Yahoo Finance Packaging Corporation of America (NYSE:PKG) Q1 2024 Earnings Call Transcript
Packaging Corporation of America (NYSE:PKG) Q1 2024 Earnings Call Transcript April 23, 2024
Packaging Corporation of America isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning, everyone, and thank you for joining Packaging Corporation of America's First Quarter 2024 Earnings Results Conference Call. Your host today will be Mark Kowlzan, Chairman, Chief Executive Officer of PCA. Upon conclusion of his narrative, there will be a question-and-answer session. And please also note today's event is being recorded. At this time, I'd like to turn the floor over to Mr. Kowlzan. Please proceed when you are ready.
Mark Kowlzan: Thank you, Jamie. Good morning, everyone, and thank you for participating in Packaging Corporation of America's first quarter 2024 earnings release conference call. Again, I'm Mark Kowlzan, Chairman and CEO of Packaging Corporation of America. And with me on the call today is Tom Hassfurther, Executive Vice President who runs the Packaging business, and Bob Mundy, our Chief Financial Officer. I'll begin the call with an overview of our first quarter results, and then I'll be turning it over to Tom and Bob, who will provide further details. And then I'll wrap things up and we'd be glad to take questions. Yesterday, we reported first quarter net income of $147 million or $1.63 per share. Excluding special items, first quarter 2024 net income was $155 million or $1.72 per share compared to the first quarter of 2023's net income of $198 million or $2.20 per share.
Our first quarter net sales were $2 billion in 2024 and 2023. Total company EBITDA for the first quarter, excluding special items, was $333 million in 2024 and $405 million in 2023. First quarter net income included special items expenses of $0.09 per share, primarily for certain costs at our Jackson, Alabama mill for the paper to containerboard conversion-related activities. Details of special items for both the first quarter of 2024 and 2023 were included in the schedules that accompanied our earnings press release. Excluding the special items, the $0.48 per share decrease in first quarter 2024 earnings compared to the first quarter of 2023 was driven primarily by lower prices and mix in the Packaging segment for $1.33, and Paper segment $0.08, higher scheduled mill outage expense $0.10, higher depreciation $0.03, higher expenses related to corrugated plant capital projects of $0.02 and other expenses $0.04.
These items were partially offset by higher volumes in the Packaging segment for $0.71, and Paper segment $0.06. We also had lower operating and converting costs of $0.15 driven by very good process efficiencies and control over other usages of fiber, chemicals, energy, materials and labor. Although energy prices were lower versus last year's first quarter, they were more than offset by higher recycled fiber prices. In addition, we had lower freight and logistics expenses for $0.04, lower interest expense $0.07 and lower tax rate $0.09. The results were $0.18 above the first quarter guidance of $1.54 per share, primarily due to the strong volume in both the Packaging and Paper segments, along with the continued emphasis on cost management and process efficiencies across our manufacturing and converting facilities.
This drove operating and converting costs lower even with the persistent inflation we continue to experience across most of the cost structure. Executing the conversion outage at our Jackson, Alabama mill better than planned resulted in lower scheduled mill maintenance outages, expenses and freight and logistics expenses were less than guidance as well. Looking at the Packaging business, EBITDA, excluding special items in the first quarter of 2024 of $326 million with sales of $1.8 billion resulted in a margin of 18.1% versus last year's EBITDA of $392 million or sales of $1.8 billion or 21.7% margin. Throughout the quarter, containerboard and corrugated products demand exceeded our expectations. In addition to outstanding operational performance at our box plants and containerboard mills, we were able to service the high demand from excellent execution of the convert -- of the conversion outage at our Jackson mill.
This enabled us to restart both machines earlier than anticipated and we completed our work prior to the quarter-end rather than in the month of April, which had been the original plan. Despite these efforts, with the higher demand, we ended the quarter at a record-low weeks of inventory supply for this time of year. With just our Filer, Michigan mill having a scheduled maintenance outage in the second quarter, we do expect to build our inventories back to targeted levels by the end of this quarter. I'll now turn it over to Tom, who will provide further details on containerboard sales and the corrugated business in general.
Tom Hassfurther: Thanks, Mark. As Mark mentioned, Packaging segment volume for the quarter exceeded our guidance estimates. Corrugated product shipments per workday were up 11% and total shipments with one less shipping day were up 9.2% compared to last year's first quarter. Compared to the pre-COVID period of the first quarter of 2019, shipments were up over 10.4% on a per day basis. Outside sales volume of containerboard was 40,000 tons above last year's first quarter and 15,000 tons below the fourth quarter of 2023. Our order backlog remained incredibly strong throughout the quarter, and although demand continues to be challenged by constant inflation, higher interest rates and other factors, we expect to continue this positive momentum as we enter the second quarter.
Domestic containerboard and corrugated products prices and mix together moved slightly higher from the fourth quarter of 2023 levels by $0.01 per share, which was less than we anticipated due to our total announced increase not being recognized in the published benchmark prices. Versus the first quarter of 2023, prices and mix were down $1.19 per share. Export containerboard prices and mix were down $0.01 per share compared to the fourth quarter of 2023 and down $0.14 per share compared to the first quarter of 2023. I'd like to point out that the capital spending and optimization strategy within our box plant system that we have been continuously focused on over the last few years is providing incredible benefits. This has allowed us to focus on the mix of customers we want to profitably grow our revenues with by providing them the product and service needs they desire and allows them to grow.
Based on our current demand outlook for this year, this strategy has us on pace to set a new record for box shipments per plant. I'll now turn it back to Mark.
Mark Kowlzan: Thanks, Tom. Looking at the Paper segment, EBITDA excluding special items in the first quarter was $41 million with sales of $164 million or 25% margin compared to the first quarter of 2023's EBITDA of $41 million and sales of $151 million or 27% margin. Sales volume, which exceeded our guidance estimates, was 14% above the fourth quarter of 2023 and 16% above the first quarter of 2023. Demand was very good both from our existing customers as well as incremental volume from some new customers as we acquire -- that we acquired towards the end of 2023. Orders remain strong as we enter the second quarter, although volume will be impacted by the scheduled maintenance outage at our International Falls, Minnesota mill in June.
An improved sales mix moved paper prices slightly above the fourth quarter of 2023, although prices and mix were down about 6% from last year's first quarter. This past February, we announced $100 price increase across all of our paper grades and we began implementing these increases on April 1. I'll now turn it over to Bob.
Bob Mundy: Thanks, Mark. Cash provided by operations during the quarter totaled $260 million and free cash flow was a first quarter record $184 million. The primary payments of cash during the quarter included capital expenditures of $77 million and dividend payments of $112 million. Excluding the invested cash proceeds from the bond transaction we mentioned on last quarter's call, our quarter-end cash balance, including marketable securities was approximately $900 million with liquidity of $1.2 billion. Due to the excellent execution of the conversion outage at the Jackson mill that Mark spoke of and moving the International Falls mill outage from the third quarter and into the second quarter, we are revising the scheduled mill outage guidance we provided on last quarter's call.
The revised total company estimated cost impact for the year is now $0.89 per share versus $0.96 per share previously. The actual impact in the first quarter was $0.24 per share and the revised estimated impact by quarter for the remainder of the year is now $0.18 per share in the second quarter, $0.14 in the third, and $0.33 per share in the fourth quarter. I'll now turn it back over to Mark.
Mark Kowlzan: Thanks, Bob. Looking ahead, as we move from the first and into the second quarter in our Packaging segment, we expect continued strong demand and higher corrugated products and containerboard shipments. Prices and mix will move higher due to our announced price increases and increase in published domestic index prices as well as higher export prices. Orders in our Paper segment are expected to remain strong, however volumes will be lower due to the scheduled maintenance outage at the International Falls Minnesota mill during the quarter. Although we're implementing our recently announced paper price increases, the average prices and mix are expected to be slightly lower due to the published decrease in index prices earlier this year and how that impacts contract triggers with certain customers.
Operating and converting costs should be slightly lower, primarily due to the sequential improvement in seasonal weather and wage and benefit timing expenses that we incurred in the first quarter and scheduled maintenance outage expenses will be lower. Rail rate increases at six of our mills during the first and second quarters will result in higher freight and logistics expenses and depreciation expense will be higher. Finally, our tax rate will be sequentially higher due to the tax-related benefit of share-based compensation vests in the first quarter. Considering these items, we expect the second quarter earnings of $2.07 per share. With that, we'd be happy to entertain any questions, but I must remind you that some of the statements we've made on the call constitute the forward-looking statements.
The statements were based on current estimates, expectations, and projections of the company and do involve inherent risks and uncertainties, including the direction of the economy and those identified as risk factors in the Annual Report on Form 10-K on file with the SEC. Actual results could differ materially from those expressed in the forward-looking statements. And with that, Jamie, I'd like to open up the call for questions, please.
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