Packaging Corporation of America (NYSE:PKG) Q1 2015 Earnings Conference Call - Final Transcript

Apr 21, 2015 • 10:00 am ET

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Packaging Corporation of America (NYSE:PKG) Q1 2015 Earnings Conference Call - Final Transcript

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Q & A
Operator
operator

(Operator Instructions) Chip Dillon, Vertical Research.

Analyst
Chip Dillon

First question is on kind of shifting gears a little bit, could you just update us where we are in the process for the uncoated free sheet duties that I think you guys are involved in a petition with the Department of Commerce and my understanding is that there, the next, I guess, date is in June, but could you just update us on that? And it seems like that the preliminary determination from the ITC was, if I read it correctly, was pretty prohibitive in terms of hundreds of percent of duties they'd have to post if they can, if certain people kept sending white paper into the US?

Executive
Mark Kowlzan

Yeah, I'm going to let Kent answer that one.

Executive
Kent Pflederer

Yes. Hi, this is Kent Pflederer, General Counsel of the company. We received a favorable preliminary ruling from the ITC in March in the case. The case is pending through Commerce right now against the producers in the five countries. Commerce is expected to make preliminary duty determinations in June, that's about all we're going to say about it at this point.

Analyst
Chip Dillon

And then, shifting gears looking at DeRidder, obviously, this was the first full quarter that I believe the D3 conversion had been up and running and could you just talk a little bit about whether you are satisfied with the design of this reconfigured machine and what you feel about the progresses made so far?

Executive
Mark Kowlzan

Speaking of where we are, I want to remind everyone that when we originally conceived that the conversion, the machine was intended originally to produce primarily medium. Early on we recognized the opportunities that we could actually produce linerboard and take advantage of the pulp that was available. So we shifted gears into the end of last year and to the first part of this year with lot of grade development and fine tuning the machine.

So, quite honestly we're very pleased. The machine is primarily producing about 70% of its production at linerboard, but again we've learned a lot and we've achieved a lot. We've been working on the cost, but again it's a machine that can produce quite a variety of grades from the light weight medium and liner and take advantage of the pulp mill. Paul, do you want to expand on it?

Executive
Paul Stecko

Yeah, the only thing I'd add to that, Chip and Mark hit it, but I'll just amplify it. Most of these new spring conversions are somewhat limited, if they could only run pretty light weight grade mix, and with the things we did on the machine, we were figuring originally we'd probably run 70% medium, 30% liner. But some of the things have turned out better than we anticipated, a lot better, which is a testament through our technology and our people and we can make higher weight grades than we originally thought we could. And with the fact that the open market price of medium is now $70 over the liner and