Packaging Corporation of America Reports Third Quarter 2021 Results

Packaging Corporation of America (NYSE: PKG) today reported third quarter 2021 net income of $251 million, or $2.63 per share, and net income of $257 million, or $2.69 per share, excluding special items. Third quarter net sales were $2.0 billion in 2021 and $1.7 billion in 2020.

Reported earnings include $.06 per share of special items expense in the third quarter of 2021, primarily for certain costs at the Jackson, AL mill for paper-to-containerboard conversion related activities, and $.11 per share of special items expense in the third quarter of 2020, primarily for costs associated with Hurricane Laura which made landfall approximately 100 miles south of the DeRidder, LA mill, resulting in production being down a total of approximately 12 days.

Excluding special items, the $1.12 per share increase in third quarter 2021 earnings compared to the third quarter of 2020 was driven primarily by higher prices and mix $1.58 and volume $.62 in our Packaging segment, higher production volume $.06 and prices and mix $.05 in our Paper segment, lower non-operating pension expense $.03, and lower interest expense $.01. These items were partially offset by higher operating costs ($.84), higher freight and logistics expenses ($.23), higher converting costs ($.10), higher scheduled outage expenses ($.04), and lower sales volume in our Paper segment ($.02).

Results were $.32 above third quarter guidance of $2.37 per share primarily due to higher realization of prices and mix in our Packaging segment.

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

In the Packaging segment, total corrugated products shipments and shipments per day were up 2.3% over last year’s third quarter. Containerboard production was 1,256,000 tons, and containerboard inventory was up 91,000 tons from the third quarter of 2020 and up 17,000 tons compared to the second quarter of 2021. In the Paper segment, sales volume was down 33,000 tons compared to the third quarter of 2020, and up 2,000 tons compared to the second quarter of 2021.

Commenting on reported results, Mark W. Kowlzan, Chairman and CEO, said, “Packaging segment demand remained strong and our teams did a tremendous job of implementing our previously announced containerboard and corrugated products price increases. The containerboard mills set an all-time quarterly sales volume record, and our box plants set new third quarter records for total corrugated products shipments as well as shipments per day. By utilizing the capability of both machines at our Jackson, AL mill to produce containerboard, we were able to reach our desired inventory levels to better serve customer demand, help minimize the transportation challenges we continue to experience, and build some inventory ahead of the DeRidder mill’s planned outage. We had great execution of numerous initiatives and capital projects to reduce costs through efficiency, productivity, and optimization improvements across our manufacturing locations. We continue to put tremendous effort into managing certain material, equipment, and labor availability issues to keep our customers supplied with their needs and our capital projects on track. With no relief from the supply chain obstacles that we, our customers, and our suppliers continue to face along with unprecedented inflation-related challenges, the combination of all these efforts are critical to our success. The improvements and execution our employees deliver constantly, across many fronts, is what allows us to continuously improve our margins.”

Mr. Kowlzan continued, “Looking ahead as we move from the third and into the fourth quarter, we will continue to implement our previously announced price increases for domestic containerboard, corrugated packaging, and paper, and we also expect average export containerboard prices to move higher. Packaging segment volume will be lower due to three less shipping days as well as the scheduled outage at our DeRidder Mill, and Paper segment volume will be lower as the Jackson Mill is not expected to produce any paper grades. With higher gas prices and anticipated colder weather, energy costs will increase. Wood costs, especially in our southern mills, will be higher due to the previous wet weather, low inventory and high demand. We also expect inflation to continue with most of our other operating and converting costs, along with higher freight and logistics expenses. And lastly, as we have mentioned previously, we expect scheduled outage costs to be approximately ($.25) per share higher than the third quarter. Considering these items, we expect fourth quarter earnings of $2.04 per share.”

We present various non-GAAP financial measures in this press release, including 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 anticipate special items in the fourth quarter to include accounting charges, fees, and expenses for paper-to-containerboard conversion related activities at the Jackson, AL mill, and for the debt refinancing completed early in the fourth quarter with the redemption of our notes due in 2023. We do not currently expect any additional significant special items during the fourth quarter; however, additional special items may arise due to fourth quarter events.

PCA is the third largest producer of containerboard products and a leading producer of uncoated freesheet paper in North America. PCA operates eight mills and 89 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, the impact of the COVID-19 pandemic on our business, 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 the COVID-19 pandemic on the health of our employees and on the employees of our suppliers and customers, on our ability to operate our business, and on economic conditions affecting our business and demand for our products; 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, 2020, and in subsequent quarterly reports on Form 10-Q, filed with the Securities and Exchange Commission and available at the SEC’s website at “www.sec.gov”.

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