Packaging Corporation of America (NYSE:PKG) Q2 2017 Earnings Conference Call - Final Transcript

Jul 27, 2017 • 09:00 am ET

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Packaging Corporation of America (NYSE:PKG) Q2 2017 Earnings Conference Call - Final Transcript

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Presentation
Operator
Operator

Thank you for joining Packaging Corporation of America's Second Quarter 2017 Earnings Results Conference Call. Your host today will be Mark Kowlzan, Chief Executive Officer of PCA. Upon conclusion of his narrative, there will be a question-and-answer session.

I will now turn the conference call over to Mr. Kowlzan, and please proceed when you're ready.

Executive
Mark W. Kowlzan

Good morning, and thank you for participating in Packaging Corporation of America's second quarter 2017 earnings release conference call.

I'm Mark Kowlzan, Chairman and CEO of PCA, and again with me on the call today is Tom Hassfurther, Executive Vice President who runs our Packaging business; and Bob Mundy, our Chief Financial Officer. I'll begin the call with an overview of our second quarter results, and then turn the call over to Tom, and Bob, who'll provide more details. I'll then wrap things up and then we'll be glad to take your questions.

Yesterday, we reported second quarter 2017 net income of $143 million or $1.52 per share. Excluding special items, second quarter net income was $144 million or also $1.52 per share, compared to the second quarter of 2016 net income of $118 million or $1.25 per share. Second quarter net sales were $1.6 billion in 2017, and $1.4 billion in 2016. Total company EBITDA for the second quarter, excluding special items was $328 million in 2017, and $290 million in 2016.

Excluding special items, the $0.27 per share increase in second quarter 2017 earnings, compared to the second quarter of 2016 was driven primarily by higher prices and mix of $0.25, sales volume $0.09, and production volumes of $0.03 in our Packaging segment, lower annual maintenance outage costs of $0.05 and lower taxes $0.06, and the partial insurance recovery related to the DeRidder Mill incident were $0.02. These items will partially offset by higher energy cost of $0.06, fiber $0.05, labor $0.03, and chemicals $0.01, higher freight $0.02, interest $0.02, and depreciation $0.02, and other expenses $0.01, and also lower Paper segment prices and mix were $0.01.

Our results were $0.07 per share better than the second quarter guidance, primarily due to higher Packaging segment sales prices and volume, a lower tax rate of $0.03, and a partial insurance recovery related to the DeRidder incident were $0.02. These were partially offset by higher recycled fiber prices of $0.01.

Looking at our Packaging business for the second quarter of 2017, EBITDA, excluding special items of $303 million with sales of $1.3 billion, resulted in a margin of 23.1% versus last year's EBITDA of $267 million and sales of $1.1 billion, or 23.7% margin.

The containerboard mills produced 947,000 tons in the second quarter, driven by strong demand and the need to supply our growth in box shipments, as well as the rapid integration of our new corrugated plants from the TimBar and Columbus Container acquisitions. We also successfully completed scheduled outages at our three largest containerboard mills. Although, higher recycled fiber prices of almost $90 million and higher energy prices of $5 million negatively impacted