Packaging Corporation of America Reports Third Quarter 2017 Results

Packaging Corporation of America (NYSE: PKG) today reported third quarter 2017 net income of $139 million, or $1.47 per share and $1.68 per share excluding special items. Third quarter net sales were $1.6 billion in 2017 and $1.5 billion in 2016.

Special items expense in the third quarter of 2017 primarily includes asset impairment and other charges related to discontinuing paper operations associated with the previously announced conversion of the No. 3 paper machine at the Wallula, Washington mill to linerboard. Excluding special items, the $.38 per share increase in third quarter 2017 earnings compared to the third quarter of 2016 was driven primarily by higher prices and mix ($.61) and sales volume ($.07) in our Packaging segment and a partial insurance recovery related to the DeRidder Mill incident ($.02). These items were partially offset by lower prices and mix ($.05) and sales volume ($.02) in our Paper segment, higher input costs ($.12), higher operating costs ($.03), higher freight ($.02) and annual outage ($.02) expenses, and higher corporate and other costs ($.06).

Compared to third quarter guidance, results were negatively impacted by ($.02) per share due to hurricane-related items at certain mills and corrugated products facilities, offset by a partial insurance recovery related to the DeRidder Mill incident of $.02 per share.

In the Packaging segment, total corrugated products shipments with two less workdays were up 4.0% and shipments per day were up 7.3% over last year’s third quarter. Containerboard production was 996,000 tons, and containerboard inventory was up 7,000 tons compared to the third quarter of 2016 and up 20,000 tons from the second quarter of 2017. In the Paper segment, lower volumes in the third quarter of 2017 compared to last year were primarily due to the previously announced shutdown of market pulp operations at the Wallula Mill.

Commenting on reported results, Mark W. Kowlzan, Chairman and CEO, said, “Our containerboard and corrugated products price increases were implemented as planned and we continued to have strong demand in our packaging segment. Our containerboard mills ran very well and set an all-time quarterly production record. We built some extra inventory to prepare for the scheduled fourth quarter outage at our Counce Mill that was moved from earlier in the year and begin the integration of the Sacramento Container acquisition into our packaging business. Higher year over year inflation came in close to where we expected, and the employees at our mills and corrugated products facilities did an outstanding job mitigating the negative impact of the recent hurricanes. Additionally, we recorded impairment and other charges related to the virgin linerboard conversion of our No. 3 paper machine at Wallula and our preparations for this project are well under way.”

“Looking ahead to the fourth quarter,” Mr. Kowlzan added, “we expect packaging segment demand to remain strong although at seasonally lower volumes, which includes one less shipping day, as well as a seasonally less rich mix in corrugated products, compared to the third quarter. We will also have the addition of our newly acquired Sacramento Container operations in the fourth quarter. In our paper segment, we have started implementing our recently announced price increases, but expect seasonally lower volumes and a less rich sales mix. While recycled fiber prices should move lower, higher wood and energy costs along with higher prices for certain key chemicals and higher freight costs are also expected. Finally, our annual outage costs are estimated to be ($.12) per share higher than the third quarter due to scheduled maintenance work at four of our mills. Considering these items, we expect fourth quarter earnings of $1.50 per share. This does not include any potential additional costs or anticipated recoveries related to the Deridder Mill insurance claim.”
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