.8
million, respectively, consisting of closure costs related to
corrugated products facilities, substantially all of which relates
to the previously announced closure of the San Lorenzo, California
facility during the second quarter, partially offset by income
related to the sale of a corrugated products facility, which were
recorded in “Cost of sales”, “Selling, general, and administrative
expenses”, and “Other expense, net”.
b. $6.1 million and $6.9 million,
respectively, of incremental, out-of-pocket costs related to
COVID-19, including supplies, cleaning and sick pay, which were
recorded in “Cost of sales”.
(2)
During the second quarter of 2020, with the exacerbated
deterioration in uncoated freesheet market conditions and the
estimated impact on our Paper reporting unit arising from the
COVID-19 pandemic, as well as projected future results of
operations, we identified a triggering event indicating possible
impairment of goodwill within our Paper reporting unit. The Company
performed an interim quantitative impairment analysis as of May 31,
2020, and, based on the evaluation performed, we determined that
goodwill was fully impaired for the Paper reporting unit and
recognized a non-cash impairment charge of $55.2 million.
(3)
The six months ended June 30, 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
Six Months Ended
June 30,
June 30,
2020
2019
2020
2019
Segment sales Packaging
$
1,409.9
$
1,504.6
$
2,877.4
$
2,982.2
Paper
123.3
237.8
340.7
477.5
Corporate and Other
8.4
17.5
32.2
33.9
$
1,541.6
$
1,759.9
$
3,250.3
$
3,493.6
Segment income (loss) Packaging
$
197.6
$
263.9
$
397.5
$
513.4
Paper
(61.4
)
38.8
(29.0
)
84.4
Corporate and Other
(20.1
)
(22.3
)
(43.3
)
(42.0
)
Income from operations
116.1
280.4
325.2
555.8
Non-operating pension income (expense)
0.6
(2.0
)
1.1
(4.1
)
Interest expense, net
(25.1
)
(22.4
)
(44.6
)
(46.4
)
Income before taxes
$
91.6
$
256.0
$
281.7
$
505.3
Segment income (loss) excluding special items (1)
Packaging
$
223.6
$
263.9
$
424.6
$
513.8
Paper
(5.7
)
38.8
26.8
84.6
Corporate and Other
(20.1
)
(22.3
)
(43.3
)
(42.0
)
$
197.8
$
280.4
$
408.1
$
556.4
EBITDA excluding special items (1) Packaging
$
312.5
$
348.6
$
602.3
$
682.4
Paper
4.7
48.2
46.7
103.1
Corporate and Other
(18.2
)
(20.6
)
(39.5
)
(38.7
)
$
299.0
$
376.2
$
609.5
$
746.8
(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
Six Months Ended
June 30,
June 30,
2020
2019
2020
2019
Packaging Segment income
$
197.6
$
263.9
$
397.5
$
513.4
Facilities closure and other costs
20.4
-
20.8
-
Incremental costs for COVID-19
5.6
-
6.3
-
Wallula mill restructuring
-
-
-
0.4
Segment income excluding special items (1)
$
223.6
$
263.9
$
424.6
$
513.8
Paper Segment income (loss)
$
(61.4
)
$
38.8
$
(29.0
)
$
84.4
Goodwill impairment
55.2
-
55.2
-
Incremental costs for COVID-19
0.5
-
0.6
-
Wallula mill restructuring
-
-
-
0.2
Segment income (loss) excluding special items (1)
$
(5.7
)
$
38.8
$
26.8
$
84.6
Corporate and Other Segment loss
$
(20.1
)
$
(22.3
)
$
(43.3
)
$
(42.0
)
Segment loss excluding special items (1)
$
(20.1
)
$
(22.3
)
$
(43.3
)
$
(42.0
)
Income from operations
$
116.1
$
280.4
$
325.2
$
555.8
Income from operations, excluding special items (1)
$
197.8
$
280.4
$
408.1
$
556.4
(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 June
30,
2020
2019
Income before taxes
Income Taxes
Net Income
Diluted EPS
Income before taxes
Income Taxes
Net Income
Diluted EPS
As reported
$
91.6
$
(34.9
)
$
56.7
$
0.59
$
256.0
$
(62.4
)
$
193.6
$
2.04
Special items (2): Goodwill impairment
55.2
-
55.2
0.58
-
-
-
-
Facilities closure and other costs
20.4
(5.1
)
15.3
0.16
-
-
-
-
Incremental costs for COVID-19
6.1
(1.5
)
4.6
0.05
-
-
-
-
Total special items
81.7
(6.6
)
75.1
0.79
-
-
-
-
Excluding special items
$
173.3
$
(41.5
)
$
131.8
$
1.38
$
256.0
$
(62.4
)
$
193.6
$
2.04
Six Months Ended June
30,
2020
2019
Income before taxes
Income Taxes
Net Income
Diluted EPS
Income before taxes
Income Taxes
Net Income
Diluted EPS
As reported
$
281.7
$
(83.4
)
$
198.3
$
2.08
$
505.3
$
(124.9
)
$
380.4
$
4.02
Special items (2): Goodwill impairment
55.2
-
55.2
0.58
-
-
-
-
Facilities closure and other costs
20.8
(5.2
)
15.6
0.17
-
-
-
-
Incremental costs for COVID-19
6.9
(1.7
)
5.2
0.05
-
-
-
-
Wallula mill restructuring
-
-
-
-
0.6
(0.1
)
0.5
-
Total special items
82.9
(6.9
)
76.0
0.80
0.6
(0.1
)
0.5
-
Excluding special items
$
364.6
$
(90.3
)
$
274.3
$
2.88
$
505.9
$
(125.0
)
$
380.9
$
4.02
(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, 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,
2020
2019
2020
2019
Net income
$
56.7
$
193.6
$
198.3
$
380.4
Non-operating pension (income) expense
(0.6
)
2.0
(1.1
)
4.1
Interest expense, net
25.1
22.4
44.6
46.4
Provision for income taxes
34.9
62.4
83.4
124.9
Depreciation, amortization, and depletion
108.3
95.8
208.5
190.6
EBITDA (1)
$
224.4
$
376.2
$
533.7
$
746.4
Special items: Goodwill impairment
55.2
-
55.2
-
Facilities closure and other costs
13.3
-
13.7
-
Incremental costs for COVID-19
6.1
-
6.9
-
Wallula mill restructuring
-
-
-
0.4
EBITDA excluding special items (1)
$
299.0
$
376.2
$
609.5
$
746.8
(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
Six Months Ended
June 30,
June 30,
2020
2019
2020
2019
Packaging Segment income
$
197.6
$
263.9
$
397.5
$
513.4
Depreciation, amortization, and depletion
96.0
84.7
184.8
168.8
EBITDA (1)
293.6
348.6
582.3
682.2
Facilities closure and other costs
13.3
-
13.7
-
Incremental costs for COVID-19
5.6
-
6.3
-
Wallula mill restructuring
-
-
-
0.2
EBITDA excluding special items (1)
$
312.5
$
348.6
$
602.3
$
682.4
Paper Segment income (loss)
$
(61.4
)
$
38.8
$
(29.0
)
$
84.4
Depreciation, amortization, and depletion
10.4
9.4
19.9
18.5
EBITDA (1)
(51.0
)
48.2
(9.1
)
102.9
Goodwill impairment
55.2
-
55.2
-
Incremental costs for COVID-19
0.5
-
0.6
-
Wallula mill restructuring
-
-
-
0.2
EBITDA excluding special items (1)
$
4.7
$
48.2
$
46.7
$
103.1
Corporate and Other Segment loss
$
(20.1
)
$
(22.3
)
$
(43.3
)
$
(42.0
)
Depreciation, amortization, and depletion
1.9
1.7
3.8
3.3
EBITDA (1)
(18.2
)
(20.6
)
(39.5
)
(38.7
)
EBITDA excluding special items (1)
$
(18.2
)
$
(20.6
)
$
(39.5
)
$
(38.7
)
EBITDA excluding special items (1)
$
299.0
$
376.2
$
609.5
$
746.8
(1) See footnote (1) on page 2, for a discussion of non-GAAP
financial measures.
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