Packaging Corporation of America (NYSE: PKG) today reported fourth quarter 2017 net income of $269 million, or $2.84 per share and $1.56 per share excluding special items. Fourth quarter net sales were $1.7 billion in 2017 and $1.5 billion in 2016. Full year 2017 net income was $669 million, or $7.07 per share and $6.02 per share excluding special items. Full year 2017 net sales were $6.4 billion compared to 2016 net sales of $5.8 billion.
Special items in the fourth quarter and full year 2017 include, among other items, various tax-related items resulting from the Tax Cut and Jobs Act that was signed on December 22, 2017. Excluding special items, the $.33 per share increase in fourth quarter 2017 earnings compared to the fourth quarter of 2016 was driven primarily by higher prices and mix $.51 and volumes $.12 in our Packaging segment, higher volumes $.01 in our Paper segment, and the final insurance recovery related to the DeRidder Mill incident $.07. These items were partially offset by lower prices and mix ($.03) in our Paper segment, higher freight expense ($.04), higher input costs ($.04), higher operating costs ($.11), higher converting costs ($.02), higher annual outage expenses ($.10), and higher corporate and other costs ($.04).
Compared to fourth quarter guidance of $1.50 per share, lower than expected recycled fiber prices were offset by higher labor, medical and benefits costs in our box plants. Results were negatively impacted by ($.01) per share due to a slightly higher tax rate, offset by the final insurance recovery related to the DeRidder Mill incident of $.07 per share.
In the Packaging segment, total corrugated products shipments with one additional workday were up 9.8% and shipments per day were up 8.0% over last year’s fourth quarter. Containerboard production was 1,006,000 tons, and containerboard inventory (including inventory for the fourth quarter 2017 acquisition of Sacramento Container) was up 38,000 tons compared to the fourth quarter of 2016 and up 48,000 tons from the third quarter of 2017. In the Paper segment, sales volumes in the fourth quarter of 2017 were up 20,000 tons compared to last year’s fourth quarter, while production volumes were lower due to scheduled outages.
Commenting on reported results, Mark W. Kowlzan, Chairman and CEO, said, “Demand in our Packaging segment remained very strong as sales volumes in both our containerboard mills and our corrugated products plants set all-time records. Record production in our containerboard mills allowed us to build some inventory to prepare for scheduled first quarter outages at three of our mills when our production volume will be significantly reduced. Higher year over year inflation came in close to where we expected, and the employees at our containerboard mills and corrugated products facilities did a great job working extra hours during the quarter and over the holiday periods to meet our customers’ needs in a timely manner. Additionally, we are off to a great start with the integration of Sacramento Container, and we were able to finalize our claim related to the DeRidder Mill incident with our insurance carrier which enables us to offset the negative impact to earnings from earlier in the year.”
“Looking ahead as we move from the fourth and into the first quarter,” Mr. Kowlzan added, “we expect continued strong demand in our Packaging segment, although our containerboard volumes will be lower due to scheduled outages at three of our mills during the quarter. We will continue to implement our recently announced price increases in our Paper segment and expect volume to be slightly lower. We expect inflation in almost all areas across our entire cost base. We anticipate continued higher freight costs as well as higher labor and benefits costs with annual wage increases and other timing-related expenses. Although we anticipate price inflation on recycled fiber to be fairly flat, we do expect some inflation in our energy costs and with most of our chemical, and repair and materials costs, and seasonally colder weather will increase energy usage and wood costs. Our depreciation and interest expense will be slightly higher as well. Considering these items, we expect first quarter earnings of $1.52 per share”.
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