Packaging Corporation of America Reports Fourth Quarter and Full Year 2021 Results

Packaging Corporation of America PKG today reported fourth quarter 2021 net income of $217 million, or $2.28 per share, and net income of $262 million, or $2.76 per share, excluding special items. Fourth quarter net sales were $2.0 billion in 2021 and $1.7 billion in 2020. Full year 2021 net income was $841 million, or $8.83 per share, and net income of $894 million, or $9.39 per share, excluding special items. Full year net sales were $7.7 billion in 2021 and $6.7 billion in 2020.

Reported earnings in the fourth quarter and full year 2021 include special items primarily for costs associated with the Company's debt refinancing completed in October 2021, and for certain costs at the Jackson, AL mill for paper-to-containerboard conversion related activities. The refinancing extended the Company's overall debt maturity from 8.5 years to 16.3 years and decreased the Company's overall interest rate from 3.9% to 3.5%. Gross debt remained unchanged at $2.5 billion.

Excluding special items, the $1.43 per share increase in fourth quarter 2021 earnings compared to the fourth quarter of 2020 was driven primarily by higher prices and mix $2.17 and volume $.35 in our Packaging segment, higher prices and mix in our Paper segment $.09, a lower tax rate $.04, lower non-operating pension expense $.03, lower interest expense $.02, and other items $.02. These items were partially offset by higher operating costs ($.68), higher freight and logistics expenses ($.24), higher scheduled maintenance outage expenses ($.14), lower volumes in our Paper segment ($.11), higher converting costs ($.08), and higher depreciation expense ($.04).

Results were $.72 above fourth quarter guidance of $2.04 per share primarily due to higher volumes and higher prices and mix in our Packaging and Paper segments, lower wood fiber and energy costs, lower scheduled maintenance outage expenses, and a favorable tax rate.

Financial information by segment is summarized below and in the schedules with this release.

In the Packaging segment, total corrugated products shipments and shipments per day were up 0.1% over last year's fourth quarter. Containerboard production was 1,243,000 tons, and containerboard inventory was down 9,000 tons from the third quarter of 2021 and up 42,000 tons compared to the fourth quarter of 2020. In the Paper segment, sales volume was down 12,000 tons compared to the third quarter of 2021 and down 29,000 tons from the fourth quarter of 2020.

Commenting on reported results, Mark W. Kowlzan, Chairman and CEO, said, "Demand in our Packaging segment remained very strong, with our corrugated products plants delivering record fourth quarter total shipments and an all-time record shipments per day that exceeded last year's extremely strong fourth quarter. We utilized the capability of both machines at our Jackson, AL mill to produce containerboard for the entire quarter yet inventories, including the additional containerboard inventory from our December acquisition of Advance Packaging, moved lower from the end of September. Throughout the quarter, implementation of our previously announced containerboard and corrugated products price increases was executed extremely well. Although unprecedented inflation in most all of our operating cost categories and freight cost continues, we were able to offset some of this impact by taking advantage of the strong market conditions with great operational execution in both our mills and corrugated products plants as well as from favorable weather patterns helping with our wood and energy costs. Across the company, the commitment and dedication exhibited by our employees to meet our customers' needs while overcoming the difficulties and challenges brought on by on-going labor shortages, now exacerbated by the Omicron variant, supply chain bottlenecks, and logistics constraints has been outstanding. Finally, during the quarter we utilized the remaining $193 million of share repurchase authorization to buyback over 1.4 million shares of our stock at an average price of $133.79 per share. Our board of directors recently approved a new $1 billion repurchase authorization."

"Looking ahead as we move from the fourth and into the first quarter," Mr. Kowlzan continued, "in our Packaging segment we expect to benefit from higher corrugated products shipments with three additional shipping days, and we expect shipments per day to be higher than last year's first quarter as demand remains strong, along with slightly higher domestic and export prices and mix. Additionally, in our Paper segment, we expect higher prices and mix from our previously announced price increase that was implemented beginning last November. There should also be a small benefit in the first quarter from our most recent price increase announced last week. Scheduled outage expenses will be lower, and we expect a small benefit from our recent share repurchases. However, continued higher inflation across most all operating and converting costs as well as freight and logistics expenses more than offset these benefits. We estimate this to be the largest inflation-driven sequential cost increase in our history. In addition to the inflation-related impact, labor and benefits costs will also be higher due to timing-related increases as we start a new year, and seasonally colder weather should increase energy and wood costs. Considering these items, we expect first quarter earnings of $2.50 per share. This does not include any potential benefit from a $70 per ton price increase across all liner and medium containerboard grades that we communicated to our customers within the last few days."

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 currently anticipate special items in the first quarter of 2022 to include accounting charges, fees, and expenses for paper-to-containerboard conversion related activities at the Jackson, AL mill. We do not currently expect any additional significant special items during the first quarter; however, additional special items may arise due to first quarter events.

PCA is the third largest producer of containerboard products and a leading producer of uncoated freesheet paper in North America. PCA operates eight mills and 90 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, 2020, 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".

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