Packaging Of America's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Packaging of America (PKG)

Q1 2012 Earnings Call

April 18, 2012 10:00 am ET


Mark W. Kowlzan - Chief Executive Officer and Director

Richard B. West - Chief Financial Officer, Principal Accounting Officer and Senior Vice President

Paul T. Stecko - Executive Chairman

Thomas A. Hassfurther - Executive Vice President of Corrugated Products

Unknown Executive -


Chip A. Dillon - Vertical Research Partners Inc.

Phil M. Gresh - JP Morgan Chase & Co, Research Division

Anthony Pettinari - Citigroup Inc, Research Division

Mark A. Weintraub - The Buckingham Research Group Incorporated

Mark W. Connelly - Credit Agricole Securities (USA) Inc., Research Division

George L. Staphos - BofA Merrill Lynch, Research Division

Albert T. Kabili - Crédit Suisse AG, Research Division

Philip Ng - Jefferies & Company, Inc., Research Division

Joshua L. Zaret - Longbow Research LLC

Steven Chercover - D.A. Davidson & Co., Research Division

Scott Gaffner - Barclays Capital, Research Division

Joe Licursi - BMO Capital Markets Canada

John Charles Tumazos - John Tumazos Very Independent Research, LLC



Thank you for joining Packaging Corp. of America's First Quarter 2012 Earnings Conference Call. Your host today will be Mark Kowlzan, Chief Executive Officer of PCA. [Operator Instructions] I will now turn the conference call over to Mr. Kowlzan, and please proceed when you are ready.

Mark W. Kowlzan

Good morning, and welcome to Packaging Corp. of America First Quarter Earnings Release Conference Call. I'm Mark Kowlzan, CEO of PCA. And with me on the call today is Paul Stecko, Executive Chairman of PCA; Tom Hassfurther, who runs our Corrugated business; and Rick West, PCA's Chief Financial Officer. Thanks for participating in this morning's call, and after the presentation, we'll be glad to take any questions.

Yesterday, we reported first quarter net income of $18 million or $0.18 per share, which included a noncash after-tax charge totaling $23 million or $0.24 per share from an amendment of our 2009 federal income tax return to reallocate gallons between alternative fuel mixture credits and cellulosic biofuel producer credits. This charge is a reversal of income that was previously reported as a special item and not included in our recurring results and is further detailed in the notes to our consolidated earnings results included as part of the press release.

Excluding this charge, adjusted net income was a first quarter record, $41 million or $0.42 per share compared to the first quarter of 2011 adjusted net income of $39 million or $0.39 per share, which excludes a $2 million or $0.02 per share asset disposal charge.

The increase in adjusted net income was driven by higher containerboard and corrugated products volume of $0.09 per share; lower cost for energy of $0.04 per share; and lower recycled fiber cost of $0.02 per share. These increases were partially offset by lower export containerboard prices of $0.03 per share; and increased cost for depreciation of $0.03 per share; transportation, $0.02 per share; labor costs, $0.02 per share; and also higher interest expense of $0.02 per share.

Net sales were a first quarter record, $671 million, up 7% compared to the first quarter of 2011 net sales of $630 million.

Operationally, our business remains strong throughout the quarter with record corrugated product shipments and record mill production despite having 2 of our mills down for annual maintenance outages. The new recovery boiler and turbine at our Valdosta mill and our 2 rebuilt recovery boilers and new turbine at the Counce mill were instrumental in lowering our energy, chemical and repair cost and also increasing our productivity.

Looking at the specific details of operations, higher mill production and corrugated products volume improved our earnings by $0.09 per share compared to last year's first quarter. Our corrugated shipments were up 8.3%, both on a total and a per-workday basis compared to last year's first quarter. Excluding our 3 box plant acquisitions in 2011, corrugated product shipments were up 5.4%. Outside sales of containerboard, both domestic and export, remains strong, essentially equaling last year's first quarter and just slightly below fourth quarter shipments. All of our mills ran exceptionally well, producing 640,000 tons of containerboard, up 38,000 tons over the first quarter of 2011. This performance was driven by improved productivity, lower annual average downtime and an extra mill production day in February, with leap year. Annual mill outages reduced linerboard production by about 18,000 tons during the quarter. Our mill in Valdosta, Georgia was down for 8 days and the No. 2 machine at Counce, Tennessee was down for 4 days. We ended quarter with our inventories as planned, about 11,000 tons above year-end levels. This level of inventory is required considering our anticipated demand and to offset lower production due to the 3 mill maintenance outage scheduled in the second quarter.

The No. 1 machine at Counce will be down for 5 days. The Tomahawk, Wisconsin medium mill will be down 5 days, and our Filer City, Michigan medium mill will be down for 6 days. In addition to normal planned annual outage work at these mills, a Counce outage in April included the lengthy and extensive overhaul of our 50-megawatt No. 1 turbine generator. This type of inspection and overhaul is performed every 6 years and will take about 16 days to complete. During the turbine generator outage, the mill will purchase additional electricity to support mill operations. We will also have our large C2 power boiler down at Counce for the 16 days to make planned repairs to replace boiler wall panels. We generally make major repairs of this time every 15 years or so. After the No. 1 machine starts up, the mill will run at reduced capacity for about 11 days until the boiler work is completed.

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