Packaging Corporation of America (NYSE: PKG) today reported
third quarter 2018 net income of $207 million, or $2.18 per share,
and net income of $211 million, or $2.23 per share, excluding
special items. Third quarter net sales were $1.8 billion in 2018
and $1.6 billion in 2017.
Diluted earnings
per share attributable to Packaging Corporation of America
shareholders
Three Months Ended September 30
2018 2017 Change Reported
Diluted EPS $ 2.18 $ 1.47 $ 0.71 Special Items Expense (1) 0.05
0.21 (0.16) Diluted EPS excluding Special items $
2.23 $
1.68 $ 0.55
(1) For descriptions and amounts of our special items, see the
schedules with this release.
Reported earnings include $.05 per share of special items
expense in the third quarter of 2018 and $.21 per share in the
third quarter of 2017, primarily for certain costs related to
discontinuing paper operations associated with the previously
announced conversion of the No. 3 paper machine at our Wallula,
Washington mill to linerboard. Excluding special items, the $.55
per share increase in third quarter 2018 earnings compared to the
third quarter of 2017 was driven primarily by higher prices and mix
$.38 and volumes $.37 in our Packaging segment, higher prices and
mix in our Paper segment $.13, lower wood and recycled fiber costs
$.04, and a favorable tax rate $.26 primarily resulting from Tax
Reform changes. These items were partially offset by lower volumes
in our Paper segment ($.14), higher operating costs ($.28), higher
freight and logistics expenses ($.08), higher scheduled maintenance
outage costs ($.05), higher converting costs ($.02), higher
depreciation expense ($.03), and other costs ($.03).
Results were $.09 above third quarter guidance of $2.14 per
share primarily due to higher prices and mix in our Packaging and
Paper segments and higher volumes in our Paper segment.
Financial information by segment is summarized below and in the
schedules with this release.
(dollars in millions)
Three Months Ended September
30 2018 2017 Segment income (loss)
Packaging $ 284.4 $ 263.2 Paper 32.3 (2.6) Corporate and Other
(18.2) (18.0)
$ 298.5 $ 242.6 Segment
income (loss) excluding special items Packaging $ 289.9 $ 264.3
Paper 32.9 23.0 Corporate and Other (18.4) (18.0)
$ 304.4
$ 269.3
EBITDA excluding special items
Packaging $ 378.2 $ 343.0 Paper 44.1 37.5 Corporate and Other
(16.5) (16.3)
$ 405.8 $ 364.2
In the Packaging segment, total corrugated products shipments
with one additional workday were up 8.2% and shipments per day were
up 6.5% over last year’s third quarter. Containerboard production
was 1,087,000 tons, and containerboard inventory was up 50,000 tons
from the second quarter of 2018 and up 84,000 tons compared to the
third quarter of 2017, partially due to the addition of recently
acquired Sacramento Container. In the Paper segment, compared to
the third quarter of 2017, sales volumes were 14% lower and
inventories were 39% lower, primarily due to discontinuing the
paper business at the Wallula Mill.
Commenting on reported results, Mark W. Kowlzan, Chairman and
CEO, said, “Our containerboard and corrugated products price
increases continued to be implemented as planned, and demand in our
Packaging segment remained strong. Our containerboard mills ran
very well, and we set an all-time quarterly containerboard sales
volume record. Our containerboard inventory levels were higher due
to the addition of our Sacramento Container acquisition, along with
the need to maintain appropriate inventory in certain areas of the
country to help minimize the transportation and freight challenges
we continue to experience. In addition, higher inventory levels
were required to prepare for the fourth quarter extended outage at
our Wallula Mill to complete the containerboard conversion work
that we have spoken about previously. Market conditions in our
Paper segment remained very tight as we continue to have good
volume along with low inventories, and our prices and mix were
slightly better than anticipated. The benefits of the strong market
conditions in both of our segments helped us offset higher
inflation in many of our operating and converting costs as well as
higher freight and logistics expenses.”
“Looking ahead to the fourth quarter,” Mr. Kowlzan added, “we
expect Packaging segment demand to remain strong although there
will be two less shipping days, and we expect a seasonally less
rich mix in corrugated products, compared to the third quarter. In
our Paper segment, we will continue implementing our recently
announced price increases, but expect a seasonally less rich mix.
Although paper volumes will be seasonally lower, we expect demand
to remain strong as we manage our already tight inventory levels.
With seasonally colder weather, fuel costs are expected to be
higher across the company, and we expect continued inflation in
most of our operating and converting costs, including incremental
wage pressure with a tighter labor market. We will also have an
extended outage at our Wallula Mill to complete the remaining work
related to the conversion of the No. 3 machine from paper to
linerboard. Considering these items, we expect fourth quarter
earnings of $2.15 per share.
We present various non-GAAP financial measures in this press
release, including net income and diluted EPS excluding special
items, segment income excluding special items and EBITDA excluding
special items. We provide information regarding our use of non-GAAP
financial measures and reconciliations of historical non-GAAP
financial measures presented in this press release to the most
comparable measure reported in accordance with GAAP in the
schedules to this press release. We present our earnings
expectation for the upcoming quarter excluding special items as
special items are difficult to predict and quantify and may reflect
the effect of future events. We currently expect special items in
the fourth quarter to include accounting charges, fees, and
expenses related to the Wallula Mill paper machine conversion from
paper to linerboard. Additional special items may arise due to
fourth quarter events.
PCA is the third largest producer of containerboard products and
the third largest producer of uncoated freesheet paper in North
America. PCA operates eight mills and 95 corrugated products plants
and related facilities.
Some of the statements in this press release are forward-looking
statements. Forward-looking statements include statements about our
future earnings and financial condition, expected benefits from
acquisitions and restructuring activities, our industry and our
business strategy. Statements that contain words such as “ will”,
“should”, “anticipate”, “believe”, “expect”, “intend”, “estimate”,
“hope” or similar expressions, are forward-looking statements.
These forward-looking statements are based on the current
expectations of PCA. Because forward-looking statements involve
inherent risks and uncertainties, the plans, actions and actual
results of PCA could differ materially. Among the factors that
could cause plans, actions and results to differ materially from
PCA’s current expectations include the following: the impact of
general economic conditions; conditions in the paper and packaging
industries, including competition, product demand and product
pricing; fluctuations in wood fiber and recycled fiber costs;
fluctuations in purchased energy costs; the possibility of
unplanned outages or interruptions at our principal facilities; and
legislative or regulatory requirements, particularly concerning
environmental matters, as well as those identified under Item 1A.
Risk Factors in PCA’s Annual Report on Form 10-K for the year ended
December 31, 2017 filed with the Securities and Exchange Commission
and available at the SEC’s website at “www.sec.gov”.
Conference Call
Information:
WHAT: Packaging Corporation of America’s 3rd Quarter 2018 Earnings
Conference Call WHEN: Thursday, October 25, 2018 at 9:00
a.m. Eastern Time CALL-IN (855) 730-0288 (U.S. and Canada)
or (832) 412-2295 (International) NUMBER: Dial in by 8:45 a.m.
Eastern Time Conference Call Leader: Mr. Mark Kowlzan Conference
ID: 1193016 WEBCAST:
http://www.packagingcorp.com
REBROADCAST DATES: October 25, 2018 12:00 p.m. Eastern Time
through November 8, 2018 11:59 p.m. Eastern Time REBROADCAST
NUMBERS: (855) 859-2056 (U.S. and Canada) or (404) 537-3406
(International) Passcode: 1193016
Packaging
Corporation of America Consolidated Earnings Results
Unaudited (dollars in millions, except per-share data)
Three Months Ended Nine Months Ended
September 30, September 30, 2018 (1
) 2017 (1 ) 2018 (1
) 2017 (1 ) Net sales $ 1,809.9 $
1,640.1 $ 5,268.1 $ 4,760.6 Cost of sales (1,366.7 )
(2)
(1,243.1 )
(3)
(4,048.2 )
(2)
$ (3,661.2 )
(3)
Gross profit 443.2 397.0 1,219.9 1,099.4 Selling, general, and
administrative expenses (134.2 )
(2)
(129.6 ) (406.7 )
(2)
(386.9 ) Other expense, net (10.5 )
(2)
(24.8 )
(3)
(32.2 )
(2)
(32.4 )
(3)(4)
Income from operations 298.5 242.6 781.0 680.1 Interest expense,
net and other (24.4 ) (25.7 ) (75.0 )
(75.5 ) Income before taxes 274.1 216.9 706.0 604.6 Provision for
income taxes (67.4 ) (77.8 )
(3)
(172.6 ) (204.9 )
(3)
Net income $ 206.7 $ 139.1 $ 533.4 $ 399.7
Earnings per share: Basic $ 2.19 $ 1.47 $ 5.65
$ 4.24 Diluted $ 2.18 $ 1.47 $ 5.64
$ 4.23 Computation of diluted earnings
per share under the two class method: Net income $ 206.7 $ 139.1 $
533.4 $ 399.7 Less: Distributed and undistributed income available
to participating securities (1.6 ) (1.1 ) (4.1
) (3.4 ) Net income attributable to PCA shareholders $ 205.1
$ 138.0 $ 529.3 $ 396.3 Diluted
weighted average shares outstanding 94.0 93.8
93.9 93.7 Diluted earnings per
share $ 2.18 $ 1.47 $ 5.64 $ 4.23
Supplemental financial information: Capital spending $ 130.4 $ 86.9
$ 404.3 $ 226.2 Cash balance $ 293.8 $ 370.5 $ 293.8 $ 370.5
(1)
Effective January 1, 2018, the Company
adopted ASU 2014-09 (Topic 606): Revenue from Contracts with
Customers using the modified retrospective method. The new revenue
standard provides additional clarity concerning contract
fulfillment costs, which resulted in certain costs being classified
as Cost of Sales rather than Selling, General, and Administrative
expenses in the current period reflected herein. The Company also
adopted ASU 2017-07, Compensation: Improving the Presentation of
Net Periodic Pension Cost and Net Periodic Postretirement Benefit
Cost on January 1, 2018 and applied this standard retrospectively
to the prior period reflected herein. This new standard requires
the presentation of non-service cost components of net periodic
pension expense to be shown separately outside the subtotal of
operating income in the income statement. For more information, see
Note 2, New and Recently Adopted Accounting Standards, of the
Condensed Notes to Unaudited Quarterly Consolidated Financial
Statements in “Part I, Item 1. Financial Statements” of our third
quarter 2018 report on Form 10-Q, which we plan to file on or about
November 7, 2018.
(2) The three and nine months ended September 30, 2018
include the following: a. $4.0 million and $26.4 million,
respectively, of charges related to the announced second quarter
2018 discontinuation of uncoated free sheet and coated one-side
grades at the Wallula, Washington mill associated with the
conversion of the No. 3 paper machine to a high-performance 100%
virgin kraft linerboard machine. The costs were recorded within
“Other expense, net” and “Cost of sales”, as appropriate. b. $1.3
million and $1.8 million, respectively, of charges consisting of
closure costs related to corrugated products facilities and a
corporate administration facility, which were recorded in “Other
expense, net”, "Selling, general, and administrative expenses", and
“Cost of sales”, as appropriate. c. $0.5 million of costs for the
property damage insurance deductible for a weather-related incident
at one of the corrugated products facilities, which were recorded
in "Other expense, net". d. $0.1 million of charges related to the
Sacramento Container acquisition and integration, which were
recorded in "Other expense, net". (3) The three and nine
months ended September 30, 2017 include the following: a. $0.9
million and $1.9 million, respectively, of charges consisting of
closure costs related to corrugated products facilities, a paper
administration facility, and a lump sum settlement of a
multiemployer pension plan withdrawal liability for one of our
corrugated products facilities, which were recorded in "Other
expense, net". b. $0.5 million and $0.8 million, respectively, of
charges related to the Sacramento Container acquisition and
integration costs related to other recent acquisitions, which were
recorded in "Other expense, net". c. $25.3 million of charges
related to the announced second quarter 2018 discontinuation of
uncoated free sheet and coated one-side grades at the Wallula,
Washington mill associated with the conversion of the No. 3 paper
machine to a high-performance 100% virgin kraft linerboard machine.
The costs were recorded within “Other expense, net” and “Cost of
sales”, as appropriate. d. $3.3 million of tax expense for the
change in value of deferred taxes as a result of an internal legal
entity consolidation that will simplify future operating
activities, which was recorded in "Provision for income taxes".
(4) The nine months ended September 30, 2017 include the
following: a. $5.0 million of costs for the property damage and
business interruption insurance deductible corresponding to the
February 2017 explosion at our DeRidder, Louisiana mill. b. $2.3
million of income related to a working capital adjustment from the
April 2015 sale of our Hexacomb corrugated manufacturing operations
in Europe and Mexico.
Packaging Corporation of
America Segment Information Unaudited (dollars in
millions)
Three Months
Ended Nine Months Ended September 30,
September 30, 2018 2017 2018
2017 Segment sales Packaging $ 1,535.1 $ 1,346.6 $
4,434.2 $ 3,915.0 Paper 254.3 271.4 774.5 784.3 Corporate and Other
20.5 22.1 59.4
61.3
$ 1,809.9 $ 1,640.1
$ 5,268.1 $ 4,760.6
Segment income (loss) Packaging $ 284.4 $
263.2 $ 782.3 $ 681.7 Paper 32.3 (2.6 ) 55.7 52.5 Corporate and
Other (18.2 ) (18.0 ) (57.0 ) (54.1 )
Income from operations
298.5
242.6 781.0 680.1
Interest expense, net and other (24.4 ) (25.7
) (75.0 ) (75.5 ) Income before taxes
$
274.1 $ 216.9 $
706.0 $ 604.6 Segment
income (loss) excluding special items (1) Packaging $ 289.9 $
264.3 $ 793.3 $ 687.5 Paper 32.9 23.0 73.3 78.1 Corporate and Other
(18.4 ) (18.0 ) (56.8 ) (54.8 )
$ 304.4 $ 269.3 $
809.8 $ 710.8 EBITDA
excluding special items (1) Packaging $ 378.2 $ 343.0 $
1,049.0 $ 921.7 Paper 44.1 37.5 113.0 120.6 Corporate and Other
(16.5 ) (16.3 ) (52.1 ) (50.4 )
$ 405.8 $ 364.2 $
1,109.9 $ 991.9 (1)
Segment income (loss) excluding special items, earnings before
interest, income taxes, and depreciation, amortization, and
depletion (EBITDA), and EBITDA excluding special items are non-GAAP
financial measures. Management excludes special items as it
believes these items are not necessarily reflective of the ongoing
results of operations of our business. We present these measures
because they provide a means to evaluate the performance of our
segments and our company on an ongoing basis using the same
measures that are used by our management, because these measures
assist in providing a meaningful comparison between periods
presented and because these measures are frequently used by
investors and other interested parties in the evaluation of
companies and the performance of their segments. The tables
included in "Reconciliation of Non-GAAP Financial Measures" on the
following pages reconcile the non-GAAP measures with the most
directly comparable GAAP measures. Any analysis of non-GAAP
financial measures should be done only in conjunction with results
presented in accordance with GAAP. The non-GAAP measures are not
intended to be substitutes for GAAP financial measures and should
not be used as such.
Packaging Corporation of
America Reconciliation of Non-GAAP Financial Measures
Unaudited (dollars in millions)
Three Months Ended Nine Months Ended September
30, September 30, 2018 2017
2018 2017 Packaging Segment income $
284.4 $ 263.2 $ 782.3 $ 681.7 Facilities closure and other costs
1.5 0.6 1.6 1.6 Acquisition and integration related costs 0.1 0.5
0.1 0.8 Wallula mill restructuring 3.4 — 8.8 — Insurance deductible
for property damage 0.5 — 0.5 — DeRidder mill incident — — — 5.0
Hexacomb working capital adjustment — —
— (1.6 ) Segment income excluding special
items (1)
$ 289.9 $ 264.3
$ 793.3 $ 687.5
Paper Segment income $ 32.3 $ (2.6 ) $ 55.7 $ 52.5 Wallula
mill restructuring 0.6 25.3 17.6 25.3 Facilities closure and other
costs — 0.3 — 0.3
Segment income excluding special items (1)
$
32.9 $ 23.0 $ 73.3
$ 78.1 Corporate and
Other Segment loss $ (18.2 ) $ (18.0 ) $ (57.0 ) $ (54.1 )
Facilities closure and other costs (0.2 ) — 0.2 — Hexacomb working
capital adjustment — — —
(0.7 ) Segment loss excluding special items (1)
$
(18.4 ) $ (18.0 ) $
(56.8 ) $ (54.8 )
Income from operations $ 298.5 $
242.6 $ 781.0 $
680.1 Income from operations, excluding
special items (1) $ 304.4 $
269.3 $ 809.8 $
710.8 (1) See footnote (1) on page 3, for a
discussion of non-GAAP financial measures.
Packaging Corporation of America Reconciliation of
Non-GAAP Financial Measures Unaudited (dollars in
millions)
Net Income and EPS Excluding Special Items (1)
Three Months Ended September 30, 2018 2017
Income Income before Income Net
Diluted before Income Net
Diluted taxes Taxes Income EPS
taxes Taxes Income EPS As reported $
274.1 $ (67.4 ) $ 206.7 $ 2.18 $ 216.9 $ (77.8 ) $ 139.1 $ 1.47
Special items (2): Wallula mill restructuring 4.0 (1.1 ) 2.9 0.04
25.3 (9.8 ) 15.5 0.16 Facilities closure and other costs 1.3 (0.3 )
1.0 0.01 0.9 (0.3 ) 0.6 0.01 Acquisition and integration related
costs 0.1 — 0.1 — 0.5 (0.2 ) 0.3 — Insurance deductible for
property damage 0.5 (0.1 ) 0.4 — — — — — Internal legal entity
consolidation — — — — —
3.3 3.3 0.04 Total
special items 5.9 (1.5 ) 4.4 0.05
26.7 (7.0 ) 19.7 0.21
Excluding special items
$ 280.0 $
(68.9 ) $ 211.1 $ 2.23
$ 243.6 $ (84.8 )
$ 158.8 $ 1.68
Nine Months Ended September 30, 2018 2017
Income Income before Income Net
Diluted before Income Net
Diluted taxes Taxes Income EPS
taxes Taxes Income EPS As reported $
706.0 $ (172.6 ) $ 533.4 $ 5.64 $ 604.6 $ (204.9 ) $ 399.7 $ 4.23
Special items (2): Wallula mill restructuring 26.4 (6.6 ) 19.8 0.22
25.3 (9.7 ) 15.6 0.16 Facilities closure and other costs 1.8 (0.5 )
1.3 0.01 1.9 (0.7 ) 1.2 0.01 Acquisition and integration related
costs 0.1 — 0.1 — 0.8 (0.3 ) 0.5 0.01 Insurance deductible for
property damage 0.5 (0.1 ) 0.4 — — — — — DeRidder mill incident — —
— — 5.0 (1.9 ) 3.1 0.03 Hexacomb working capital settlement — — — —
(2.3 ) 0.9 (1.4 ) (0.01 ) Internal legal entity consolidation
— — — — —
3.3 3.3 0.04 Total special items
28.8 (7.2 ) 21.6 0.23 30.7
(8.4 ) 22.3 0.24
Excluding special items
$ 734.8 $
(179.8 ) $ 555.0 $ 5.87
$ 635.3 $ (213.3 )
$ 422.0 $ 4.47
(1) Net income and earnings per share excluding special
items are non-GAAP financial measures. Management excludes special
items as it believes these items are not necessarily reflective of
the ongoing results of operations of our business. We present these
measures because they provide a means to evaluate the performance
of our company on an ongoing basis using the same measures that are
used by our management, because these measures assist in providing
a meaningful comparison between periods presented and because these
measures are frequently used by investors and other interested
parties in the evaluation of companies and their performance. Any
analysis of non-GAAP financial measures should be done only in
conjunction with results presented in accordance with GAAP. The
non-GAAP measures are not intended to be substitutes for GAAP
financial measures and should not be used as such. (2)
Pre-tax special items are tax-effected at
a combined federal and state income tax rate in effect for the
period the special items were recorded and this rate is adjusted
for each subsequent quarter to be consistent with the estimated
annual effective tax rate, in accordance with ASC 270, Interim
Reporting, and ASC 740-270, Income Taxes – Intra Period Tax
Allocation. For all periods presented, income taxes on pre-tax
special items represent the current amount of tax. For more
information related to these items, see the footnotes to the
Consolidated Earnings Results on page 1.
Packaging Corporation of America
Reconciliation of Non-GAAP Financial Measures
Unaudited (dollars in millions)
EBITDA and EBITDA
Excluding Special Items (1) EBITDA represents income
before interest, income taxes, and depreciation, amortization, and
depletion. The following table reconciles net income to EBITDA and
EBITDA excluding special items:
Three Months Ended
Nine Months Ended September 30, September 30,
2018 2017 2018 2017 Net income $ 206.7
$ 139.1 $ 533.4 $ 399.7 Interest expense, net and other 24.4 25.7
75.0 75.5 Provision for income taxes 67.4 77.8 172.6 204.9
Depreciation, amortization, and depletion 101.5 97.5
313.7 283.7
EBITDA (1) $
400.0 $ 340.1 $ 1,094.7 $
963.8 Special items: Wallula mill restructuring 3.7
22.7 13.0 22.7 Facilities closure and other costs 1.5 0.9 1.6 1.9
Acquisition and integration related costs 0.1 0.5 0.1 0.8 Insurance
deductible for property damage 0.5 — 0.5 — DeRidder mill incident —
— — 5.0 Hexacomb working capital adjustment — —
— (2.3 )
EBITDA excluding special items
(1) $ 405.8 $ 364.2 $
1,109.9 $ 991.9 (1) See footnote
(1) on page 3, for a discussion of non-GAAP financial measures.
Packaging Corporation of America
Reconciliation of Non-GAAP Financial Measures
Unaudited (dollars in millions)
The following table reconciles segment income (loss) to EBITDA
excluding special items:
Three Months Ended
Nine Months Ended September 30, September 30,
2018 2017 2018 2017 Packaging
Segment income $ 284.4 $ 263.2 $ 782.3 $ 681.7 Depreciation,
amortization, and depletion 88.6 78.7
256.3 234.2 EBITDA (1) 373.0
341.9 1,038.6 915.9
Facilities closure and other costs 1.5 0.6 1.6 1.6
Acquisition and integration related costs 0.1 0.5 0.1 0.8 Wallula
mill restructuring 3.1 — 8.2 — Insurance deductible for property
damage 0.5 — 0.5 — DeRidder mill incident — — — 5.0 Hexacomb
working capital adjustment — — —
(1.6 ) EBITDA excluding special items (1)
$
378.2 $ 343.0 $
1,049.0 $ 921.7
Paper Segment income $ 32.3 $ (2.6 ) $ 55.7 $ 52.5
Depreciation, amortization, and depletion 11.2
17.1 52.5 45.1 EBITDA (1)
43.5 14.5 108.2 97.6
Wallula mill restructuring 0.6 22.7 4.8 22.7 Facilities
closure and other costs — 0.3 —
0.3 EBITDA excluding special items (1)
$ 44.1 $ 37.5 $
113.0 $ 120.6
Corporate and Other Segment loss $ (18.2 ) $ (18.0 ) $ (57.0
) $ (54.1 ) Depreciation, amortization, and depletion 1.7
1.7 4.9 4.4 EBITDA
(1) (16.5 ) (16.3 ) (52.1 ) (49.7 )
Hexacomb working capital adjustment — —
— (0.7 ) EBITDA excluding special items (1)
$ (16.5 ) $ (16.3 )
$ (52.1 ) $ (50.4 )
EBITDA excluding special items (1) $
405.8 $ 364.2 $
1,109.9 $ 991.9 (1) See footnote
(1) on page 3, for a discussion of non-GAAP financial measures.
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Packaging Corporation of AmericaBarbara SessionsINVESTOR
RELATIONS: (877) 454-2509PCA’s Website: www.packagingcorp.com
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