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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Presentation
Executive
Mark Kowlzan

results, excluding special items of $244 million and net sales of $1,097 million. The $22 million reduction in EBITDA 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 converted.

Containerboard production in the first quarter was 882,000 tons, up 61,000 tons compared to last year's first quarter, driven by tons produced on the DeRidder No. 3 machine. We ended the quarter with our containerboard inventory down 3,000 tons from year-end levels. This was our first annual outage at DeRidder since acquiring Boise in October of 2013. The outage was extensive including major projects involving the turbine generator, pulp mill, recovery boiler, and paper machines. The outage is planned for 16 days due to the length of the time required for pulp mill work, but actually required six additional days because of the time required to resolve issues involving incorrectly manufactured equipment for the D1 machine that I mentioned earlier.

The D3 machine ran well during the quarter at about 80% of capacity. This rate will sustain our current demand and in September, we'll be installing some additional dryers, which will give us the capability to run at 100% of capacity on both linerboard and medium grades. Current efforts on D1 involve continued product development and cost optimization. The No. 1 paper machine at our Counce, Tennessee linerboard mill was also down five days in March for an annual outage. In early April, we completed the Counce mill outage with the No. 2 machine down for five days. Other second quarter planned outages include five day outages at both our Filer City, Michigan and Tomahawk, Wisconsin medium mills.

Looking at changes in mill costs, the most significant increase was wood with costs up compared to both the first quarter of 2014 and also fourth quarter driven by weather conditions. Our Tomahawk, Wisconsin and Filer City, Michigan wood costs are higher primarily as a result of extremely wet weather during the second-half of 2014 that did not allow us to significantly build our winter wood inventories. Wet weather at our Valdosta, Georgia mill and four weeks of snow, ice and rain, at our Counce, Tennessee mill in the first quarter, limited harvesting and drove up wood costs. Last week, there were record setting rainfalls in the south and the 90-day forecast caused for wetter than normal rainfall, which could continue to impact harvesting and keep wood prices higher.

At this time, we do not see wood costs coming down from the first quarter levels. We expect any improvement in wood costs at our Northern mills to be offset by higher wood cost at our Southern mills unless weather conditions improved significantly.

I'll now turn it over to Tom, who will provide more details on