Packaging Corporation of America Reports Third Quarter 2020 Results

Packaging Corporation of America (NYSE: PKG) today reported third quarter 2020 net income of $139 million, or $1.46 per share, and net income of $149 million, or $1.57 per share, excluding special items. Third quarter net sales were $1.69 billion in 2020 and $1.75 billion in 2019.

Reported earnings include $.11 per share of special items expense in the third quarter of 2020, primarily for the costs and expenses associated with Hurricane Laura which made landfall on August 27, 2020, approximately 100 miles south of our DeRidder, Louisiana mill. Mill production was down, including the time necessary for storm preparations, a total of approximately 12 days.

Excluding special items, the ($.35) per share decrease in third quarter 2020 earnings compared to the third quarter of 2019 was driven primarily by lower prices and mix in our Packaging segment ($.36) and Paper segment ($.07), lower volumes in our Paper segment ($.33), higher scheduled maintenance outage costs ($.04), and higher freight expense ($.02). These items were partially offset by higher volumes in our Packaging segment $.22, lower operating costs $.20, and lower converting $.04 and other costs $.01.

In the Packaging segment, total corrugated products shipments with one additional workday were up 6.4%, and shipments per day were up 4.7% over last year’s third quarter. Containerboard production was 1,048,000 tons, and containerboard inventory was down 58,000 tons from the third quarter of 2019 and down 55,000 tons compared to the second quarter of 2020. In the Paper segment, sales volume was down 55,000 tons compared to the third quarter of 2019, and up 56,000 tons from the second quarter of 2020.

Commenting on reported results, Mark W. Kowlzan, Chairman and CEO, said, “In the Packaging segment, demand was very strong throughout the quarter as we set new all-time quarterly records for total box shipments and shipments per day. We were able to overcome the hurricane-related issues at our DeRidder mill to avoid any disruptions to our customers; however, with this supply disruption along with strong demand, we ended the quarter with much lower inventory than anticipated. This will require us to postpone the mill’s previously announced discretionary outage planned for the fourth quarter of this year. Market conditions in our Paper segment continue to be challenged due to the nationwide responses to help control the spread of the pandemic. Although demand did increase from the second quarter, it was still well below last year’s levels. As a result, we kept our Jackson Mill idle for the entire third quarter.”

Mr. Kowlzan added, “For three quarters now, our employees across the Company ran their operations safely, and in a cost-effective manner, during this pandemic. They are doing an outstanding job following the processes and protocols we have instituted to help protect them and their families. What makes this even more remarkable is that our employees’ focus on these new work requirements is occurring while we are experiencing unprecedented demand within our Packaging business, and they continue to successfully meet the expectations of our containerboard and box customers. Everyone has worked very hard to overcome the challenges and obstacles we’ve faced this year, and I couldn’t be more proud of our entire organization as well as the strong partnerships we have with our customers and suppliers.”

Mr. Kowlzan continued, “Looking ahead as we move from the third and into the fourth quarter, in our Packaging segment we expect corrugated products demand to remain strong. Although shipments will be lower than the third quarter with three less shipping days, volume should be higher than last year’s record fourth quarter shipments. Higher containerboard production will help us build some inventory prior to year-end as we prepare for first quarter 2021 scheduled maintenance outages and expected continued strong demand. Earlier this month, we communicated price increases to our containerboard and box customers and we’ll be implementing these during the quarter and into next year; however, we also expect a seasonally less rich mix in corrugated products compared to the third quarter. In addition, we expect average export prices to move higher during the fourth quarter. In our Paper segment, although demand is well below historical levels, as schools and business have re-opened to some extent volume has improved since the low-point reached during the second quarter. However, we believe our sales volume in the fourth quarter will be lower than the seasonally stronger third quarter although, with the scheduled outage we had at our International Falls mill earlier this month, our Jackson mill was restarted on October 6th. We will continue to evaluate our paper needs from Jackson as the quarter progresses. We also expect freight and scheduled maintenance outage costs to be higher and, with anticipated colder weather, energy costs should be higher as well.”

Mr. Kowlzan concluded, “As certain areas of the economy continue to reopen, shelter-in-place and lockdown conditions are expected to continue changing across the country, especially considering the upcoming colder weather and holiday gatherings. There continues to be numerous events and actions that could impact our expectations for the upcoming quarter and the operation of not only our facilities, but also adversely impact the needs of our customers and the availability of services and products we rely upon from our suppliers. As a result, we are still not able to appropriately quantify our guidance for the fourth quarter.”
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