Packaging Corporation of America (NYSE: PKG) today reported second quarter 2020 net income of $57 million, or $0.59 per share, and net income of $132 million, or $1.38 per share, excluding special items. Second quarter net sales were $1.54 billion in 2020 and $1.76 billion in 2019.
Reported earnings in the second quarter of 2020 include $.79 per share of special items expense primarily for the impairment of goodwill associated with our Paper segment (as described below), the previously reported closure of our corrugated products production facility in San Lorenzo, CA, and costs and expenses associated with the COVID-19 pandemic.
During the second quarter of 2020, with the exacerbated deterioration in uncoated freesheet market conditions arising from the COVID-19 pandemic and its estimated impact on our Paper segment and the projected future results of operations, we identified a triggering event indicating possible impairment of goodwill and our long- lived assets within our Paper segment. Due to this triggering event and a more likely than not assessment that an impairment of goodwill occurred, an interim quantitative impairment analysis as of May 31, 2020 was performed. Based on this evaluation, we determined that goodwill was fully impaired for the Paper segment and recognized a non-cash impairment charge totaling $55.2 million. The impairment charge is not tax deductible. As a result of the triggering event described above, we also performed a recoverability test on the long-lived assets within our Paper segment, including long-lived intangible assets, as of May 31, 2020. The results of the recoverability test indicated that the long-lived assets, inclusive of the long-lived intangible assets, were 100% recoverable.
Excluding special items, the ($.66) per share decrease in second quarter 2020 earnings compared to the second quarter of 2019 was driven primarily by lower prices and mix in our Packaging segment ($.66) and Paper segment ($.05), lower volumes in our Paper segment ($.40), and higher depreciation expense ($.04). These items were partially offset by lower operating costs $.33, lower annual outage expenses $.10, lower converting costs $.03, lower freight expense $.02 and other costs $.01.
In the Packaging segment, total corrugated products shipments and shipments per day were up 1.2% over last year’s second quarter. Containerboard production was 1,073,000 tons, and containerboard inventory was down 33,000 tons from the second quarter of 2019 and up 42,000 tons compared to the first quarter of 2020. In the Paper segment, sales volume was down 103,000 tons compared to the second quarter of 2019 and down 93,000 tons from the first quarter of 2020 due to the previously announced downtime at our Jackson, AL mill.
Commenting on reported results, Mark W. Kowlzan, Chairman and CEO, said, “In the Packaging segment, our mills supplied the necessary containerboard to achieve a second quarter record for box shipments per day. We ran our containerboard system to demand while building some much-needed inventory as we began the second quarter with containerboard inventories at our lowest levels since the Boise acquisition and ended the quarter with our weeks-of-inventory supply still below our average over the last five years. All of our mills and corrugated products plants exhibited outstanding cost control throughout the quarter. In addition, we are seeing the benefits of our corrugated products capital spending strategy reflected in our box plant volume improvement as well as operating and converting cost reductions and efficiencies. We also saw the benefits from some of our mill cost reduction projects especially in the areas of energy and fiber. As previously communicated in April and again in late June, market conditions in the Paper segment continue to be challenged as nationwide responses to help control the spread of the COVID-19 virus have resulted in a dramatic decrease in demand for our cut-size office papers. Our Jackson, AL mill was temporarily idled for two months during the second quarter, and we expect the mill to stay down at least through the end of August.”
Mr. Kowlzan added, “As in the first quarter, the employees at all of our manufacturing and office locations ran their operations safely, and in a cost-effective manner, while facing the unprecedented conditions brought on by the COVID-19 pandemic. All facilities continued to operate in adherence to CDC guidelines and followed a strict protocol for workplace operations as well as notification of and response to potential issues. Although we did experience some challenges during the second quarter, we have not experienced any material disruption in our operations or our supply chain due to the pandemic. The accomplishments by our employees during this period, with the help of our customers and suppliers, were truly amazing.”
Mr. Kowlzan continued, “Looking ahead to the third quarter, we will stay focused on preserving our financial and balance sheet strength during these uncertain times. We will remain well-positioned to manage whatever lies ahead, while ensuring we take care of the needs and expectations of our employees, customers, suppliers and shareholders. During these unprecedented times, corrugated products demand has performed quite well so far this year, and we expect the third quarter to be even stronger. We began the third quarter with replenished, yet still relatively low, containerboard inventories and our expectation is that we will end the quarter at levels below where we started while managing scheduled outages at two of our mills. We have already announced the actions being taken in our Paper business, and we will continue to evaluate the demand for our paper products throughout the third quarter. However, shelter-in-place and lockdown conditions continue to change constantly across the country, and such events and actions could adversely impact these expectations and the operation of not only our facilities, but also the availability of services and products we rely upon from our suppliers. As a result, we are not able to appropriately quantify our guidance for the third quarter.”
details at: http://ir.packagingcorp.com/news-releases/news-release-details/packaging-corporation-america-reports-second-quarter-2020