Packaging Corporation of America Reports First Quarter 2023 Results

Packaging Corporation of America (NYSE: PKG) today reported first quarter 2023 net income of $190 million, or $2.11 per share, and net income of $198 million, or $2.20 per share, excluding special items. First quarter net sales were $2.0 billion in 2023 and $2.1 billion in 2022.

Reported earnings in the first quarter of 2023 include special items primarily for closure costs related to corrugated products facilities and design centers.

Excluding special items, the ($.52) per share decrease in first quarter 2023 earnings compared to the first quarter of 2022 was driven primarily by lower volumes in the Packaging ($.95) and Paper ($.04) segments, higher operating costs ($.27), higher depreciation expense ($.11), higher freight and logistics expenses ($.04), higher non-operating pension expense ($.04), and higher converting costs ($.02). These items were partially offset by higher prices and mix in the Packaging $.58 and Paper $.18 segments, a lower share count resulting from share repurchases in the second half of 2022 $.11, lower interest expense $.03, lower other expenses $.03, lower scheduled maintenance outage expenses $.01, and a lower tax rate $.01.

Results were ($.03) below first quarter guidance of $2.23 per share primarily due to lower volume and lower prices and mix in the 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 down (12.7%) compared to the first quarter of 2022. Containerboard production was 1,086,000 tons, and containerboard inventory was down 36,000 tons from the first quarter of 2022 and up 6,000 tons compared to the fourth quarter of 2022. In the Paper segment, sales volume was down 23,000 tons from the first quarter of 2022 and down 6,000 tons compared to the fourth quarter of 2022.

Commenting on reported results, Mark W. Kowlzan, Chairman and CEO, said, “Packaging segment demand was below our expectations for the quarter. Consumer spending continues to be negatively impacted by higher interest rates and persistent inflation along with consumer buying preferences skewed more towards services versus durable and non-durable goods. After a strong start in January, consumer spending was increasingly softer as the quarter progressed, similar to our box shipments during the quarter. In addition, the PMI index indicates manufacturing has remained in contraction territory for the last five months and continued to decline. We ran our system in a very cost-effective manner based on this lower demand, and we managed containerboard inventories to our targeted weeks-of-inventory supply. Price and mix in our Packaging segment are still above last year’s levels, although the positive impact was lower than expected primarily due to a price decrease in the published benchmark containerboard grades after our guidance was provided. However, even with these unanticipated market headwinds, we were able to offset most of the negative impact through our cost management and process efficiency optimization efforts at our mills and corrugated products plants, along with energy prices being lower than expected. The Paper segment had outstanding results driven by continued realization of our previously announced price increases and the benefits of our newly optimized paper business.”

“Looking ahead as we move from the first and into the second quarter,” Mr. Kowlzan added, “although there is one less shipping day for the corrugated business, we expect improved volume in our Packaging segment. However, prices will be lower as a result of the previously published domestic containerboard price decreases along with lower export prices. Sales volume as well as prices and mix in the Paper segment are assumed to be slightly lower based on lower demand. Although we do look for most operating costs to trend lower, our converting costs, scheduled maintenance outage expense and depreciation expense will be higher. Primarily due to recent increases in contract rail rates at most of our mills, we expect higher freight and logistics expenses compared to the first quarter. Considering these items, we expect second quarter earnings of $1.96 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 second quarter of 2023 to include charges, fees, and expenses for paper-to-containerboard conversion related activities at the Jackson, AL mill. We do not currently expect any additional significant special items during the second quarter; however, additional special items may arise due to second 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 88 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, 2022 filed with the Securities and Exchange Commission and available at the SEC’s website at “www.sec.gov”.

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