Packaging Corporation of America Reports First Quarter 2015 Results

Packaging Corporation of America (NYSE: PKG) today reported first quarter net income of $91 million, or $0.92 per share compared to last year’s first quarter net income of $90 million, or $0.92 per share. Earnings included charges for special items for the Boise integration and DeRidder, Louisiana mill restructuring of $9 million, or $0.09 per share. Excluding special items, first quarter 2015 net income was $100 million, or $1.01 per share, compared to first quarter 2014 net income of $106 million, or $1.08 per share. First quarter net sales were $1.4 billion in both 2015 and 2014.

Excluding special items, the $0.07 per share reduction in first quarter 2015 earnings, compared to the first quarter of 2014, was driven by increased annual mill outage downtime and costs ($0.08), lower white papers prices and mix ($0.05), lower export containerboard prices ($0.02), and higher costs for wood ($0.04), medical ($0.04), labor and benefits ($0.04), and depreciation ($0.02). These items were partially offset by increased volume ($0.09), and lower costs for energy ($0.06), chemicals ($0.02) and purchased fiber ($0.02), and a state tax credit related to the investments at the DeRidder mill ($0.03).

Lower earnings compared to PCA guidance of $1.07 to $1.10 per share for the first quarter were a result of extreme weather conditions ($0.03), additional downtime to complete the DeRidder annual outage ($0.03), and lower prices from the retroactive price decrease by trade publications and mix changes in white papers ($0.03).

Packaging segment EBITDA in the first quarter of 2015 was $220 million, and excluding special items, was $222 million with sales of $1,099 million compared to first quarter 2014 packaging EBITDA, excluding special items, of $244 million with sales of $1,097 million. Lower profitability was the result of this year’s extended annual outage at the DeRidder mill, which did not have an annual outage in 2014, as well as higher wood, medical, labor and benefits and freight costs, and lower export containerboard prices. These items were partially offset by corrugated products volume growth and benefits from the DeRidder No. 3 machine conversion. Corrugated products shipments per workday, including both PCA and Boise plants, were up 4.4%, with one less workday compared to the first quarter of last year, and total shipments were up 2.7%.

Paper segment EBITDA in the first quarter of 2015 increased to $49 million on sales of $297 million compared to first quarter 2014 EBITDA of $40 million and net sales of $309 million. Office paper shipments were up slightly, and printing and converting and pressure sensitive paper shipments were down 5,500 tons compared to the first quarter of last year. Improved profitability was the result of operational improvements and synergy realization in the white paper mills over the past year.

Commenting on results, Mark W. Kowlzan, CEO, said “Our overall operations remained strong with steady demand and price in both domestic containerboard and corrugated products. Despite lower prices and changes in mix, we were able to improve profitability and margins in white papers. The DeRidder annual outage took about six days longer than we expected due to vendor design errors which required equipment to be modified after it was received. Extreme weather conditions also contributed to higher costs at our mills and lower shipments at our box plants.”

“Looking ahead to the second quarter,” Mr. Kowlzan added, “we expect earnings improvement driven primarily from a full quarter of operations at the DeRidder mill which will increase containerboard production and lower mill costs. We also expect seasonally higher containerboard and corrugated products shipments. Costs of annual mill outages, including amortization of repair costs, will be slightly higher than in the first quarter.

In addition, we expect higher interest and depreciation expense, a higher effective tax rate, and no additional state tax credits. Finally, we expect to incur an insurance deductible charge of $3 million, or $0.02 per share, related to a turbine drive failure on the No. 1 paper machine at the Jackson, Alabama white papers mill. Considering these items, we currently expect second quarter earnings of $1.03 per share.”

PCA is the fourth largest producer of containerboard and corrugated packaging products in the United States and the third largest producer of uncoated freesheet paper in North America. PCA operates eight mills and 94 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, 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, 2014 filed with the Securities and Exchange Commission and available at the SEC’s website at “www.sec.gov”.

Non-GAAP measures used in this press release are reconciled to the most comparable measure reported in accordance with GAAP in the schedules to this press release.