- Earnings call transcript Q3 2022

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Operator

Thank you for joining the Packaging Corporation of America’s Third Quarter 2022 Earnings Results Conference Call.

Your host today will be Mark Kowlzan, Chairman and Chief Executive Officer of PCA. [Operator Instructions] I would now turn the conference over to Mr. Kowlzan. Please proceed when you are ready.

Mark Kowlzan

Matt. you, Thank thank of and call. for in participating Good third you quarter Corporation America’s conference XXXX Packaging morning all earnings release I’m Chief is CEO on Mark our Packaging Vice and and Bob runs Kowlzan, me Mundy, and with our President, of who the Officer. Hassfurther, Tom PCA today Business the Financial Executive call Chairman to begin provide then turn and the quarter third results will call I’ll who call with Tom over our more Bob, an details. overview of and the be we’d then to and up things wrap then questions. glad I’ll take Yesterday, third or net quarter of $X.XX $X.XX XXXX $XXX share, income per income of income third quarter per million, net net or we per items compared of quarter share. reported third million $XXX to or $X.XX share, million, excluding XXXX the was special $XXX

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

the included of Third mill income items costs to that and third the the items quarter Jackson, for details all that the $X.XX for release. schedules were primarily of special containerboard quarter press certain paper of included XXXX per for related Alabama share in the activities, the at net special conversion accompanied XXXX expenses earnings

in $X.XX, third share labor which due resulting $X.XX mix offset fixed the benefits Lower $X.XX. interest of of expenses, well and related in XXXX rate, in to several per repairs, cents. the per supplies, by the share quarter tax as as share lower primarily a operating items These the chemicals, indirect primarily and and pay were materials packaging share areas. the higher per $X.XX lower $X.XX, energy, count other increases compared cost $X.XX and areas special inflation and higher prices partially to quarter were costs $X.XX items, XXXX was Excluding increase segment expense, in from earnings segment third by of driven our repurchases,

share also $X.XX negative share We of converting and year, volume our above per paper lower cents higher. The increases $X.XX scheduled and were expenses $X.XX packaging were and were per outage our expenses $X.XX higher. in related inflation Freight impact segment. segment, $X.XX had logistics in last in our costs which was

through We processes quarter The $X.XX, also guidance packaging segments, mills expense were our had higher of well around the other share and our previously to the price of depreciation optimization generated per efforts primarily and $X.XX the usage above as sound material expenses from in and increases due implementation third process plants of as and paper continued efficiency very benefits announced $X.XX. the $X.XX results initiatives.

a quarter business, as third of Looking year of billion of in special and $X.X at XX.X% with of excluding EBITDA our EBITDA margin XXXX billion items packaging last resulted the of $XXX sales $X.X million versus XX.X% $XXX million, in sales margin. with

a Our teams of implementing job did previously price increases. announced our tremendous

an quarter. with our efficient this manner our packaging we and will a moment. in containerboard mills further export well segment current our The in demand and Tom the balanced in for expectations However, domestic discuss demand. supply operated below was cost-effective as

related our outage according our internal quarter. containerboard part be than originally outage will phase at earlier X Total weeks As downtime Jackson XXX,XXX maintenance fourth conversion and for first of the effort, few scheduled at we a the conversion the the capacity demand requirements. remain completed committed mill the in to machine Jackson of quarter No. ramping work Alabama to planned. was tons. began up to the we in will economic The customers our third And approximately

and numerous still within our to mills integration efficiency focused costs, and plants on and operating experiencing are delivering improvements, high our remain Finally, continued reduction converting the inflation although we historically and optimization and initiatives, over provide benefits and to capital details project benefit who Tom turn on business. now impact. sales will -- more it helped minimize the enhancements containerboard that I'll corrugated capital cost

Tom Hassfurther

Mark. you, Thank

driven the spoke volumes per of Outside being several anticipated. $X.XX much X% Mark product second Mark in at in announced which lines, of tons workday, the from domestic implementation were correction mix prices items, channels to share to realization third larger demand XX,XXX continues compared and and to XXXX. in originally quarter goods. $X.XX together lower price third up get ongoing of XXXX. of and the compared durable all quarter and the As our negatively combined below quarter sales the of shipments XXXX. inventory and corrugated The and our to volume purchases XXXX we than of second impact compared last product were were resulted in previously $X.XX packaging segment significant per across we share was last total excellent non-durable increases containerboard prices quarter lower share per down The and consumers by a second year's than that of containerboard XX,XXX per thought containerboard up to products share $X.XX XXXX quarter third Corrugated quarter. the was of per impact and the Export above both year's tons our is retail mentioned, the below third continue mix compared inflation quarter and up of to

XXXX demand. in in protein Florida, on In interest this addition and a to various year, zero effect experience tolerance have the weakness events with Along impacted China's headwinds negative and Demand continue is and combined things economic box Europe. the as China negatively recent in agriculture COVID to including beginning with issues policy from the all domestic containerboard US and markets. markets global hurricane housing well. and in deterioration rising rates, conditions, economic cooler These

in the less and fourth from quarter, quarter these quarter. are we the days And fourth expect compared there into majority we shipping of to continue. As conditions look addition, the the the third quarter to in four third

Mark. back it turn I'll Now to

Mark Kowlzan

Tom. you, Thank

from EBITDA the XXXX of $XX in quarter or items the EBITDA third was or last million of outage special previously as the at quarter $XX with quarter paper as price margin was year's excluding million, this and scheduled of million, third sales that Looking compared mill increases. sales quarter of inventory $XXX implementing announced paper X% mill's the of Jackson with our our last mix XX% implement price excellent to Falls a around increase, The segment, Sales below efforts into about were latest X% to well volume moved third outstanding from quarter margins in product as and business. the from our continue a sales second third to delivered primarily year's $XXX optimizing third XX% the together up higher third X No. International mix we margin. XX% XXXX and and Prices due paper cost included the quarter structure, last and machine. million the year's at year's

over to turn it I'll Now Bob.

Bob Mundy

stock million net and Mark. payments, cash respectively. Common operations and of primary dividends Cash expenditures cash pension Thanks $XXX during $XXX the provided tax interest of payments Employment capital federal million flows state contributions Post and $X payments by income and included and for million. $XXX time $XXX million. Other of million, $XX quarter all benefit $XX at totaled million, free at quarterly The million records of

per X,XXX,XXX ended cash $XXX $XXX of was the and million. for share, In on addition, liquidity of $X.X total September quarter XX, at including million We repurchased we securities, a the an with quarter during shares of average our $XXX.XX billion. marketable price

I'll per annual cents be cents about higher share planned per $X.XX the quarter turn for now our over is from $X.XX Lastly, now maintenance back outage share, fourth to third to or fourth the it quarter quarter. expense expected the to Mark. moving

Mark Kowlzan

Bob. you, Thank

Looking economic we ahead rates conditions mentioned, of see that and fourth from and third packaging as demand into Tom the we continuing. issues higher global third quarter the impacted move quarter most the segment and as interest

third Our compared less box seasonally And also rich have days well average products a prices. lower corrugated expect the export in as four containerboard less shipping mix we quarter. plants will as to

machine. segment, took effect office X. will converting price our in the containerboard grades Jackson, and scheduled on implement with In containerboard $XX on printing per of conversion continue on this previously completing first ton maintenance system we phase the along X on will outlook September to that based announced our No. run paper outage work increase the our demand the all mill annual We

However, to be the compared lower volume seasonally will stronger third quarter.

per Bob $X.XX scheduled outage be share the As than third expenses quarter. higher will mentioned, annual

Form in and direction expectations and identified and projections reports Form expect from Lastly, the The fourth current Annual $X.XX call inherent that share. entertain of on the costs. remind we were and quarter filed you Matt, subsequent anticipated and I'd higher based operating like And must risk we slightly please. the XX-K company any With some of the with made the expenses, involve the results risks questions of statements expressed estimates, actual we'll call to questions constituted for be the but statements could we've open factors on XX-Q materially statements. The with to Report quarterly including forward-looking our that differ costs, those economy on on higher of expect those I the primarily and along of uncertainties SEC. labor that with earnings in forward-looking happy colder statements. resulting items, in up these as all per Considering benefits weather energy

Operator

George America Staphos Our Instructions] of come [Operator will from first question with Bank Securities.

Unidentified Analyst

conflict. Liang Sandy is George Staphos, on of small this had a he Hi, behalf

you early And XQ supply can discuss to your trends? customers the to very you destocking please booking much. can continuing share extent billing First, Thank are the you that and chain?

Tom Hassfurther

is this Tom. Sandy, Good morning.

asked that and of wanted well, I inventory terms retailers try stocked last some good customers running our to obviously of saw this news that. predict you waned I bookings maintain o significantly the that buildings of it out And meet now we has coming about course, all, record-breaking issue. first you that year. they and to last far, are some. to in tell stocking and is, inventory up about would think demand pandemic the of long was didn't it as X% demand and There other is So The, issues. below as that will the

ordered In addition, we to kind excessive as boxes that of well number find of that demand. meet they

we or XX pretty going completely. take couple work numbers. So a through like of down a about it's system inventory to XX adjustment. while was work to system. severe going And the be going through days. it that thought to going of and in we're right probably these are that's get to volume the looks We now quarters this But period what through this seeing primarily through this to That's

Operator

Our will from Research Weintraub Mark with come question Partners. Seaport next

Mark Weintraub

you. Thank

there is else's? anybody How are up other I contributed to might questions. realize realizing yours much is well. Could better be demand the judgment, highlighted inventory but this on you have than the following ballpark just going factors as that So or down certainly destock good you to and X% as

Tom Hassfurther

again, matter yesterday, the this fact, no significant. about quite Mark, There's And question as interesting that it. just of as I time mean, a it's it's It's number. primary of -- customer large said, fairly to ready a excessive an at one order inventory. had I down plants, of and now we run have finally again. in who our I'm my email sent

lot they of went through of probably lost we or these So some that typical go cycles of a this of the destocking two cases, as customers order inventory. would one in through

Mark Weintraub

And going where originally to quarters. it XX couple it's then be you mentioned you a days, to thought, XX is of maybe

go it continuing anticipate what And going third quarter? through beyond best? we hopeful the that it as certainly that as third we'll at -- of your and we'll to run meaning to it interpret quarter? latter might you're do saw that Or is high be done in level in Is quarter we as the part be that that it there? with So the it's fourth right had you

Tom Hassfurther

other into can't I there fourth the including at can lot you obviously, the quarter of when you a that. believe I as going But predict are I and fourth Well, future. look this tell destocking. quarter, that I our mentioned, factors

would this our if issue. those, some of you inventory other look you see probably work way and got we'll the about to So we've But those that is think at numbers, out begin you the ag crops are those that like lost some by headwinds and in that was as delayed be the south I in going hurricane, the to cases as or business well, especially either mentioned, completely. impacted trend

-- I've to only So with honest in the we, my entire this, be experienced you career. never I,

products some the plants couldn't in the panic buy building So obviously. to of their kind boxes without the got this times, a because of inventories, lead severity and box cases it almost they ship this

quarters Recession, little to previous to cycle few turn couple going I two it first it's it because So big through this, that the and took it turn the work kind the a still quarters. of took were more great quarters the the back the of just Great to look take finally equal year really the up for while in recession. at But interesting a a beginning wasn't there was business to jumps. And to

got So I've thing only it that's the to to. really compare

store, so you'll have think you take think season, see I can about would much of, and get this through or when rid place. can somebody of lot that how destocking And many product boxes they a Christmas I how think

Operator

Our next come with KeyBanc question Josephson will Adam Capital from Markets.

Adam Josephson

Thanks your everyone. Hope to store room think level are it the, could just To I Tom, many your question that that would that so seeing much, at I customer? wouldn't well. more boxes. your one just you're have retail point, at store -- you the customers about

longer destocking taking could where exactly to much So place for? last I'm just how as a it little that and perplexed is

Tom Hassfurther

specific Adam. store their they're what to more customers level. their out, lead own lead that sudden, on inventory, I back lot mean, on times. those demand meet built that And is to times good me have for talking and when with of that in result a we're continue Well, leveled products, a of normal more coupled a to quite them. about boxes, they we're sitting all inventories got out of own steep lead come times a the let as a quite those And that. demand of boxes talking now down to their that had curve, destocking that get hopefully about own was

back be coming a it down just by whole can a normal order miss you to cycle. level So

Adam Josephson

even -- lead times, it for But on, to they've okay. still they're like much it, come Got though much back normal sitting seems inventory too

Tom Hassfurther

very didn't just that some you a another was our customer, of a told they the now cases, you gave large mid-year example, order. again, ours, And X%. plants I little but ordering is it account I next month, Yes, was over large big a one in about XX%. yes. about suddenly, through a up down of

just have while. business, Now, going they've than got excessive lost isn't to this this for off have work other to a they're anything isn't inventory, that --they

So this to we cycle. through got get

Adam Josephson

another help me Jackson How you much Can export? maintenance higher And elevated Yes, how essentially the can drift? How sequential you the it just $X.XX. instance, just much work, then appreciate that much sequentially Bob, lower my much so believe no, conversion implied Bob, on If is me the maintenance I et be normal, within onetime cetera? inflation? that. change relative guidance, items, containerboard consider I $X.XX you said is et walk the decline? is $X.XX how is cetera? through that, for to would to catch you leaves call going you with

Bob Mundy

the types to Yes, containerboard Adam. in third. similar his expect -- I'll had as our system Mark in say to comments, mentioned we this the with same issues run we of

volume when see bit for little that labor on more are the other side balance versus and the be of going of be higher you versus longer freight your energy in the with certainly -- will you're the obvious say the just that items buckets, always labor improvement situation movement up when are from quarter, other one so really of So to obvious reasons, distances. routes, what benefits on than supply increase normal of probably with some to you the the sequential may that that not right again, consider for that primarily couple and you're about or we some I'd shipping one side, now. I'd end half continues But third a as for normally we reasons demand, things fourth different able would and world to quarter in that matching optimize mode might item freight the is well in force. say with as a seeing

So a going expect that XQ. to that XQ that up bit reason is be we to a from

Adam Josephson

did buyback. did as the that price doing but I'm just Were think you comparable And in the what otherwise. thoughts the did. Mark year. before, last now like demand average about is you've recent of stock paying just after for recent that. Yes. demand in in was demand, quarters, weakness I XQ the to versus of And XXX wondering correct your where you appreciate me if buybacks of light about I'm what on I been it and And wrong, what

Mark Kowlzan

us As we quarter, it conviction buy that we it we as there. the a based a third was for the at good stock that the went And saw value opportunity price see opportunity look we time through an back. on the where to value was at

it. cash opportunistic It at same term, advantage did the line advantage same fourth historically under the think in what We continue with and be long this year of take time and to the quarter. we we is in the will last have I took circumstances, in And manner.

Adam Josephson

one last one on Just that.

If is you buybacks, at to further looking attractive to not other necessarily? that's were juncture to compare potential or than there acquisitions the one, you more this

Mark Kowlzan

see I value buyback third the in again, Again, during necessarily. Not the we terms of think, quarter. stock

And so we today, that same type you stock conviction. to imagine of have is where would the have

so to January earnings do you But hit And an actually we're guiding we'll the if to, did. update on $XX think on call $X.XX we going have I to you we what we're that year. number have understand, earnings the

record And once year for so it's going a to be us again.

a conviction, in so valuation. I'm value again, going use the higher that strongly stock we embedded And there's believe to the the much term in

Operator

Our come with from next Jefferies. will Ng question Phillip

Unidentified Analyst

as color outages own and I day for inventory to with containerboard just is Bob, ahead the Tom, on you're your planning. you're I has obviously they Phil. your bit. the side, a levels. color, worsened this downtime mean, guidance? start up on picked sequentially own Mark, off your [Inaudible] John into there any is viewing of Hey, three But Can levels the Appreciate want on give how outlook inventory some economic you quite baked us demand internal the

Mark Kowlzan

into we activity. third robust quarter, historically, people quarter, are ready getting quarter When went the third holiday we for always a is

is And your second side. when outage so quarter quarter, mills out lower which the also of and down bigger the you've a annual run come inventory to you traditionally down taken you

during building did. period, try what demand which start the Obviously, not materialize. did So that up always will is we back you to July-August

demand. corrected course we ran and to So

so And do continue we this. will to

target specific side business at his the on we I have to think and And to looking what that to the targets, such, demand. flexibility. what Tom as would run inventory as of imagine got is far lot we the will about of continue is a doing market we're regard that. don't we need as in a understanding would supply our we meet mills We what

We will our again sometime the to be then using term finishing run Jackson And up November. in be work demand. the we will

Unidentified Analyst

leading course the it's a target comfortable levels. moving this takeaway tight up guess about that still I is on my I'm quarter, you little of inventories. sure correction, with terms of Obviously, in inventory you're inventory guess Understood. I bit But to talked levels. had there's pretty feeling being your there a of

you isn't the like with Now have you pullback some big feel destock there that on to the do side. demand yourself

Mark Kowlzan

move to again, we now in we and place, we No, can place tons we're inventories and need good the where we're a move. a at see

place. So a we're in healthy

Unidentified Analyst

Great.

going stronger we sequentially would paper the shifting And side. much out that that I Obviously, expect quarter. be higher that then drivers forward? kind anything thought it of was the from Was third quarter. there expectation came last paper the over side just in flat paper quarter should volumes Okay. for maybe about on seasonally stood My to in

Mark Kowlzan

in for Falls, also No, International business converting size, offset split manner terms and just We've between a good size quarter again running the cut in of type its got us. right we've grades. was now it

we're We off produced last place from the the so in there. And a production worked final inventory Jackson good was year. that

And we we the supplying we're in see place now. demand market the of So is a have. nationwide right balanced capable

Operator

from Anthony with Citi. Pettinari Our next question come will

Anthony Pettinari

I months. we've down some Hi, version flexibility step you've add think of can kind can more big levered I'm a seen Any swing advantage how these wondering have good take if a couple recent you low And Hey, the some of of made there? over investments can us remind in just you costs. system, understanding in to years morning. OCC you of an to much OCC, of there. much you consume, into how thoughts potentially last

Mark Kowlzan

look is low think the you fibering system capacity the a of mills. at our around total at basis, if think of on would mills it I still XX%, to best way about our be capability up percentage XX%

And on point at so XX% you're to a of or advantage system, it's pricing running availability, lower up the taking in and with into time it pricing, XX% ramping opportunities whether recycled the recycle.

the look how at that's have. we think we I kind of it. that's capability And

Anthony Pettinari

by And end some that come maybe helpful. that's year. Okay, the early next year capacity very then competitor the there or are of projects online will

of some explicitly independent have think I market. the targeted box those

You can, integration or are you of have and discussions, you about that? market? that new that a kind high it you're whether insulate I projects Just not? market the extent new from guess, rate you on the Or thoughts entering very some seeing does the your or to of any rate impact in any integration capacity these of seeing

Mark Kowlzan

it. I'll on let Tom comment

Tom Hassfurther

a been other investments independent That's many and dramatically we very that has to are people summarized last the or to based where the we've that market one target level. do what's market, quote, about changed market or decide talked more. open happened -- said we acquisitions And the they quite correctly and decide strictly being in we of ours, make what what decade come up unquote, size. high level. see to on That's terms That's them. the at we've and integration over Anthony, of to integration as times, it a from. our What you many, number

would little what to say others really, to it's a decide do. that it's, I just we're ambivalent So bit

Operator

with next up Markets. from Our is follow Josephson Capital a Adam question KeyBanc

Adam Josephson

shipments you this were so to just up, about Can I have onset about think down there reasonable remind yes, And your was much, XXXX to compares so me I'm down how you bookings one is talking and you're in about pandemic the everyone. relative what a thinking time at level, billings issue? that issues, expectation in for and demand is how six just thereafter. distortions five. the you're juncture, Tom, 'XX many levels? more at that of Thanks XQ been just wondering thought XQ and which obviously,

Tom Hassfurther

Adam well, still a be XXXX we Yes, will levels. quite above bit

in portion So that I as said, a spite is of inventory and big this, of this think restocking. I

So pandemic regarding anything changed, retain destruction had, haven't that, changed a But couple place viewpoint, going during severe last from a forward. we inflations terms even the quite phenomenon, demand the in I more my call took excessive of haven't I obviously, This think some bit of really isn't or gains of quarter like will taken that is that inventories. have we these this the I of toll.

Adam Josephson

government And of you all would surge volume was just we're side it, other the there you with what name extraordinary and that some gives that you now again, that, of you gained, hold confidence the that. seeing stimulus, in this XXXX, given the post

I what would you guess gains, you post confidence XXXX that So will? hold if those would give you

Tom Hassfurther

and of their they business, be businesses, high on their confidence. have I things, you they customers their with what see based about viewpoints, capital forecasts, going same having discussion doing discussions couple to degree about a Well, from about that in are And and forward. their what project a expect making have in I with different the our a et my they investments and the no me what business cetera.

held some in gives the confidence relative themselves, big step to regarding thing up other in consumer pretty is and spite is other me the that consumer this and up of that savings inflation. things like The consumer spending well,

here of going are relatively to forward. these be some dealing to short with I positive going and term the phenomena things, some wane, it's of So these think we're in going

Adam Josephson

impact on think having, just economy I having the in just from COVID impact about China? the appreciate US excuse that what's as that are COVID yes, the happening and domestic demand. mentioned China, your talk lockdowns you me give to lockdowns you just Can perspective went on I in are

Tom Hassfurther

a business. parts quarter It's in to interestingly Well, set for that'll of about we all-time And the I chains problem who It's supply case. coming might on That's for or certain our to the the think certainly chips from a be and you really just whatever drive of record -- continuous beginning or in for that US. And it's rely enough customers the been that China, still the case supply. tell last disruption onshoring more much. be talked not I much going but the the be our but subtle, box onshoring can border not countries will only more for a which impactful big United to very here States, the problem. related are and very in continue manufacturing, forward other that it US, beneficial be Mexico little continues our business. in

Operator

[Operator Instructions] Our next Partners. question Research will come from Seaport Mark Weintraub with

Mark Weintraub

you. Thank

going in to versus than the the we're just quarter? previously about fourth third mentioned on outages, think higher you of to anticipated share expected is that be quarter. in be I a Did that hear all, had per fourth What the $X.XX I a right? of quarter you kind first number Just, clarification, that had basis

Bob Mundy

quarter into the third the from going $X.XX quarter. it's fourth Mark,

Mark Weintraub

it. Got

to like So third in or $X.XX. going the it so $X.XX quarter was

Bob Mundy

yes, was $X.XX, was, it It $X.XX, yes, like yes XX,

Mark Weintraub

Jackson wait your levels? then show have other is going that demand, system think regardless, that, to run demand And to was the also good. is a your XXXX. with question back you But if are one environment to can in costs there certain up was going that Very under that show until back to benefits have again, strong I to or, Okay. we'll up project, things Is levels? on do hopefully getting the is, And dependent it'll ways you meaningfully? it do stronger the of Or reduce show that up? that and would

Mark Kowlzan

that way your the the question. it work the the a us. Yes, run finishing be way will we're you you in doing, just answered operation low-cost When we're it's designed own mill, for up

demand And and need the will of so the tons by able to come that it. that a stand we'll But take we where we nationwide rationalizing means be built that capability from we advantage from. into view point run to entire position as it, the we to system of and

Mark Weintraub

obviously, Okay, for benefit, full so basically, right to That's get the demand stronger. you the need conclusion.

Mark Kowlzan

Yes.

Mark Weintraub

Mr. Kowlzan, see are comments? more there you no I Do you. questions. Thank Okay. any have closing

Mark Kowlzan

holiday. Yes. look on for and with you talking forward Take Thank a Have you to full joining call care. year event. today the the us for January fourth good quarter in earnings we

Operator

The conference you is now presentation. concluded. for attending today's Thank

now may You disconnect.

Packaging Corporation of America (PKG) 25 Oct 222022 Q3 Earnings call transcript