Packaging Corporation of America (PKG) 30 Jan 192018 Q4 Earnings call transcript

Company Profile

Participants

Mark Kowlzan	Chairman and CEO
Bob Mundy	SVP and CFO
Tom Hassfurther	EVP, Corrugated Products
Chip Dillon	Vertical Research Partners
Mark Connelly	Stephens
Mark Wilde	Bank of Montreal
George Staphos	Bank of America Merrill Lynch
Scott Gaffner	Barclays
Anthony Pettinari	Citi
Debbie Jones	Deutsche Bank
Mark Weintraub	Seaport Global
Gabe Hajde	Wells Fargo
Brian Maguire	Goldman Sachs
Steven Chercover	D.A. Davidson
Adam Josephson	KeyBanc Capital Markets

Call transcript

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Operator

Thank you for joining Packaging Corporation of America’s Fourth Quarter and Full Year 2018 Earnings Results Conference Call.

Your host today will be Mark Kowlzan, Chief Executive Officer of PCA. Upon conclusion of his narrative, there will be a Q&A session. I will now turn the conference call over to Mr. Kowlzan, and please proceed when you’re ready.

Mark Kowlzan

Heidi. you, Thank thank of and earnings for in participating conference Good fourth you quarter Corporation America’s XXXX and Packaging call. morning all full release year on of I’m Vice Executive Chief runs and and and Financial Kowlzan, Business; who today CEO Packaging Mundy, Mark with Tom Chairman President, me Bob the the Hassfurther, Officer. call is PCA, our who’ll going I’ll provide Tom year results, full fourth quarter begin and to the call details. over then more with to I’m an and it overview Bob, of our turn and then then wrap things And glad and to up be I’ll then take we’d any questions. reported XXXX fourth Yesterday, of we per quarter $XXX.X $X.XX million or income share. net conversion Fourth of to of $X.X quarter cost items associated related included discontinuing certain net special million paper primarily announced with the income No. for operations previously the mill Act favorable to adjustments in was of partially Wallula, machine by offset paper Jobs million related December from XXXX. the at and nonrecurring that X benefit Cut to linerboard, tax signed of Tax Washington the $X

the quarter million was Excluding EBITDA XXXX items, net in compared $XXX.X income in the fourth share. quarter $XXX.X per $X.XX sales million the share of XXXX. Fourth items, company fourth net million $X.XX quarter, for net $X.XX special quarter or XXXX. in $XXX excluding billion the billion and was XXXX Total and fourth million per in to special were XXXX XXXX or income $X.XX $XXX

billion $X.XX $X.X million share. items, XXXX reported in excluding share compared $X full of $XXX per or items, or to per million billion sales The $X.XX also XXXX We year to in XXXX. earnings, excluding $XXX XXXX compared were of net earnings, special special

in the billion for schedules EBITDA $X.X that our in special Detail in press quarter XXXX were full to earnings accompanied Excluding compared year both and of included 'XX billion special and total XXXX release. was the XXXX. company $X.X items fourth items,

$X.XX included in favorable by $X.XX were certain share. by freight XXXX fourth per per totaling segment and earnings converting lower higher expenses higher costs segment, $X.XX, mix primarily mix volumes to higher items costs of tax of operating XXXX $X.XX, locations our extremely fourth items, wood $X.XX, conversion expenses $X.XX costs share, $X.XX, changes. our in higher volumes primarily expenses, wet our the Reform as Paper $X.XX Packaging operating These southern above offset $X.XX, per prices driven quarter $X.XX and higher Paper Tax of costs and our from of scheduled benefits services. per a outside material interest logistics with $X.XX, inflation-related higher included Excluding expense share lower the share in prices costs special chemicals, the quarter segment, in related of $X.XX the was outage The Wallula. partially maintenance higher and work rate $X.XX costs lower from also resulting depreciation labor expense resulting lower repair, These other weather mill at as and well increases and

to as our Columbia the provider’s rupture managed our at curtailments of our containerboard expected volumes were mills, incident. $X.XX tax Packaging $X.XX our mix guidance system lower and in a indirect in our These Results the the above fourth the fourth British Mill Paper resulting demand than we primarily share recovery related Mill the XXXX final items ran due prices supply and in benefit in better effectively had per segments, our in to insurance line we gas to by and were per main of quarter timing-related quarter costs Lastly, XXXX, and lower share offset segment from mill. lower partially from to of rate. DeRidder Wallula the Packaging of a production $X.XX the

resulted billion margin $XXX of EBITDA, XX% our versus sales business, last the of in or Packaging $X.X million excluding margin. fourth XXXX items, $X.X and billion $XXX quarter of of of year’s EBITDA a million at in with XX% special Looking sales

a the the managed third to production from supply as Wallula reducing quarter tons established the quarter, we mills by of containerboard and new system record Mill. Our fourth natural demand at while our ran end inventory gas issues the the containerboard XX,XXX

the As XX-day box six association schedule fiber a reminder, December’s days number last years. in was of cutup lowest the

kraft a improve service quality and rate per just containerboard our final Also, us which begin work needs manner. timely our our and at containerboard high of this allows to industry us costs. production freight manufacturing us optimizing our achieved and the and a phase box quarterly to containerboard importantly, very plants its Mill growth an with operating to position a at allowed supplying producing shipment as the the in machine Our entire all-time quickly efficiently capacity to design virgin by successful our day. maintain The leading containerboard system necessary and respond record customer platform puts conversion Wallula very was integration box to linerboard. now This future in the

annual Finally, in per shipments new box established XXXX, we shipments and for box total containerboard shipments, day. records

$X.X more year, margin. now items, sales turn sales the or who’ll Tom it of XX% or billion a billion XXXX and was compared the year a details over billion I’ll special EBITDA $X.X containerboard excluding few margin $X.XX a Packaging full the the corrugated on EBITDA to to of For with XX% with business. sales provide $X.X full billion of

Tom Hassfurther

Mark. Thanks,

in per X.X% to were last As both box shipments Mark quarter. and had day fourth compared total in year’s quarterly up corrugated indicated, record by we which day per products,

and quarter the through sales up shipping X.X%, system down total issues fourth third compared at over and compared the containerboard the For our day, quarter to one day XXXX. shipment we XXXX managed about just was than curtailment ran year’s of XXXX records fourth volume per and corrugated year, about. prices full compared were prices $X.XX to about were per up containerboard more both Wallula Outside containerboard last now of Domestic spoke of the per Mark as annual it per share together quarter to above I’ll and respectively, corrugated with Export set were mix share this production down quarter to while X% $X.XX levels Mark. X% of versus X.X% the and $X.XX share share that and quarter containerboard XXXX. XXXX of fourth to year. products turn demand and our the back in third per third Mill quarter higher $X.XX above

Mark Kowlzan

Thanks, Tom.

was margin. or market seasonally Paper Favorable excluding during $XX and fourth of sales EBITDA $XX compared million segment, items, fourth to Looking of $XXX than EBITDA, anticipated. with slower of the prices at continued were or million mix and in XX% XXXX the the million quarter and conditions the of sales fourth quarter special X% quarter $XXX better million margin our

inventories in quarter have been most XXXX. Mill. as the this as allocation Results our fourth continue We the having of exiting to a running improved year’s paper versus also schedule not for to we on as due outage Wallula last manage white year at well business

special For sales XX% compared XXXX was or segment $X sales EBITDA, with were and EBITDA or million year $XXX $X.X excluding the year, $XXX million items, full of XXXX of margin to billion Paper billion margin. full XX%

all effective Bob. increase Xst over notified and I’ll papers. papers that now a for office I’ll converting ton Finally, shipments papers, $XX customers we to of March with beginning printing price turn yesterday per mention the it

Bob Mundy

Mark. Thanks,

products small cash record a cash record million million We $XXX free $XXX fourth quarter generation company in quarter Texas, primary income reflect and common which the million, of hand. interest cash on acquisition $XXX corrugated The operations million provided our with tax federal $XX million. cash flow for and for state with million. and $XX in the of stock net free dividend the capital payments payments, expenditures quarter of uses $X during of XX% pension by have of recent ended $XX $XX flow million of of the dividends We of totaled payments $XXX increase cash included million million,

quarter effective XXXX XXXX the expected rate filed annual returns tax provision of once recurring XX.X% lower due fourth of we true-ups to our than quarter XXXX. tax was favorable fourth slightly our compared to during Our

billion was year For record capital a and record $XXX with $X.XX free million the cash cash operations $XXX spending of was flow million. full XXXX, a from

cash was provided of XXXX. with our Both we rate throughout tax for final XX%. was effective ranges rate final are guidance the line Our XXXX in tax these XX% and

Regarding full million pension year, for key million, upcoming to million million. to $XXX benefit is we between estimates postretirement expect of and $XX be postretirement make to items $XX be cash and the to of $XXX million, expected year plan expense expenditures pension expect certain and we of $XXX total DD&A contributions capital about benefit

approximately XX%. should combined estimate state in be interest Our expected is for and full about cash and year XXXX XXXX million rate be approximately net cash tax is $XX expense federal payments million. The $XX interest our to

due As year, of to XXXX was Reform than in our of we lower cash to the pointed overpayment which prior the Tax out of 'XX December cash due last paid on reduced taxes rate the enactment XXth our XXXX. taxes XX% of normal

the for Our on Obviously, $X.XX current fourth being based lost in just direct in amortized XXXX, at $X.XX quarter, but second guidance to of share. in over the the could continuing on and under total quarter, it repair per quarter. annual turn in book XX%. estimates to plan, is the outages share round to now third quarter these share our mills Reform should maintenance to outages expected $X.XX rate The Mark. by XXXX, $X.XX fairly current I’ll tax first is expected in be $X.XX in volume, effective be with flat issued. impact costs impact change XXXX costs and these earnings Tax is including estimated the XXXX Based back per per

Mark Kowlzan

Paper or our better the enhancement X business Packaging optimize future our business PCA the deliver results customers. the our containerboard successfully and an Bob. DeRidder while work at earnings. with box our was of machine the outstanding operating shipments. mix excellent the completed began of for for conversion and business Mill. XXXX achieved summary, containerboard return will We us Thanks, linerboard projects and shipments with in the third conversion of shape growth We We in high profitable allow and platform setting entire completed for as and financial several both we new shareholders consecutive record at the records improved Wallula ended and year that corrugated for inventories year the year our No. debottlenecking to In opportunities

to leading so flow and Although order cash invested our it capital investment industry did as in from cash required of capital achieve XX%. initiatives, improve well record these on generating as important annual return record free operations we to

In maximize by $XXX balanced clearly accomplishments These a prior illustrate raised million received benefits the bond maturing to and a to variable have addition, quickly or still of for company the of capital the sheet approach continued financial remaining XX%. our to refinancing repaid flexibility any conservative and the almost XXXX. shareholders the towards the returns We to to while our debt in allocation adhering our we past. we to while annual as react in end order we dividend profitably grow the approach commitment maintaining balance situation opportunity

expect into and we segment Packaging to market expenses. volume strong Looking conditions products in for XXXX, in annual first ahead continue. We we other costs corrugated continued and of as move benefits anticipate and strong and wage demand higher Paper expect the containerboard we quarter increases both our volume, with timing-related labor segment our

wood increase recycled Although repair will do we most chemical and some for our energy of while usage to and fiber flat, materials anticipate and we fairly costs, with expect colder and freight inflation costs weather costs. seasonally be

also expect be rate higher. We slightly tax our to

medium identified the minimal impact seeing from the Finally, we and effect yesterday. have we on quarter made that the made the any call Actual of some happy materially as call statements. differ risks on we’d those the the could expect in direction paper of including economy current and with And constituted annual our the inherent estimates, with company we items, we the statements With domestic answer of please. that, questions, report first the The forward-looking the in price expect will risk but expressed projections for decrease price uncertainties, must and on earnings on factors these statements. the share. some XX-K begin and of remind statements per Considering open for results in involve to SEC. questions I’d published to I recent that, Form announcement $X.XX the expectations earnings increase of be and Heidi, a file you like on these have were from those forward-looking based to

Operator

Instructions]. [Operator you. Thank

go first question VRP. the comes Chip line Dillon Your from of with ahead. Please

Chip Dillon

But guys you the just know Yes. was review guys could all or to Friday due if get we’re if or demand Good information. give for situation for all come comments January. first about to maybe have morning, I on Tom update of us at January ancient in on history in everyone. month? you the you know you of and of Mark, box where any might December. a bit Thanks where the I wanted part the going least part could

Tom Hassfurther

started going Yes, Bookings Chip, very into January were Through strong out up this XX is first the Tom. X.X%. look continued to days February. strong.

start So we’re year. the with the of pleased very

Chip Dillon

'XX? down And that’s just Okay, quick a buybacks? thoughts in buyback I broke shares December, you and how Mark, you about your for should have helpful. think you when up. Did a the might what about especially any But we just have number, are follow mentioned it. buyback tell that missed really might us could market any,

Mark Kowlzan

before, fourth level we continue in opportunistic for share is in capital. approach approaches share we to an conjunction evaluating during when as share said utilize matter. with No, past, buy discussion buyback we’ve And we’ve quarter. done And allocating Board as balanced a other the didn’t repurchases the

And so at we this not did point buy shares. again

Chip Dillon

that design evolution Can capacity. you that of Okay. it’s to a with you And how second us just the then I when head Wallula, quick how stage, up started capacity the conversion, quickly quickly of just from you up mentioned planned? up you recap believe already especially got you got and think the I the now – to give box, on

Mark Kowlzan

having I management demand. It’s to of inventory part made some our Yes. the of to run and with commentary

finishing on want outside DeRidder to on work earlier DeRidder. major back work the of the Mill then of to a success. with two the all was tons at outside tons had the year. the relatively policy bought the And step victim We’re We part we buying of approach at going We the Wallula. I had market. at our insurance the a on phase reasonable It been market. up own And

we in And October called at pleased more We ahead out a bit the of We bought days. as hedging hours buying fact, we end the and in inventory with so ended selling We was The June. bets, our that not up in the in knowing the quarter. be up first XX Wallula up quarter. within and back needed we where we in we would October of our – shutdown than the at third third were were speeds. the approximately fact But did started little immediately quality started extremely very design well schedule. machines the at are phase product running

hedging more were of than in we we again so successful And planned for inventories. our terms

and bay Wallula natural to So to of the the management issue, productivity issue we the course the quickly a correction take quality machine, system on advantage had rest Wallula only inventory, range off has with up the also inventory demand, been I but X has out gas gap-former, is But And balance machine do is from the the the No. the it dealing gas coming of of bell the now supply at out world and that linerboard. run at kraft the heavyweights line, making it highly virgin that machine state type a heavyweight going lightweights to will And now. mill. bottom successful. in

So we’re we for what capability very with our at pleased have Wallula.

Chip Dillon

Thanks Terrific. rundown. for that

Mark Kowlzan

please. question Next

Operator

of Your next the Please go line Mark question from Stephens. Connelly ahead. comes with

Mark Connelly

Thank you.

things. two Just

plant resources new given coming the or to opportunity build all even the and much others, new there Can box put that from how debottlenecking plant integration box drive you’re the doing. to debottlenecking? in And in that success mentioned your general, plants rate? the and that more into you plant is box talk you’re about you your having an new a You work built can tonnage

Mark Kowlzan

we and then the that answer then that some fall. give and to this up going why I’ll take But it I’m to on finish going Tom’s that up. don’t Mark, up in plant you Tom Yes, him color started Wisconsin

Tom Hassfurther

the customer Yes, to growth replace demand essentially smaller is The nice less and we We will more own were up old built a plant a involved it with and It on opposed have significantly strictly output. had that no that able will that automated plant Wisconsin, with choice an grow our to so built plant. capacity of they there will we’re them. new be that labor this. out upstate plant about thing a as be have very to the old lot do to but we plant that in in

So we’ll want to be demand the able grows, able with Mark, it. to we’ll to as that grow grow you – in market -- be

Mark Kowlzan

any opportunity the that at looking region currently our been the of had Pasco terms the Wallula there. customer of growing of you we’d had advantage with Pacific be out significant other question was at, plants have in an Richland are Northwest, part we We and we then taking primarily area. Yes, base

literally we And so regional outgrowing were the capacity.

plant So we already Richland project business up. begun has lined in a a new have to build a that

to and have up running will We get this plant quickly.

taking We’ve We approach. fact projects, technology mills are had put the technology the the ourselves. with plant. all plant and together build are a side team with the with we’re the big box never combined installation and new the primarily that our the engineering, most plant taking do But of a engineering and plant own of box business combining people to finished we build mill that this

that end of apply project should plant scheduled for unique to start us be is we talents it opportunity at that our the up a have. to So unique year. But the

Mark Connelly

just What is affected more hike? your And helpful. of percent question. capacity paper super quick this by That’s Okay. price one white

Mark Kowlzan

it. of All

Mark Connelly

Thank super. you. it, of All

Mark Kowlzan

you. Thank

please. question, Next

Operator

Please of line ahead. of Your next Mark is from question Bank the go with Wilde Montreal.

Mark Wilde

Mark, morning, Bob. Tom, Good

Mark Kowlzan

morning. Good

Tom Hassfurther

Good morning.

Bob Mundy

morning. Good

Mark Wilde

glad Memphis you you’re this morning. you were bet I wish Bob, –

Bob Mundy

talking were we about that. Actually

Mark Wilde

anyway, had But couple Memphis. you you a of I one Probably you. questions in for the times few wish were of

sense integration is? now running it all, First a what right rate Mark, with get Wallula possible is of to your

Mark Kowlzan

in range. could factor an Wallula incremental in year in number, now Without and area lower so lower the you that XX% been area. exact put that that us in XX% puts get We’ve tracking trying XX% down last back tons out easily that the somewhere we’re to

Mark Wilde

some debottlenecking sort can Okay. us the mills years? over to next then, three what two opportunities to or the at that, of type you of related be Mark, give And just of sense open might you

Mark Kowlzan

proven take and at out as of incremental new design that does all Wallula small we’ll have terms make. in modifications Wallula. the tons. tons, We’ve its XXX,XXX current the obviously of little far can capacity few we a already over machine capacity As of identified a advantage

machine. time So need out able this, XXX,XXX with tons XX,XXX be year we another by Again, effort a lessons as done we it should and we’re took phased was the extract Wallula to our – we so of at those tons. roughly from all the if better. next machine DeRidder when Wallula, machine the we and is a Wallula four-year or the to to those remarkable learnt at only The over tons quite similar need That it we made of conversion. applied

Mark Wilde

maxed left And or at pretty point? is there anything this is at much down DeRidder that

Mark Kowlzan

basis a complete to an because for the ongoing work. on heavy was us year Well, lift incrementally last such

of extra we’re improvement mill. million and DeRidder incremental we the its X.X and grade put accounts last in it million fine got DeRidder year-over-year taking you depending mills. in have we tons, over of approaching the capacity end capacity truly but in the whether all work are terms at And now grade run, some years. as stretching running year capacity you we’ve see a mix You’ll X.X mill X,XXX,XXX advantage Depending four The mix the tuned up its out year on the a capacity. ton on ton is DeRidder

Mark Wilde

Mark, allocation kind question I capital enter the we is returning priorities Okay. as The just last had, XXXX. of

given M&A balance the stock back sheet I’d off or really surprised away weren’t balance for come the a the sort of you your share balance and like I for share the more by far that strong drop for for in repurchase. sector. plan given in sheet but a And capital in repurchase. quarter just active that’s with and was kind You prospective sheet little plan to have of to – fourth

Mark Kowlzan

mode. out be whether will plant And opportunistic box that being to start growth that that say we along. acquisitions plants, come be one-off to and opportunity we mill mode continue want in box and/or means that I small growth business

to quarter any fourth flexibility on, it discussions the was comes to continue that opportunity to our again, As the believe to rolled that build cash prudent of have along. us take and let advantage

within We going years too plans. enhance XX side plant use to opportunities are the business number over cost. have and a of have many box last out take plant in to we significantly the the up system out the want box just a of approaching term, the now capacity capability Tom’s filled I point saturation we identified and I’m to that

gives cost And enhance so prudent but capital the bad a deploy us efficiency not to the It necessarily thing. that’s out opportunity only not take of an and equation. some significant

project so the a higher along the year we’re woodyard have with then routine at opportunities, just looking the this at project. mills a boiler City. relatively at small we in good mill Filer capital which return And news Counce. the up That’s finishing And

sheet So advantage in just business is paying the plant the the assets, truly presented box capability care building having the Richland be us. just new order new attention, gives reserve a to the taking balance to that that in happens mills take business, to and opportunities, the of us out of the plant then cash maintaining running at anything

where feeling we’re logic that So long we’ve of that’s pretty in a in applied but we much about are, -- formed good terms

Mark Wilde

Good lot. a 'XX. luck Thanks in Okay.

Mark Kowlzan

Thank Okay. you.

question. Next

Operator

from with is ahead. George of Please question the line next America. of Your Bank Staphos go

George Staphos

are all Mark? Thanks How Hi, everyone. doing, year. Good Congratulations for the on you morning. the details.

Mark Kowlzan

Thanks.

George Staphos

had Paper color part not produce seems It your trend had I more at driven volumes was question line terms first outage side. able the have you the been I a demand you you box could of Wallula, would quarter, there the gas in a bit by of fourth on in give the if like maybe us boxes? limitation had guess more to

the number similarly been in shipments, what maybe was was that number you’ve box could much you seeing quarter are taking in that’d previously If And pause? just great. that decelerated fourth out, as of the of a Just thoughts on somewhat and curious those much how market points. that your how to cutup days in from of be call the

Mark Kowlzan

force box quarter. Yes, natural and volume to curtailment the Wallula the Tom? I’m part add the in something and first gas an color majeure of add not your quarter And for did the then line might have volume let going on question, a impact little to itself the I else. Tom

Tom Hassfurther

you if quarter George, when were we that presenting quarter was at at in in slowed the volume bit recall that during third October our quite up about saw November, Yes, early of that then X.X%. quarter early numbers, the through indicated October slow and the we we was is, and time volume is a December. accelerated but the end of some reasonably What

workdays, it’s the little been that six had XX only so for a we’ve had – December an years was Now since month. unusual XX-day

Sacramento moved tough is customers to which away that with anyway a had out our business because it us they we a had largest is, two Integrated So anticipated. sooner we we Also Sacramento, had had exit business acquired by were that Coast than from very what and to the with had little prepared do West it. that to what do container, comp in bit

year that or place. or economy in number that So just like as in things up We that spite the we’re some It have comp, hit And out also. this in took falloff anything a starting tough continue that January. that our indicated, I in to X.X% tough had also of you had the a about couple demand really remind starting we impact something I’ll comp. out of wasn’t dramatic But in us.

I we So quarter. about and think the start feel the are of things very good strong

George Staphos

in answered question degree e-tailers distribution corrugated mix And customers you the seeing but channel. approach be how customer out? in related for you it any filtering that that of bit some other it that. I how owners, are changes perhaps a been consumption recognize And channel for so, Thanks or Okay. implied, than players. some you that brand your how of market already e-commerce terms demand? is of checking around and I And there’s back different are the But modifying the discussion is their to much think in and might and of if sort your the

Mark Kowlzan

Yes, that. again George, take I’ll this time

seeing you e-commerce not probably very seen, segment so call at that very is, is is rate is still accelerated at think the growth Our pace. rates strong. it what the is e-tailers, although It demand or somewhat still I growing as to them, – that continue growth grow because was we’ve slowing a you’re

we to be the at Another accommodate that. the rate the thing – a quarter in the a in fourth push that better that were for at did fourth higher definitely the to levels quarter, inventory observe and demand comes able

I going and relative lot discussion sort or corrugated less lot of prepared perhaps some you of opposed So there’s this things thing on think that our as to the a these of better and to hear were about other seasonality past. in customers for this are a the things. And year to a of of lot moving parts

you’re like corrugated that pouches of are some the takes is same some because puts going and as probably I to but see I think see seeing plastic you’re or at going they the like for as think that. dramatic off and drop going think you’ll things – bad to some to don’t environment that, see of some anything time I we’re move that to already

have still I it’s a they than good past. bit the I seasonality a think that little managing think overall growing a segment, So better the our are customers in segment but

George Staphos

that some corrugated channel more apparel of at at margin. guys terms what’s expected, that e-commerce XX% consumption the of see you adopt materialize time? and as see may of greater actually a luck anything markets over terms to been relative distribution, frankly you won’t sort markets the least you we and as in good extraordinary, way quarter. less had think were one-off it none than I came how traditional end end to of in in the you the in mix in that containerboard, was other better and But constant, electronics. there going I’ll look uncoated expecting that question seen the was in sustain stronger and will going in we if paper than obviously your like price the freesheet. to about EBITDA and little How Last market the bit quite in and a talk turn the then you’re quarter, holding not what some it we and certainly it’s items good of over that? was the if Thank not over But over guys fourth And non-operating margin into time. price be those driving do

Mark Kowlzan

question, paper Regarding two amount side of we paper Falls in the the a efficiency and accomplished the and mills; working Jackson capability part and on of the significant mill worked significant of business the over International mill. remaining cost the out taking the years five the of in had last

being so continue to a high are it And we certainly price operations. taking cost what demand advantage of with efficiency, the in marketplace lower is, position our

we believe the good now. we cost another And year. a again, the business there take as us And right is paper for so also side the question. was Wallula then stand, of of And out I the for business last part

George Staphos

expected, were mix was bit than driving what a we corrugated that? Just little richer

Mark Kowlzan

the mix. that’s end moreover It’s as in just into our quarter seasonality of this sometimes will fourth finish I the graphics heavier the up quarter, well. bled business a the think of the although little third one

price. strong very the in year we For mix had a

George Staphos

Thanks for your thoughts.

Mark Kowlzan

question, please. Next

Operator

Please of from Scott go ahead. is question Gaffner Barclays. next Your with the line

Scott Gaffner

and good morning. Thanks

Mark Kowlzan

morning, Good Scott.

Scott Gaffner

XXX,XXX thought in over you XX,XXX so Wallula, could tons XXX,XXX and another the ton were next Does said or at produced design Mark, you to when produce mean about capacity. year that XXX,XXX you tons said Wallula you XXXX? talking you about you

Mark Kowlzan

No.

in with of We’re a ton after quarter work phase work out the the year the machine of October the during a that fourth the XXX,XXX final came capability. saying just

to and understand to that so rate And we and achieved produce help of on a ton that daily you type designed rate day exceeded machine obviously we’ve that. approximately a X,XXX that

truly it capability it’s has. And so that currently the

Scott Gaffner

said coming – And post about you Okay. shutdown. strong you ran after talk you October when up the the demand to

of out did would the You a add you normally schedule? slower or rate you did some actually take X,XXX you little ran just days day than bit per or then

Mark Kowlzan

of to the during We run Well, quarter compounded advantage the machine, rebuilt of down gas No. the the the because of situation, medium the opted that. just took X new kept natural we force No. and X machine. issue machine majeure

it’s running so the we system at prove what on also took similar the done We we medium the we on fact much DeRidder. that said, to. machine work if can also we rest of the And of to did make we’ve the that did that some extremely and efficiently. machine being was advantage But have

up October to December, in we quarter on third and Tomahawk also few order a through With cutup, supply/demand we to where during very current that volume at ahead machine, machine called at out took weeks X we City they the run inventory. fourth and were, inventory. a call situation had out manage and immediately Filer No. small Tomahawk And year balance X the smaller the buying went and purchase our quarter’s working the had the called December targets for inventory on at we the the that out the with the end to some machine as in tons we started time ceased on had the machine No. of

Scott Gaffner

benefits assume in quarter? so, than if And expect of to those more its manufacturing on now for would some and XXXX? running. you’ve system one up through some flow Last some the freight I that and got the the side around it the of of me would in then first XQ Should and be optimization system Okay. the XQ full savings just we

Mark Kowlzan

Obviously, well. is the running Wallula speak terms the of currently in we is system optimized Mill as

So supply/demand for sitting demand obviously so very containerboard are as strong, here in we matter the it’s January. strong Cutup is balance. a is of

flow at you the benefits and look quarter if of to first it, immediately in the through through this capability so year. want full And the

here, and both tons have to at ability what West of [ph] is fact I Coast. business on think the strong demand, a speaks year-over-year for the that’s more the why you to the of demand we’ve when of guidance strong paper fully – got look that delivering capable we side when reasonably business of $X.XX we the that I again because need deliver costed plant basis, we the at that and think you efforts our need the Wallula the the box side

Scott Gaffner

Mark. Thanks, Perfect.

Mark Kowlzan

Next question, please.

Operator

is question Your line go Citi. the Please of Anthony Pettinari from ahead. next with

Anthony Pettinari

morning. Good

Mark Kowlzan

morning. Good

Anthony Pettinari

early vols to you little wondering some you maybe pull opportunity to others. than I some what in overall you what percentage sounds just us – And in like maybe go an tons given Tom are XQ, you’re out or if remind can market doing markets And January. what have of Mark the discuss guess do domestic if a year? export the regions can export the bit serve market the of pretty strong export seeing in you your better demand? in

Mark Kowlzan

talked Yes, things. the scheme small we’re about the export, a times we’ve in relatively player in Anthony, as many big of

slowed year. Our a a was overall China we’re the China player little It up but remained the a demand up a but for very in was little very that very down third year but has year. good. was up ago. year. Again, a big the quarter solid not the for us, actually quarter were fourth bit in from Prices from steady volume was throughout still

So relatively that has remained good.

Now very course and time. rates But them. export we’re by supply long for been market. same of still exchange with with We’ve our overall, to that’s We’ll pleased a customers tariffs. these continue affected

anything our business like So and is with volumes for talk these been that, no. good seasonally haul long adjusting when export their very us. through about or you the people We’ve

we’ll So continue those relationships.

Anthony Pettinari

it’s demand. Scott’s out I on to total in of to kind big that’s the think number. tons and not those Understanding following a to inventories possible on XQ? Is up Okay, running And of helpful. kind very of then quantify questions balance you just downtime it took George likely

Mark Kowlzan

the we We inventory the said, we’ve out with number. target our called third ended that year inventory in quarter. As

XX,XXX out about Wallula impact with of the of was And probably tons worth so impact. XX,XXX,

Anthony Pettinari

you. Got over. I’ll it it. turn Thank

Mark Kowlzan

you. Thank

Next question.

Operator

of Your Jones Debbie comes from Please the next line question with ahead. Bank. go Deutsche

Debbie Jones

about will be be Hi. kind the wood comment exiting business, on just impact for or realize on did can this, can’t discuss business supply first paper? paper more GP of the My customers how Good looking move but you why their your morning. question you it’d supply think you I reduction, whether

Mark Kowlzan

on far year. as the little commenting out bit allocation we’re Just most we year in we were of where coming are, where XXXX a of a as

We’re I converting uncoated of to and have million the Falls Jackson grade. producing capability and mill in of tons produce printing about terms the freesheet X in

speak our so customer to rationalize think best some tons business And that business the see. committed accordingly base the as with go avenue and of to of we into we we we I have, are allow are I industry. base where fully but the we does move forward for can’t customer us it

Debbie Jones

And then called strategic plant year. a couple question, of going broadly the any And projects, CapEx the there you packaging? for maintenance CapEx you is out the us Okay. of second whether system? it’s of gave paper the update mill for and number XXXX for Is you give then between kind to but into able sense to are a and or the CapEx what box business

Mark Kowlzan

it of way business. good look the business that Debbie, The of XX% is strategic towards be rest going to taking capital to is of at care probably A that maintenance, maintaining out called the that, XX% would total we just piece. the

the of total cap XX% to XX% is strategic. So

Debbie Jones

it over. right, All I’ll great. turn

Mark Kowlzan

you. Thank

Next question.

Operator

Please comes line go Global. ahead. Your the of next Seaport from with Mark question Weintraub

Mark Weintraub

you. Thank

clarify. first to wanted Just

talking saying to you’re tons? So could approaching point the increment, the capacity that XXX,XXX tons some XX,XXX with at XXX,XXX is Wallula that when about be

Mark Kowlzan

providing of at fiber if discrete ton choose want We’ve we have we provide it. would a that fiber to some years capability what spend to, identified means in calls certainly demand the XXX,XXX on machine have the type a as year would You we to the for but capability. future capital in approach capability on cost, the terms of the to

Mark Weintraub

confirm? And case that call stuff last XXXX to for going that you to in that line. the happened wasn’t about a with and drain that of be contributor it all conversion the fourth in contributor fourth think you last had the cetera, some Wallula, the bottom a given just itself? it, was and positive it I quarter, okay. talking Got Was indicated that net in the year a projects, Can or quarter et

Bob Mundy

we were Yes, to Bob. do, quarter were but from full. Mark, completed quarter all to had fourth obviously third quarter, full, Certainly planning the is work this running going we the running were third we not

had, So when business you third from then machine. of it’s certainly didn’t with the the have drag And into the work a that year-over-year that going we got fourth outage course on to fourth. packaging we

this we fourth year’s was the quarter well. impact year-over-year as So certainly incurred negative in a drag

Mark Weintraub

Okay.

it XXXX correctly? can Wallula contribution is for whatever XXXX basically have so net all And positive versus I understand if

Bob Mundy

look a to at good it. way Yes, that’s

Mark Weintraub

different the line system is And we lastly than your thought, of across terrific. average? Okay, just on finishing a would profitability then that Wallula mill can this meaningfully like what generate of kind see

Bob Mundy

able big chips would well We’ve is would you’re the and this on being I in operations the the these buying years, cost on benefit. on we that the differential transportation three a or raw that as for to last the fiber think input cost. But in do wood, virgin at in as so up past what it’s whether that United that far have say is of what difference in looked we’ve probably the talked significant lose the Pacific Northwest logs we – recognized we’re up said, States. at is account Wallula virgin on I to I DeRidder about take to as compared have transportation made cost the projects mill advantage higher make of think piece highest

Mark Weintraub

last And then maybe Okay, just one super. one.

the us? terms that I think In $XX any of you can color acquisition, on million acquisition, it’s provide additional for

Mark Kowlzan

Tom, you -- want to talk

Tom Hassfurther

our a us very product our small very footprint some base like that, customer fit needed that mix in nature marketplace Mark, we that big strategic down we of necessary Texas, some in have it’s the not an Texas. enormous well strategic there in which in terms down tons it’s or It’s of anything to acquisition there as well. state provided like capacity for as but

Mark Weintraub

you. Thank great. Okay,

Mark Kowlzan

you. Thank

please. question, Next

Operator

Wells Hajde with next go ahead. Your Fargo. question line Gabe Please from of is the

Gabe Hajde

Good morning. the taking for Thanks question, gentlemen.

Mark Kowlzan

Good morning.

Gabe Hajde

comment saw at most was you in to markets about appeared that’s optimistic XXXX the in there Are you’re And sequentially. can in shipments where that vein, XXXX? struck within there slow end to of kind or weak particularly areas you end strong pullback? the at were the I markets that all and same guess a going kind revisit you what of I

Tom Hassfurther

lose of significant exited Sacramento we our we thought. sheet we as lost I that through acquisition, just indicated earlier, accounts It going as What knew of what we out couple than which sooner we in we saw – were some accounts to happened was, a business.

– comparable you relatively would been that have steady. really So that the that’s it see. Otherwise, slowdown

going and I think November, into again January dramatically in picked fourth the it’s slow and only very the end thing in did us demand at October was very, quarter into of but surprised December then the up good. been

some lot are there’s we’re with like markets things of and So declining. steady a and very in dealing – end thousands some hold and growing, that, few very thousands are different think I of customers don’t

to So in I about don’t talk some change. think there’s of the significant markets a lot having terms end

Gabe Hajde

'XX is specific call --? your guess in I to in from lost headwind to those Tom, PKG, quarters volumes it some the Sacramento for it Okay. volumes three fair extrapolate for

Tom Hassfurther

Yes.

January out a But it’s again, I as indicated, be comp very against and said, a As I bookings comp. X.X% still we’re tough tough to going solid. starting up remain

now. frankly, of robust So a surprise business how as be is I’d to bit the that’s honest right with it’s you quite

Gabe Hajde

math, was fair $XXX of nonmaterial basis out of full million. And started in talked for I the about you share. as kind Okay. about that about but to my you this anything sort or gears, I that less that a sort have it’s there? $X little granularity think on switching was I $X.XX particular guys Bob, year an of higher related and headwind it inflationary If did of a you it there costs, then, ordinary think in overcome you. operating the think was provide that Is to annual was to quarter Thank

Bob Mundy

gets and we of but they as of operating associated are when supply into wood prepared talked we and on all that are things into of as operating benefits was we about work those Mark had which of all operating year detail – but remarks the includes and energy this the costs and to to inflation true, of items costs had part and as put but labor more and that, the goes that – our of year. the through chemicals material sort costs, costs, the also board inflation see with not an includes addition all in it that far for there of repairs all beginning of we much it he held a a in and pretty It costs. things, Certainly while against what’s a seen inflation across the the we was those we part said on at something those little

Gabe Hajde

you. Okay. Thank

Mark Kowlzan

you. Thank

please. question, Next

Operator

comes question next go Please from Your with the of line Sachs. Brian Maguire ahead. Goldman

Brian Maguire

guys. Hi. Good morning,

Mark Kowlzan

Good morning, Brian.

Brian Maguire

– to but a a but number the of the some than kind come imagine to we or it up XX asset is acquired? to per in be wanted that. just impacts wouldn’t quarter you fourth any day unusual since huge contribution amount, back to include should confirm. what about for so And you there? put it plant January, confirm I Sorry was much basis, better from on other Texas in just Does it’d that converting just the box

Mark Kowlzan

And this acquisition a days. include XX per It start, again, the plant. not basis. is day on it’s XX the is does

predict going to But exactly the quarter. for certainly can’t a So good to as start. we what’s said, But a hold very got January. very entire indication of good I we’re off

Brian Maguire

some and and of you I seem of said just the better it buy XXXX, were of on you to is. conversions capacity should operating some incremental that there about you appreciate kind is the be any assets tied like it. board? Is and from may think like thinking increased were benefit sort rates It Is about? having an over insurance board, buying In way sounds there that just XXXX the DeRidder beyond it in we into or the benefit Wallula not to outside done. some until tide some to

Mark Kowlzan

specialty top was SBS. some were containerboard through that outside amounts we’ll this of tons of about you the some some small we started help an down ago that and years of piece market. It outside give to we a is have supply the white supplier And for traditionally we ahead of box purchased the tons was went work normal and through We the to part buy But and me tons for like what to that this requirement. us quickly that A a and XXX,XXX in Let number. year year. moved the specialty quarter just bought and supplying most brought we’ve XX,XXX some to demand us two then XXXX through continue our in contractual using. right. of able and working approximate fourth XXXX tons type probably year plants. number, then tons We we Last buy

XX,XXX and year we’ll a we have buy done. tons out very wind this small approximately that that So or be will itself

would purchases this we of probably outside look tons at XX,XXX So year.

Brian Maguire

Okay. you. That Thank lot. helps a

Just one I last one, if could.

decision relationships? GP’s good about really really you wondering term a good outlook the still question Is long-term guys to commitment days? longer business these business, have Debbie’s envision on exit days. those being down road? these still that thinking just or X But to the are and do years paper that about something maintaining following and you you is yourselves of sort customer Just that XX the business those in Obviously that assets the how profitability is

Mark Kowlzan

Boise, you we you’re come 'XX look Looking our X.X that bought significantly guidance of to through since at a we model some rate EBITDA the move six-year easily for extrapolation a is, that billion generating run on XXXX could assume at period. just you and you just billion up we during and quarter it, you first with X up that what said if do finished

X just roughly since we we went generated billion. you owned through If them, XXXX

been business it made effort would ago. It’s the want out three took been value cost is we the sell that. wrong a use two to of you Again, so and ownership a mills. And years it The probably price goes back years such some hard it’s not to here. I’ll comments of for good the in we first the it’s the contributor of on business to good early

a And valuable very very very minimal contributor. position. so a And capital. have it’s significant marketplace requires It we good

It’s we us. business for continue nice to advantage And that. will so of take a

Brian Maguire

that. appreciate guys. I Thanks, Okay.

Mark Kowlzan

you. Thank

question. Next

Operator

line Davidson. with Chercover Please Steve from is the question Your go next of ahead.

Steven Chercover

of couple ones session. quick the in A Thanks. late

volumes part Is you with the due long-term that can all, maintain of if freight optimization to respect alluded to of those exports, nature from? you’ve to? First ship the the you of optimize that you relationships, where

Mark Kowlzan

had we’ve and a customers existing we’ve because, export optimized mills. long It’s our really again, those these time through for not

unless grew significantly, see don’t really China no to – we but So occurring. the like that we something that or

Steven Chercover

quick debottlenecking to Okay. I on are it, freesheet. but there opportunities compelling? at mills know were Thanks. the And not two you’re to capital big going any a commit returns the if

Mark Kowlzan

I’m sorry.

Tom Hassfurther

Debottlenecking freesheet opportunities.

Mark Kowlzan

you Could I -- question and were ask that talking. Bob

Steven Chercover

sudden America that a any compelling? augment there you North was the your on were if I’m wondering, capacity only do just to if all opportunities returns freesheet, of are short

Mark Kowlzan

Falls and Jackson are the running Unfortunately, full. mill I mill the

have stretched five the four We years. or the last capability out over

the to are maintain practical with of where is We’re cost peak and from very allowing which at capability, point a pleased running. they’re view mills full the their But running what’s us efficiency. optimize input

Steven Chercover

Understood. Thank you.

Mark Kowlzan

you. Thank

the queue. anybody there’s if more I think question left on we have one time for

Operator

There is.

Your final line Please Markets. of Josephson the Capital from comes go KeyBanc Adam question ahead. with

Adam Josephson

Thanks. Good morning, everyone.

Mark Kowlzan

morning. Good

Adam Josephson

obviously XQ the slowdown of some your tied demand box December about the on you’ve in of think and Tom, ISM you a just are are to box indicators. embedded a what’s have in of a questions, growth And the demand the quarter you for talked signs other for to PMI guidance? then moment as continue commentary, a the with couple how been economy. There numerous that just is often expecting just to you level – January – in on expecting whole terms back

that how of you. demand year? what’s for balance might sense the of on the So what and have your impact Thank economy is doing the

Tom Hassfurther

Adam, you. for January what the gave I expectation is

number, which is for well, rebuild said, economic things. quarter? And the above you that where would is you In we the terms where of looked is and and of some slightly of a are. remainder we now if go Probably typical the some other probably inventory growth of whatever

very like their that’s base good good their and I own things on quarter. about that. very that now just So heavily that have economy customer export feel reliant global very good still opportunities. the necessarily But not we a They’re think they markets Right that’s indicates and for that our about and demand demand prediction.

year. domestically good So I continue to And the the quite think got shape. that’s we’re throughout I opportunity in think

Adam Josephson

Thank you, Tom.

Mark Kowlzan

I you. forward to right. With We first for day. out with us. you time. like Have All operator, look thank I that, we’re in everybody of believe the talking to a Thank quarter. would good joining for April

Operator

This concludes today’s conference call.

now You disconnect. may

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