Market Overview

Packaging Corporation of America Reports First Quarter 2017 Results

Share:





Packaging Corporation of America (NYSE:PKG) today reported first
quarter 2017 net income of $117 million, or $1.24 per share and $1.27
per share excluding special items. First quarter net sales were $1.5
billion in 2017 and $1.4 billion in 2016.

 
Diluted earnings per share attributable to Packaging
Corporation of America shareholders
   
Three Months Ended
March 31
2017   2016   Change
Reported Diluted EPS $ 1.24 $ 1.09 $ 0.15
Special Items Expense (1) 0.03   0.02   0.01
Diluted EPS excluding Special items $ 1.27   $ 1.11   $ 0.16
 
(1) For descriptions and amounts of our special items see
page 4.
 

Reported earnings include the impact of $.03 of special items expense in
the first quarter of 2017 and $.02 of special items expense in 2016.

Our current estimate of the total property damage and business
interruption losses associated with the DeRidder Mill incident is
between $20 million to $25 million, including capital costs of
approximately $4 million. The estimated impact to first quarter
earnings, excluding capital costs, is $15 million of which $5 million,
or $.03 per share, is included in special items expense for the quarter
representing our property damage and business interruption deductible.
The remaining loss of $10 million, or $.07 per share, that impacted our
first quarter results is expected to be resolved with our insurance
carrier over the next several months. Additionally, to ensure adequate
linerboard inventory during the extended DeRidder mill annual outage, we
moved a previously scheduled maintenance outage at our Counce Mill from
the first quarter to the second quarter of 2017, which improved expected
first quarter results by $.01 per share.

Excluding special items, the $.16 per share increase in first quarter
2017 earnings compared to the first quarter of 2016, was driven
primarily by higher containerboard and corrugated products prices and
mix ($.16) and sales volumes ($.12), higher paper segment prices and mix
($.04), higher containerboard production volumes ($.07), and lower wood
costs ($.05). These items were partially offset by lower paper segment
sales and production volumes ($.06), higher costs for recycled fiber
($.07), energy ($.06), and freight ($.02), higher labor and fixed costs
($.02), and higher expenses for depreciation ($.03) and interest ($.02).

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

 
(dollars in millions)
Three Months Ended
March 31
2017   2016
Segment income (loss)
Packaging $ 190.8 $ 161.5
Paper 29.8 36.1
Corporate and Other   (17.5)   (16.8)
$ 203.1 $ 180.8
 
Segment income (loss) excluding special items
Packaging $ 195.0 $ 163.4
Paper 29.8 37.0
Corporate and Other   (18.2)   (16.8)
$ 206.6 $ 183.6
 
EBITDA excluding special items
Packaging $ 272.2 $ 236.7
Paper 43.8 51.1
Corporate and Other   (16.9)   (15.6)
$ 299.1 $ 272.2
 

In the Packaging segment, total corrugated products shipments with one
additional workday were up 10.7% and shipments per day were up 8.9% over
last year's first quarter. Containerboard production was 932,000 tons,
and containerboard inventory was down 16,000 tons compared to year end
2016 and 12,000 tons below the first quarter of 2016.

Paper segment price and mix was higher than the first and fourth
quarters of 2016 primarily due to the previously announced shutdown of
pulp operations at our Wallula Mill in December 2016. Sales volume was
lower than the first quarter of 2016 and slightly higher compared to the
fourth quarter of 2016.

Commenting on the quarter, Mark W. Kowlzan, Chairman and CEO, said, "Our
results were driven by strong demand and higher prices for
containerboard and corrugated products as well as from the benefits of
our recent TimBar and Columbus Container acquisitions. We continued to
implement our announced containerboard and corrugated products price
increases throughout the quarter, which helped us offset higher
inflation in many of our manufacturing and converting costs and higher
freight costs. The integration of our recent corrugated plant
acquisitions has gone very well and is ahead of schedule, and our
containerboard inventory levels were below those of a year ago and
year-end levels despite the additional containerboard inventory
requirements of our acquisitions."

"Looking ahead to the second quarter," Mr. Kowlzan added, "we expect to
continue implementing our previously announced packaging segment price
increases, and we expect higher corrugated products shipments resulting
from strong demand and our two recent acquisitions. Mill maintenance
outage costs will be higher as we have scheduled outages at our three
largest containerboard mills. We expect flat paper volumes although
price and mix should move lower. We also anticipate continued price
inflation in recycled fiber, certain chemicals and freight costs, but
our energy costs should improve as we move into seasonally milder
weather. Considering these items, we expect second quarter earnings of
$1.45 per share. This does not include any potential additional costs or
anticipated recoveries related to the DeRidder Mill insurance claim."

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. Additional special items may arise
due to second quarter events.

PCA is the fourth largest producer of containerboard and corrugated
packaging products and the third largest producer of uncoated freesheet
paper in the United States. 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, expected benefits from
acquisitions and facility closures, 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 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, 2016 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 2017 Earnings
Conference Call
 

WHEN:

Thursday, April 27, 2017 at 8:30 a.m. Eastern Time
 

CALL-IN

(855) 730-0288 (U.S. and Canada) or (832) 412-2295 (International)

NUMBER:

Dial in by 8:15 a.m. Eastern Time
Conference Call Leader: Mr. Mark Kowlzan
 

WEBCAST:

http://www.packagingcorp.com

 

REBROADCAST DATES:

April 27, 2017 11:30 a.m. Eastern Time through May 11, 2017 11:59
p.m. Eastern Time
 

REBROADCAST NUMBERS:

(855) 859-2056 (U.S. and Canada) or (404) 537-3406 (International)
Passcode: 3726610
 
Packaging Corporation of America
Consolidated Earnings Results
Unaudited
(dollars in millions, except per-share data)
   
Three Months Ended
March 31
2017 2016
Net sales $ 1,536.5 $ 1,401.0
Cost of sales   (1,198.0 )   (1,102.0 )

(2)

Gross profit 338.5 299.0
Selling, general, and administrative expenses (128.4 ) (114.3 )
Other expense, net   (7.0 )

(1)

  (3.9 )

(2)

Income from operations 203.1 180.8
Interest expense, net   (24.0 )   (21.6 )
Income before taxes 179.1 159.2
Provision for income taxes   (61.7 )   (55.5 )
Net income $ 117.4   $ 103.7  
Earnings per share:
Basic $ 1.25   $ 1.09  
Diluted $ 1.24   $ 1.09  
 
 
Computation of diluted earnings per share under the two class method:
Net income $ 117.4 $ 103.7
Less: Distributed and undistributed income available to
participating securities
  (1.0 )   (1.1 )
Net income attributable to PCA shareholders $ 116.4   $ 102.6  
Diluted weighted average shares outstanding   93.6     94.2  
Diluted earnings per share $ 1.24   $ 1.09  
 
 
Supplemental financial information:
Capital spending $ 57.8 $ 52.9
Cash balance $ 254.0 $ 162.3
(1)   The three months ended March 31, 2017 include the following:
 
a. $0.8 million of charges consisting of closure costs related to
corrugated products facilities, integration costs related to the
TimBar Corporation and Columbus Container, Inc. acquisitions, and
costs related to a lump sum settlement payment of a multiemployer
pension plan withdrawal liability for one of our corrugated products
facilities.
 
b. $5.0 million of costs for the property damage and business
interruption insurance deductible corresponding to the February 2017
explosion at our DeRidder, LA mill.
 
c. $2.3 million of income related to a working capital adjustment from
the April 2015 sale of our Hexacomb corrugated manufacturing
operations in Europe and Mexico.
 
(2) The three months ended March 31, 2016 include $2.8 million of
facilities closure costs 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
2017 2016
Segment sales
Packaging $ 1,257.0 $ 1,095.5
Paper 259.2 280.5
Corporate and Other   20.3     25.0  
$ 1,536.5   $ 1,401.0  
 
Segment income (loss)
Packaging $ 190.8 $ 161.5
Paper 29.8 36.1
Corporate and Other   (17.5 )   (16.8 )
Income from operations   203.1     180.8  
Interest expense, net   (24.0 )   (21.6 )
Income before taxes $ 179.1   $ 159.2  
 
Segment income (loss) excluding special items (1)
Packaging $ 195.0 $ 163.4
Paper 29.8 37.0
Corporate and Other   (18.2 )   (16.8 )
$ 206.6   $ 183.6  
 
EBITDA excluding special items (1)
Packaging $ 272.2 $ 236.7
Paper 43.8 51.1
Corporate and Other   (16.9 )   (15.6 )
$ 299.1   $ 272.2  
(1)   Segment income (loss) excluding special items, earnings before
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
2017 2016
Packaging
Segment income $ 190.8 $ 161.5
DeRidder mill incident 5.0
Integration-related, facilities closure and other costs 0.8 1.9
Hexacomb working capital adjustment   (1.6 )    
Segment income excluding special items (1) $ 195.0   $ 163.4  
 
Paper
Segment income $ 29.8 $ 36.1
Integration-related, facilities closure and other costs     $ 0.9  
Segment income excluding special items (1) $ 29.8   $ 37.0  
 
Corporate and Other
Segment loss $ (17.5 ) $ (16.8 )
Hexacomb working capital adjustment   (0.7 )    
Segment loss excluding special items (1) $ (18.2 ) $ (16.8 )
   
Income from operations $ 203.1   $ 180.8  
   
Income from operations, excluding special items (1) $ 206.6   $ 183.6  
 
(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)
Net Income and EPS Excluding Special Items (1)
 
Three Months Ended March 31
2017 2016
Income Income
before Income Net Diluted before Income Net Diluted
taxes   Taxes   Income   EPS taxes   Taxes   Income   EPS
As reported $ 179.1 $ (61.7 ) $ 117.4 $ 1.24 $ 159.2 $ (55.5 ) $ 103.7 $ 1.09
Special items (2):
DeRidder mill incident 5.0 (1.9 ) 3.1 0.03
Integration-related, facilities closure and other costs 0.8 (0.3 ) 0.5 0.01 2.8 (0.9 ) 1.9 0.02
Hexacomb working capital adjustment   (2.3 )   0.9     (1.4 )   (0.01 )          
Total special items   3.5     (1.3 )   2.2     0.03     2.8   (0.9 )   1.9   0.02
Excluding special items $ 182.6   $ (63.0 ) $ 119.6   $ 1.27   $ 162.0 $ (56.4 ) $ 105.6 $ 1.11
 
(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) Special items are tax-effected at a combined federal and state
income tax rate in effect for the period the special items were
recorded. For all periods presented, income taxes on 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 interest (interest expense and
interest income), income taxes, and depreciation, amortization, and
depletion. The following table reconciles net income to EBITDA and
EBITDA excluding special items:
 
Three Months Ended
March 31
2017 2016
Net income $ 117.4 $ 103.7
Interest expense, net 24.0 21.6
Provision for income taxes 61.7 55.5
Depreciation, amortization, and depletion   92.5     88.7
EBITDA (1) $ 295.6   $ 269.5
Special items:
DeRidder mill incident 5.0
Integration-related, facilities closure and other costs 0.8 2.7
Hexacomb working capital adjustment   (2.3 )  
EBITDA excluding special items (1) $ 299.1   $ 272.2
 
(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
2017 2016
Packaging
Segment income $ 190.8 $ 161.5
Depreciation, amortization, and depletion   77.2     73.3  
EBITDA (1)   268.0     234.8  
DeRidder mill incident 5.0
Integration-related, facilities closure and other costs 0.8 1.9
Hexacomb working capital adjustment   (1.6 )    
EBITDA excluding special items (1) $ 272.2   $ 236.7  
 
Paper
Segment income $ 29.8 $ 36.1
Depreciation, amortization, and depletion   14.0     14.2  
EBITDA (1)   43.8     50.3  
Integration-related, facilities closure and other costs       0.8  
EBITDA excluding special items (1) $ 43.8   $ 51.1  
 
Corporate and Other
Segment loss $ (17.5 ) $ (16.8 )
Depreciation, amortization, and depletion   1.3     1.2  
EBITDA (1)   (16.2 )   (15.6 )
Hexacomb working capital adjustment   (0.7 )    
EBITDA excluding special items (1) $ (16.9 ) $ (15.6 )
   
EBITDA excluding special items (1) $ 299.1   $ 272.2  
 
(1) See footnote (1) on page 2, for a discussion of non-GAAP
financial measures.

View Comments and Join the Discussion!
 

Partner Center