Packaging Corporation of America (NYSE: PKG) today reported
third quarter 2020 net income of $139 million, or $1.46 per share,
and net income of $149 million, or $1.57 per share, excluding
special items. Third quarter net sales were $1.69 billion in 2020
and $1.75 billion in 2019.
Diluted earnings
per share attributable to Packaging Corporation of America
shareholders
Three Months Ended
September 30
2020
2019
Change
Reported Diluted EPS
$
1.46
$
1.89
$
(0.43)
Special Items Expense (1) (2)
0.11
0.02
0.08
Diluted EPS excluding Special items
(2)
$
1.57
$
1.92
$
(0.35)
(1) For descriptions and amounts of our
special items, see the schedules with this release.
(2) Amounts may not foot or crossfoot due
to rounding.
Reported earnings include $.11 per share of special items
expense in the third quarter of 2020, primarily for the costs and
expenses associated with Hurricane Laura which made landfall on
August 27, 2020, approximately 100 miles south of our DeRidder,
Louisiana mill. Mill production was down, including the time
necessary for storm preparations, a total of approximately 12
days.
Excluding special items, the ($.35) per share decrease in third
quarter 2020 earnings compared to the third quarter of 2019 was
driven primarily by lower prices and mix in our Packaging segment
($.36) and Paper segment ($.07), lower volumes in our Paper segment
($.33), higher scheduled maintenance outage costs ($.04), and
higher freight expense ($.02). These items were partially offset by
higher volumes in our Packaging segment $.22, lower operating costs
$.20, and lower converting $.04 and other costs $.01.
Financial information by segment is summarized below and in the
schedules with this release.
(dollars in millions)
Three Months Ended
September 30
2020
2019
Segment income (loss)
Packaging
$
222.4
$
235.1
Paper
7.3
48.1
Corporate and Other
(20.2
)
(20.4
)
$
209.5
$
262.8
Segment income (loss) excluding special
items
Packaging
$
235.7
$
238.1
Paper
7.3
48.1
Corporate and Other
(20.2
)
(20.4
)
$
222.8
$
265.8
EBITDA excluding special items
Packaging
$
323.9
$
324.6
Paper
16.9
57.7
Corporate and Other
(18.0
)
(18.6
)
$
322.8
$
363.7
In the Packaging segment, total corrugated products shipments
with one additional workday were up 6.4%, and shipments per day
were up 4.7% over last year’s third quarter. Containerboard
production was 1,048,000 tons, and containerboard inventory was
down 58,000 tons from the third quarter of 2019 and down 55,000
tons compared to the second quarter of 2020. In the Paper segment,
sales volume was down 55,000 tons compared to the third quarter of
2019, and up 56,000 tons from the second quarter of 2020.
Commenting on reported results, Mark W. Kowlzan, Chairman and
CEO, said, “In the Packaging segment, demand was very strong
throughout the quarter as we set new all-time quarterly records for
total box shipments and shipments per day. We were able to overcome
the hurricane-related issues at our DeRidder mill to avoid any
disruptions to our customers; however, with this supply disruption
along with strong demand, we ended the quarter with much lower
inventory than anticipated. This will require us to postpone the
mill’s previously announced discretionary outage planned for the
fourth quarter of this year. Market conditions in our Paper segment
continue to be challenged due to the nationwide responses to help
control the spread of the pandemic. Although demand did increase
from the second quarter, it was still well below last year’s
levels. As a result, we kept our Jackson Mill idle for the entire
third quarter.”
Mr. Kowlzan added, “For three quarters now, our employees across
the Company ran their operations safely, and in a cost-effective
manner, during this pandemic. They are doing an outstanding job
following the processes and protocols we have instituted to help
protect them and their families. What makes this even more
remarkable is that our employees’ focus on these new work
requirements is occurring while we are experiencing unprecedented
demand within our Packaging business, and they continue to
successfully meet the expectations of our containerboard and box
customers. Everyone has worked very hard to overcome the challenges
and obstacles we’ve faced this year, and I couldn’t be more proud
of our entire organization as well as the strong partnerships we
have with our customers and suppliers.”
Mr. Kowlzan continued, “Looking ahead as we move from the third
and into the fourth quarter, in our Packaging segment we expect
corrugated products demand to remain strong. Although shipments
will be lower than the third quarter with three less shipping days,
volume should be higher than last year’s record fourth quarter
shipments. Higher containerboard production will help us build some
inventory prior to year-end as we prepare for first quarter 2021
scheduled maintenance outages and expected continued strong demand.
Earlier this month, we communicated price increases to our
containerboard and box customers and we’ll be implementing these
during the quarter and into next year; however, we also expect a
seasonally less rich mix in corrugated products compared to the
third quarter. In addition, we expect average export prices to move
higher during the fourth quarter. In our Paper segment, although
demand is well below historical levels, as schools and business
have re-opened to some extent volume has improved since the
low-point reached during the second quarter. However, we believe
our sales volume in the fourth quarter will be lower than the
seasonally stronger third quarter although, with the scheduled
outage we had at our International Falls mill earlier this month,
our Jackson mill was restarted on October 6th. We will continue to
evaluate our paper needs from Jackson as the quarter progresses. We
also expect freight and scheduled maintenance outage costs to be
higher and, with anticipated colder weather, energy costs should be
higher as well.”
Mr. Kowlzan concluded, “As certain areas of the economy continue
to reopen, shelter-in-place and lockdown conditions are expected to
continue changing across the country, especially considering the
upcoming colder weather and holiday gatherings. There continues to
be numerous events and actions that could impact our expectations
for the upcoming quarter and the operation of not only our
facilities, but also adversely impact the needs of our customers
and the availability of services and products we rely upon from our
suppliers. As a result, we are still not able to appropriately
quantify our guidance for the fourth 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, and in subsequent
quarterly reports on Form 10-Q, 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 2020 Earnings Conference Call
Conference ID: 1064368
WHEN:
Tuesday, October 27, 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:
October 27, 2020 at 12:00pm Eastern Time
through November 10, 2020 11:59pm Eastern Time
REBROADCAST NUMBERS:
(855) 859-2056 (U.S. and Canada) or (404)
537-3406 (International)
Passcode: 1064368
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,
2020
2019
2020
2019
Net sales
$
1,693.7
$
1,750.7
$
4,944.0
$
5,244.3
Cost of sales
(1,348.3
)
(1)
(1,339.3
)
(3,907.9
)
(1)(2)
(3,983.6
)
(5)
Gross profit
345.4
411.4
1,036.1
1,260.7
Selling, general, and administrative expenses
(127.1
)
(1)
(136.9
)
(409.3
)
(1)
(420.6
)
Goodwill impairment
-
-
(55.2
)
(3)
-
Other expense, net
(8.8
)
(1)
(11.7
)
(4)
(36.9
)
(1)
(21.5
)
(4)(5)
Income from operations
209.5
262.8
534.7
818.6
Non-operating pension income (expense)
0.6
(1.9
)
1.7
(6.0
)
Interest expense, net
(24.4
)
(21.6
)
(69.1
)
(68.0
)
Income before taxes
185.7
239.3
467.3
744.6
Provision for income taxes
(46.6
)
(59.5
)
(129.9
)
(184.4
)
Net income
$
139.1
$
179.8
$
337.4
$
560.2
Earnings per share: Basic
$
1.47
$
1.90
$
3.56
$
5.93
Diluted
$
1.46
$
1.89
$
3.54
$
5.91
Computation of diluted earnings per share under the two
class method: Net income
$
139.1
$
179.8
$
337.4
$
560.2
Less: Distributed and undistributed income available to
participating securities
(1.0
)
(1.3
)
(2.7
)
(4.2
)
Net income attributable to PCA shareholders
$
138.1
$
178.5
$
334.7
$
556.0
Diluted weighted average shares outstanding
94.5
94.3
94.4
94.1
Diluted earnings per share
$
1.46
$
1.89
$
3.54
$
5.91
Supplemental financial information: Capital spending
$
102.3
$
92.9
$
253.5
$
263.8
Cash balance
$
949.1
$
738.3
$
949.1
$
738.3
(1)
The three months and nine months ended September 30, 2020 include
the following:
a.
$3.3 million and $24.1 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 during the second quarter, which were recorded in “Cost of
sales”, “Selling, general, and administrative expenses”, and “Other
expense, net”, as appropriate.
b.
$10.0 million of charges related to the impact of Hurricane Laura
at our DeRidder, Louisiana mill, including unabsorbed costs related
to lost production, excess purchased containerboard and freight
costs, repair expenses, rental and supplies costs, and other
recovery expenses, which were recorded in “Cost of sales”.
(2)
The nine months ended September 30, 2020 include $6.9 million of
incremental, out-of-pocket costs related to COVID-19 that were
incurred in the first half of 2020. Costs include materials,
cleaning supplies, and sick pay as well as expenses for
establishing processes and logistics for the new work requirements
in all of our facilities for mitigating the spread of the virus
within the Company. With the process now established, we anticipate
any corresponding COVID-19 related expenses to be included in
normalized costs through the span of the pandemic.
(3)
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.
(4)
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”.
(5)
The nine months ended September 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 Nine Months Ended September 30,
September 30,
2020
2019
2020
2019
Segment sales Packaging
$
1,501.1
$
1,489.9
$
4,378.5
$
4,472.1
Paper
178.1
242.8
518.7
720.3
Corporate and Other
14.5
18.0
46.8
51.9
$
1,693.7
$
1,750.7
$
4,944.0
$
5,244.3
Segment income (loss) Packaging
$
222.4
$
235.1
$
619.9
$
748.6
Paper
7.3
48.1
(21.7
)
132.5
Corporate and Other
(20.2
)
(20.4
)
(63.5
)
(62.5
)
Income from operations
209.5
262.8
534.7
818.6
Non-operating pension income (expense)
0.6
(1.9
)
1.7
(6.0
)
Interest expense, net
(24.4
)
(21.6
)
(69.1
)
(68.0
)
Income before taxes
$
185.7
$
239.3
$
467.3
$
744.6
Segment income (loss) excluding special items (1)
Packaging
$
235.7
$
238.1
$
660.3
$
752.0
Paper
7.3
48.1
34.1
132.7
Corporate and Other
(20.2
)
(20.4
)
(63.5
)
(62.5
)
$
222.8
$
265.8
$
630.9
$
822.2
EBITDA excluding special items (1) Packaging
$
323.9
$
324.6
$
926.3
$
1,007.0
Paper
16.9
57.7
63.6
160.8
Corporate and Other
(18.0
)
(18.6
)
(57.6
)
(57.3
)
$
322.8
$
363.7
$
932.3
$
1,110.5
(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 Nine Months Ended September 30,
September 30,
2020
2019
2020
2019
Packaging Segment income
$
222.4
$
235.1
$
619.9
$
748.6
Hurricane Laura impact
10.0
-
10.0
-
Facilities closure and other costs
3.3
-
24.1
-
Incremental costs for COVID-19
-
-
6.3
-
DeRidder mill fixed asset disposals
-
3.0
-
3.0
Wallula mill restructuring
-
-
-
0.4
Segment income excluding special items (1)
$
235.7
$
238.1
$
660.3
$
752.0
Paper Segment income (loss)
$
7.3
$
48.1
$
(21.7
)
$
132.5
Goodwill impairment
-
-
55.2
-
Incremental costs for COVID-19
-
-
0.6
-
Wallula mill restructuring
-
-
-
0.2
Segment income excluding special items (1)
$
7.3
$
48.1
$
34.1
$
132.7
Corporate and Other Segment loss
$
(20.2
)
$
(20.4
)
$
(63.5
)
$
(62.5
)
Segment loss excluding special items (1)
$
(20.2
)
$
(20.4
)
$
(63.5
)
$
(62.5
)
Income from operations
$
209.5
$
262.8
$
534.7
$
818.6
Income from operations, excluding special items (1)
$
222.8
$
265.8
$
630.9
$
822.2
(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,
2020
2019
Incomebeforetaxes IncomeTaxes NetIncome
DilutedEPS Incomebeforetaxes IncomeTaxes
NetIncome DilutedEPS As reported
$
185.7
$
(46.6
)
$
139.1
$
1.46
$
239.3
$
(59.5
)
$
179.8
$
1.89
Special items (2): Hurricane Laura impact
10.0
(2.4
)
7.6
0.08
-
-
-
-
Facilities closure and other costs
3.3
(0.8
)
2.5
0.03
-
-
-
-
DeRidder mill fixed asset disposals
-
-
-
-
3.0
(0.7
)
2.3
0.02
Total special items
13.3
(3.2
)
10.1
0.11
3.0
(0.7
)
2.3
0.02
Excluding special items
$
199.0
$
(49.8
)
$
149.2
$
1.57
$
242.3
$
(60.2
)
$
182.1
$
1.92 (3
)
Nine Months Ended September
30,
2020
2019
Incomebeforetaxes IncomeTaxes NetIncome
DilutedEPS Incomebeforetaxes IncomeTaxes
NetIncome DilutedEPS As reported
$
467.3
$
(129.9
)
$
337.4
$
3.54
$
744.6
$
(184.4
)
$
560.2
$
5.91
Special items (2): Goodwill impairment
55.2
-
55.2
0.58
-
-
-
-
Facilities closure and other costs
24.1
(6.0
)
18.1
0.19
-
-
-
-
Hurricane Laura impact
10.0
(2.4
)
7.6
0.08
-
-
-
-
Incremental costs for COVID-19
6.9
(1.7
)
5.2
0.06
-
-
-
-
DeRidder mill fixed asset disposals
-
-
-
-
3.0
(0.7
)
2.3
0.02
Wallula mill restructuring
-
-
-
-
0.6
(0.1
)
0.5
0.01
Total special items
96.2
(10.1
)
86.1
0.91
3.6
(0.8
)
2.8
0.03
Excluding special items
$
563.5
$
(140.0
)
$
423.5
$
4.45
$
748.2
$
(185.2
)
$
563.0
$
5.94
(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 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 Nine Months Ended September 30,
September 30,
2020
2019
2020
2019
Net income
$
139.1
$
179.8
$
337.4
$
560.2
Non-operating pension (income) expense
(0.6
)
1.9
(1.7
)
6.0
Interest expense, net
24.4
21.6
69.1
68.0
Provision for income taxes
46.6
59.5
129.9
184.4
Depreciation, amortization, and depletion
100.4
97.9
309.0
288.5
EBITDA (1)
$
309.9
$
360.7
$
843.7
$
1,107.1
Special items: Hurricane Laura impact
10.0
-
10.0
-
Facilities closure and other costs
2.9
-
16.5
-
Goodwill impairment
-
-
55.2
-
Incremental costs for COVID-19
-
-
6.9
-
DeRidder mill fixed asset disposals
-
3.0
-
3.0
Wallula mill restructuring
-
-
-
0.4
EBITDA excluding special items (1)
$
322.8
$
363.7
$
932.3
$
1,110.5
(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) The following table
reconciles segment income (loss) to EBITDA excluding special items:
Three Months Ended Nine Months Ended
September 30, September 30,
2020
2019
2020
2019
Packaging Segment income
$
222.4
$
235.1
$
619.9
$
748.6
Depreciation, amortization, and depletion
88.6
86.5
273.6
255.2
EBITDA (1)
311.0
321.6
893.5
1,003.8
Hurricane Laura impact
10.0
-
10.0
-
Facilities closure and other costs
2.9
-
16.5
-
Incremental costs for COVID-19
-
-
6.3
-
DeRidder mill fixed asset disposals
-
3.0
-
3.0
Wallula mill restructuring
-
-
-
0.2
EBITDA excluding special items (1)
$
323.9
$
324.6
$
926.3
$
1,007.0
Paper Segment income (loss)
$
7.3
$
48.1
$
(21.7
)
$
132.5
Depreciation, amortization, and depletion
9.6
9.6
29.5
28.1
EBITDA (1)
16.9
57.7
7.8
160.6
Goodwill impairment
-
-
55.2
-
Incremental costs for COVID-19
-
-
0.6
-
Wallula mill restructuring
-
-
-
0.2
EBITDA excluding special items (1)
$
16.9
$
57.7
$
63.6
$
160.8
Corporate and Other Segment loss
$
(20.2
)
$
(20.4
)
$
(63.5
)
$
(62.5
)
Depreciation, amortization, and depletion
2.2
1.8
5.9
5.2
EBITDA (1)
(18.0
)
(18.6
)
(57.6
)
(57.3
)
EBITDA excluding special items (1)
$
(18.0
)
$
(18.6
)
$
(57.6
)
$
(57.3
)
EBITDA excluding special items (1)
$
322.8
$
363.7
$
932.3
$
1,110.5
(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/20201026005919/en/
Barbara Sessions Packaging Corporation of America INVESTOR
RELATIONS: (877) 454-2509 PCA’s Website: www.packagingcorp.com
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