PKG - Earnings call transcript Q1 2022 | Packaging Corporation of America

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Operator

Thank you for joining Packaging Corporation of America's First Quarter 2022 Earnings Results Conference Call.

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

Mark Kowlzan

Patricia. you, Thank and Corporation everyone conference all participating for Good America's thank first Packaging of release quarter in morning, you XXXX call. earnings and our call Mark CEO runs Executive the am Chairman and with Officer. who PCA me Bob business Mundy, I Vice President on Financial is today Kowlzan, the packaging Tom Chief Hassfurther, of and to who to of and then results provide begin I'll be the first turning the the Bob call with quarter Tom call details. further over am will an going and overview I then glad I will we'll And wrap things to and up be take questions. first income share. Yesterday, quarter we $X.XX or $XXX per reported net of million

related First quarter special items Details both share the accompanied per cost in of the net $X.XX for at press XXXX that of schedules first included income our conversion included Jackson were Alabama expenses earnings paper and release. activities. of for the for XXX certain items the primarily mill quarter special containerboard to

special per income Excluding income million the XXXX share. million or XXXX $X.XX compared of first share, or net $XXX per net quarter $XXX was to items, first quarter $X.XX

quarter company First first for $X.X sales and XXXX excluding and in in million $XXX quarter $XXX items in EBITDA special was the XXXX. in million net $X.X billion XXXX XXXX. were Total billion

volume materials $X.XX. primarily segment; higher and energy, share items, now higher increases, a operating $X.XX operating higher $X.XX; cost fiber, the These have and repurchases for of the expenses. row driven $X.XX, Excluding first higher were driven and from quarter Freight of special of prices expenses of labor quarter compared and in lower per and in paper interest by offset of packaging and by share $X.XX repair moved partially $X.XX resulting for XXXX $X.XX and expenses particularly first of lower the by per were above materials. XXXX and by and in quarter count chemicals, in were seven prices mix items share our logistics labor, share earnings share $X.XX converting labor segment was quarters a increase the $X.XX per first to mix and the inflation-related for XXXX costs with

our paper $X.XX, of $X.XX, scheduled We also lower costs outage $X.XX from in other expenses, higher higher expenses segment higher tax resulting were depreciation $X.XX, of and volume year’s some last and The in items higher results paper mix rate due tax a quarter had conditions. $X.XX. our rate above were $X.XX from the favorable and operating and segments, usage efficiency initiatives primarily and both improvements of first higher volumes $X.XX and share prices guidance cost in packaging per our weather to favorable

at margin packaging our in the million in as business, volume $XXX excluding XX.X% the mill performances. and million last went XX.X% entire quarter. of first both which with special $XXX packaging of resulted XXXX versus maintenance million, in the Jackson, our at EBITDA Looking record-setting margin. a sales our $X.XX EBITDA Demand corrugated containerboard mills quarter year’s Alabama plants was sales mills very both and items machines a scheduled The had of segment our $X,XXX remained and strong or of containerboard the in sales outages products well in produced billion very

demand, we quarter targeted and levels. internal with below inventory strong with containerboard our again levels external However, and ended historical the once

sales business. and I’ll to our maximize further benefits products and and in on headwinds on our Although our now continue freight details to costs over enhancements provide turn returns initiatives, efficiency and project expenses, their as cost and manufacturing numerous who Tom, optimization it containerboard to capital well logistics as improvements, we integration facilities still margins. will face unprecedented the inflationary deliver reduction corrugated

Thomas Hassfurther

Mark. Thanks,

total day time quarter. record. the containerboard mentioned, per new As new products as volume shipments box Total as for versus shipments well the demand shipments year. products approximately up and We X.X% day record, was up were were X% first very during corrugated strong in X.X% which us quarter, was set a prior our and up first all in Mark a a quarter very plants over corrugated per last strong year’s comp

$X.XX corrugated compared price products containerboard of XXXX Domestic Mark. to we to contributor XXXX capital first as In order of of needs of year’s versus first domestic well. $X.XX plays the supplying strategy fourth The volume XXXX. and the results. successful I’d within continued provide Very good allows quarter per focused the to role to for this that optimization quarter last to to to back years contributed our fourth demand help our year of XX,XXX up while was XXXX. and align while Export execution box and implementation to the $X.XX first the below maintenance price plant were benefits a have also the March of of above quarter, customers also investments with. on like outages penny the supply our and increase focusing of this contributed implementation the strategy results of now to a out of were in to addition customer the products prices turn initial the we from prices mix it mix recent compared above containerboard our share internal was share few per per point last outside of in year’s share our and want increases and desire are service mix quarter approach strong record was per that Outside box to partner system volume over our up demand. export the across managing containerboard mills. up and spending last and disciplined fourth XXXX our quarter I’ll quarter first key the them been a grow, on internal implementation The needs process. plants customers’ significant and that in sales first at our quarter strong the scheduled quarter our tons XX,XXX to tons of owing through share

Mark Kowlzan

Tom. Thanks,

EBITDA, excluding Looking of special compared quarter with $X.XX million at and margin, sales for million the EBITDA XX.X% sales paper $X.XX of the million in the first $XXX X.X% of was first to quarter or items an $XXX segment, XXXX a margin.

Also, converting volume and of increases. we per price March, papers. quarter’s of our increase International on in fourth efforts we and increases paper the previously the our resulting on quarter all late mill. now volume ton XX% segment notified to As from mill. be year office effective XX% was first were we with from The we first to when above mentioned shipments expected capacity in of it paper Accordingly, our seeing cost printing structure, Alabama announced about paper are in the for the $XXX Bob. quarter optimize solid number to last the call, fairly below prices of is quarter. Xnd producing price last at customers higher product X% and our the minimize representative and returns year’s I’ll Falls the the sales inventory machine XXXX Paper mix last and our beginning mix year’s paper May quarter inflationary Jackson, deliver business helped were turn at one than this over employees

Robert Mundy

Mark. Thanks,

the including flow from of million We hand $XXX of dividends on of with expenditures $XXX of included during and generated or million. million cash $XXX common stock $XXX $XX For cash the marketable and cash free first of the cash operations quarter million payments million. Key capital quarter $XXX we ended million securities. quarter,

in it revision Our impact the at liquidity of $X.XX plans in changed I revised now in outage in to $X.XX revised versus to and remainder March a cost want per resulting guidance scheduled per share billion. third per quarter on the for quarter’s share mill company of over maintenance on a estimated is impact that the total provided was $XX per $X.XX year share fourth last we call. was turn estimated update second Current work share per impact now of the previously. XX $X.XX the share you first the $X.XX I’ll back the on quarter. the quarter year the quarter, scope The has Mark. and for $X.X and to by the actual

Mark Kowlzan

Thank you, Bob.

out, we first in segment as and will quarter. our as quarter, will than outage both paper segment be continue outage the $X.XX implementing the mill announced we packaging expect in Bob remain segments. scheduled in our into from cost ahead, and our total paper demand lower second Volume will and scheduled previously and the first increases pointed International we the the Looking price move higher with Falls at strong the to be packaging very

quarter call should prices must $X.XX some well results as that, our per these I on that, constituted happy Actual differ we’d be inflation like expect for Annual please. of all company, statements. statements recycled items, risk With freight, to those remind in those statements do of Patricia, of continuing but fiber Considering uncertainties, identified Report and the and be although risks call with expenses anticipate on with operating materially of current And also share. earnings The forward-looking slightly as We were we in expressed second economy you on forward-looking as I'd the with of costs the the the questions, entertain estimates, based expectations, Form most and SEC. up and inherent the could and made factors including that lower. logistics projections of direction we've statements. involve on to the the XX-K, file from open questions, any the

Operator

George [Operator Instructions] of of Staphos America. Your the Bank first comes line from from quarter

Your line is open.

John Babcock

relative of if actually there Appreciate hikes to on Hey, time It’s the reason the might you it that’ll all, year, wondering be some for good I great. to was the for increase my this last if and implementation talk time I to be guess of might any on first is morning. just be answer to questions. taking George. price different John cadence about line able believe the the Babcock

Mark Kowlzan

ahead, Tom. Go

Thomas Hassfurther

the track Yeah, right others. the like on implementation is just

usually over We period. disciplined the get approach. a have pass through very about day XX a We

month was had of the So, as the price quarter. the the some I in second will mentioned, But increase we majority in March. of be that

John Babcock

for contacts might if you. talk what I was you as our seeing to terms rates they Also prices just Okay. And here. of spot some just Thank the about of next be you it question, said wondering, could dropping pertains in that? are trucking,

to that have. just get color any you might want So

Mark Kowlzan

to do a want you add Bob, that? to little

Robert Mundy

relative an again we quarter from second freight for up people as ideal would are just the little situation and a that agree, little There but say still probably are have think or going factors that, a on most market. seeing bit going I’ll far in being quarter, that’s showed improvement another our John, Yeah, X% the first our so. guidance of in to costs the I that spot we various are

So, still to be a lot there. done

Mark Kowlzan

you the think that that’s will of I some again and the levels. of over at become factors and spot at gallon still predominant remain cost high need diesel a although to market cost available, drivers sitting the the more in consider exceptional $X one

John Babcock

would to the ensure you’ll needs. make get before I you they then just product Gotcha. that talk serve inventory just I sure customers you maintenance build, this you their could and a downtime, to over. take you steps that And that it anything do quarter, around are need able about downtime last Falls question ultimately With to upcoming turn have the normal the that

Mark Kowlzan

been for six Yeah, shutdown a that’s that’s the planned last months.

June. outage that weeklong will take it’s a in place so, And

you so, planning. take care assume inventory part to of the that not of it’s our how to we’ll an and shutdown have already really and to necessary so And customers a issue preplanned we’ve have

John Babcock

again. okay. Okay, Thanks,

Mark Kowlzan

question Next please?

Operator

Montreal. of of have Mark Wilde line from next We Bank your from question the

Your open. line is

Mark Wilde

Thanks. Good Tom. morning, Good morning, Mark. Bob. Good morning,

Thomas Hassfurther

Good morning.

Mark Kowlzan

Hey, Mark.

Mark Wilde

awful because new industry up, into tight start new wider mills to we’ve with capacity. coming just corrugators is corrugating and some like Mark, kind is having lot capacity very been there this if investment in any? for it box of efficiency seems including on of impact What the machine

Mark Kowlzan

us, not factor. for a Well, really it’s speaking

size some There the our few box real own a that over to the very corrugator – is further? Again, at large optimal to there do half added are efficiency least invest that XXX optimal add relationship now. and levels. a you corrugators. corrugators. a We gone I prefer we necessarily. corrugators to certain years mill Tom, certain continue in inch dozen there size is We’ve have plants new little don’t strong want type think to

Thomas Hassfurther

if you that relative can wider Well, just I that some say machines, would some the corrugators. issues narrow to got create

on So narrow just – the me that’s be issues probably to the you largest machines. that see would impact scheduling mills some in is

Mark Kowlzan

From machines, the yes. old

Mark Wilde

like seems corrugated reports out it pandemic. and of of volumes the been Okay. am sort the during I Tom, more we’ve over getting last curious, XX subcontracting months, about

you demand your I shortages. think that more? any subcontract have and of guys Have that the is out this in seen labor you impact because this system from strong

Thomas Hassfurther

of of sheet I of think, system have standpoint corrugated Mark, we and we a of from plants a have lot kind we a the plants. unique have lot

So, we where bit said, as business. sometimes I able that to I competitors to this And of probably else. see some the of are is have flexibility, it lot think in a terms more subcontracting of we you little than might. I as type like And independent sheet network that’s opposed our more of in call a handle anywhere

up now everything demand us, are for we internally. we cutting So, our that all –

Mark Wilde

helpful. That’s Okay.

the could two conversion if I wonder Mark, updated capacity Jackson. you give and timeline some on at machines to us Finally, ultimate

Mark Kowlzan

Jackson machine machine, capacity number choose will we XXXX. upgrades to built significant planning at if completed the number this now, and that outage That it. we year the we of to ton have because you this period that from a into have to earlier for October is time. the at we When future any in absorb are three should of year as year, into number is out issues. a on machine that last that be we move primary done production emphasis We’ve and next opportunity got number Well, the called XXX,XXX year that’s three later opportunity a off we the now, one Right chain supply Jackson as direction. would not phase machine would good But pushed the full three an through studies imagine. anticipate

Mark Wilde

the could ballpark what capital What upgrade in you was without the then to and capacity go potentially if put terms? at that be number into one some

Mark Kowlzan

think which it’s is year with you runrate machine a a about under capital XX,XXX pretty the type place good running, capital we investment, somewhere if invested be Jackson of basis which in. at with one considering haven’t we Today, number to tons no are any

Mark Wilde

I’ll Okay. turn Very good. it over.

Mark Kowlzan

about decades, spend you now we requirements. you capacity, talked which the you of point, you a It’s it’s machine much into back critical certain really because bigger get infrastructure all other of over like want matter once do how into of getting related because pieces pulp diminishing and to are required a any capital for the for capacity the end capital, returns, reach on capital all pulping

that So, there place takes peak analysis is certainly then reach diminish. you an a that and quickly economic return

on you So, I think a Jackson, producing where to a on we a are with what number we are very and XXX,XXX a curve. looking at, year a are machine, place profit be that’s tons Alabama XXX,XXX, good if machine, one and on for three number XXX,XXX cost tons year

Mark Wilde

you. That’s it Okay. Mark. turn helpful. Thank I’ll over,

Mark Kowlzan

Okay.

please? question Next

Operator

the Okay. line And our comes Research. next from from of Weintraub question Mark Seaport

Your line is open.

Mark Weintraub

another on Thank you. Congrats well executed quarter.

takes follow-ups, about fully it box. two normally that into mentioned you XX board from implement to First one, days

will a up some pricing incremental the basis then well as some in we’ll that quarter that be lot second quarter-to-quarter portion third from quarter the can there in the additional on show of and So, we third should the numbers conclude quarter? as will we see average in see a average the that of we an

Thomas Hassfurther

Hey would This Tom, good be read Mark. in. is that a yeah,

Mark Weintraub

Okay.

Thomas Hassfurther

Go ahead, Mark.

Mark Weintraub

within period back the typically And might can we look quarter? up show sense third in you this any us what give be would that historically percentage if case

Thomas Hassfurther

the go as part I that I that, but I XX the XX even there said, over for contracts accounts few rolled the No, a have it’s most certain – are it’s I think, that beyond things into That’s day these mean, mean, in period. be may have some that and that only might the indicated there yeah, I day March will quarter. in little quarter and give third in there a can you. bulk be the period we rollover second is and guidance the

Mark Weintraub

Okay.

So, just little a up.

And at Okay, Jackson? capacity mentioned about machine currently that but thank production is you the to XXX, you. – the going it what’s XXX,XXX Jackson

Thomas Hassfurther

probably tons tons. that, in a on a Grade on You machine and Metro year, and it’s just running XXX,XXX are the then tons again that XXX,XXX year the XXX,XXX tons

tons quarter machine produced the just tons. one If year, year quarter you we produced XXX,XXX we for at the for XXX,XXX first the last running look for

the which we year tons talking this expected for are run you at full to Jackson. of for the pace So about XXX,XXX runrate continue with somewhere year out

Mark Weintraub

looking Okay. sorry, Thank April? the you the then, demand into quarter, for update you. – mentioned first And packaging you can what August the on part good lastly, of you second are looking us in

Thomas Hassfurther

X.X% over so, April, Yeah, we up keep we in though last XX%. mind up from are – that far April, and were in so

jump big, this on of top last big a So, is April.

good. remains very demand still So

Mark Weintraub

all the you. appreciate color. Thank I

Operator

from question from next Ng Phil line your have the We of Jefferies.

open. line open. is your line Your Phil is Ng,

question is from next Citigroup. of Pettinari the Anthony from Your line

Your line is open.

Anthony Pettinari

Good morning.

Mark Kowlzan

Good morning, Anthony.

Anthony Pettinari

more just like mean, talk I structurally inventory a little period? the or your that’s And a than have better for where supply levels worsened or are in inventories anything timeline maybe where guess, kind think maybe higher potential read level their might you I you customers Can And you’d from in do there. inventory then, finally, them? pre-pandemic gotten of versus about the be and any you of given to about you constraints, hold that chain bit maybe terms of getting said then,

Mark Kowlzan

we we where would be. still As below are want to called we out,

obviously still are levels do our has the below matters. to target We chain, transportation and related historical pandemic lot it with a of supply

with that. the time question, level part logistics, being to issues, the of heavy improve. doing, grow they’ve also anticipate chain And to we growing than to hold been necessary what so, periods historically inventory your levels. very with generally volume rate for to difficult build of a and the think trying railroad again the into higher pandemic. trucking had year I Things prior supply doing it’s as the to we shutdown continuing are this we of a out But But hold come would we it’s

Anthony Pettinari

has That’s then continuing demand just any on accounts seen, broadly, very any I can strong customer seeing, groups is national demand finer some your there demand, helpful. little just Okay. you’ve point like that And demand accounts, maybe color or are maybe the or And on seems extremely bit? outperforming then, put it’s especially local or what April. just give you mean, end-markets a that into on softening they stronger strong it are been that’s you’d are

Thomas Hassfurther

these very some demand Tom. I slightly, look across currently about They grow. double-digits, than everybody up and local that is issues those the just on puts more broadly lot accounts of Anthony, strength by an the larger they says said, I quarter, of have kind of if past. the but businesses. got to and XX primarily is, smaller they labor just a up I more includes at businesses are accounts, Perhaps, if the accounts can just, some the on. lots chain were a X% that includes work supply bit some piece. this and but talked issues first is they able ability it’s across accounts, generally our I’ll representative just you’ve as talked just that you top what going think takes think But is, Relative are so that said, they versus remains are up XX the different I that business depending I strong, some than very speaking, to as those handle see more demand through to in. of grow like all in the mean, Demand in you that that you in down we’ve look issues I the national, the were that were on of again, now are – of but that average, all held little of are that that strong about, the

Anthony Pettinari

I’ll turn great That’s color. Okay. it over.

Mark Kowlzan

you. Thank

please? question Next

Operator

from Cleve next We question have your from Rueckert UBS.

open. is line Your

Cleve Rueckert

my questions. morning. Good Great. Thanks everybody taking for

Mark Kowlzan

morning. Good

Cleve Rueckert

have market you this a you I done, growth to over XX execute like business XX taking a share has mean, demand of, dead the very the job in just whether end and take demand. to just mean, on you PCA horse, growth market seeing impressive but don’t well frankly beat are call share? a months, sense follow-up last it. Do want I I are continuing quickly is or market to of

Mark Kowlzan

been Well, spend it the I our in align I sure decades. lot that, for we to customers. commentary right would with strategy would of really too, mentioned the kind time we’ve that say doing say, long-term I is a of and making just And

great them existing ability – growing from help ability majority whatever growth and our their grow possibly our our So, to way can. to we most accounts the of and comes

that So, the the demonstrated that’s the in comes recent over from. just we’ve majority of but certainly where not term. growth PCA’s past And long

Cleve Rueckert

Okay. That’s follow-ups. And clear. of couple a then, just quick

on about John’s question and First, I want to freight trucking. follow-up

spot things We trucking is relates spot but into the as the are all, the also are changing out your just seeing we’ve strategy it if the some to and I’d you the especially – heard moving market? same of logistics market the curious about market. pricing, be of contract at

Mark Kowlzan

No, not changing of improving, the anything? advantage no change Tom, want some is we add strategy but to major necessarily of strategy. you availability in taking do there or are

Thomas Hassfurther

contracts trade No. for most that and use much part spot through. we the under We’ve don’t been

Cleve Rueckert

there think to last system that clear. inventory the sort of production any easing burned quarter side? mean, if quarter, I’d And is obviously on the productivity just all bottleneck productivity, productivity. broadly and I guys if labor on back in you constraint at a the we I box the Yeah, but you then, constrained that’s pretty labor okay. was that’s or holding on heard That’s curious kind this of side especially just be labor,

Mark Kowlzan

capability the last add continue in an mill the and we’ve the over said, years, our the labor being our side. stress last terms grow is With capital want Tom, with make keep then in in and in in labor to side we’ve a if of productivity think productivity incredible plants still year Yeah, pool converting the on employed. improvements there, few been do the able per you investment about commentary color unit, to with again, box the you mind, it? to our made there of in that a to hour amount little market man significant

Thomas Hassfurther

Yeah, going there especially the down of COVID, omicron mean, improved some. no question. our situation as the a I is labor result variant

on was to new other challenge and still will that But cetera to trying help remain hand, situation. hire the retirees people a So, a a so. replace our and of labor et is bit

the you just jobs participation any labor would got the of If the attest that there look to and million sitting open, that any at a I are certainly industry statistics think highest X rate real in the in labor fact decades, we’ve is everybody challenge.

Cleve Rueckert

all clear. I very for appreciate questions. That’s guys. Thanks you answering the

Mark Kowlzan

Okay.

please? question Next

Operator

line We Thank the you. [Operator from of Wilde from next Bank of have your Mark Montreal. Instructions] question

Your open. line is

Mark Wilde

a to possible it us just seeing Start at of the you follow-ups. the you level for of help is inflation Thanks. with you level One, are to versus starches, more differentiate ever cost couple what at other have my energy, in are issues? seeing level? plants like between I does seeing labor, than converting pressure seem the converting seen It pallets, career mill are

Mark Kowlzan

I again, you last ahead relative, and understand to that Mark, you is board want some correct. detail under the that pressure. What tremendous to is just have Tom, it’s add point? do everything across Yeah, think, go you said for inflationary

Thomas Hassfurther

things, some anything start But I transportation, board big mentioned, upwards ink, you things never dyes, you all numbers, seen sorts with XXX% never any labor, starch, before the talk just dealing in of We as are plants. like the Well, things. just, have talking you, numbers of wholeheartedly much any I the the just cases. seen the when I’ve about repairs, it’s Mark. that are inflation as the the going sorts can the of we some equipment with am in the across to of those those of about pallets, these agree box

Mark Wilde

building of Mark, I you of taking prevent would created then, thing anything had advantage point that the kind at Wallula, there opportunities in conversion at Falls Ala, same at a by from at is question DeRidder, lot other is, of incremental benefits you’ve there Jackson, International And the Okay. time? some at

Mark Kowlzan

about IX to is that and decision keep at to sister have box essentially such similar all demand were a what No, ago But about, as on I growth could as on planning at timeframe as got paper needed versus another the the both us a it way mill the capability at and in that conditions it’s make corrugated demand of it’s we Jackson market profitability. support tremendous then business. were good some very, decades far plays I a paper matter you The our putting dictated the is we a at again, at if Falls as But I of big tremendous a of looking advantage market mind frankly do fact, Falls, and example our few in how opportunities Falls. into what the that day machines machine a installed take They they conversion. capability. Again, better dictated, very market we talk and are about of and mill have we the machine infrastructure I want has to we plants, studying quite in a heard products and always we’ve version file Falls JX. that

So, we the have of sitting that opportunity that’s another could some day. Falls one opportunity, but is be there I taken of that advantage

Mark Wilde

Okay. be more right rather be that borders, given a it take that to than that medium good of assume, corrugating it’s not mill assumption? towards you’d Mark, a now is likely line And just hardwood fair primarily to would that

Mark Kowlzan

assumption. bad a That’s

Mark Wilde

Thanks. enough. Okay. Good

Mark Kowlzan

Yeah.

please? question Next

Operator

more you comments? any closing Mr. seeing questions. any Do not Kowlzan, have I am

Mark Kowlzan

for the July. of a look the Again, latter joining today thanks call on Have good part we forward day everybody and you everybody. at us to with talking Thanks.

Operator

participating. Thank conference you for all concludes call. this And today's

disconnect. now may You

Packaging Corporation of America (PKG) 26 Apr 222022 Q1 Earnings call transcript