Packaging Corporation of America

Thank you for joining Packaging Corporation of America's first quarter 2020 earnings results conference call. Your host today will be Mark Colzan, Chairman and Chief Executive Officer of PCA. Upon conclusion of his narrative, there will be a Q&A session. I will now turn the conference call over to Mr. Colzan. Please proceed when you are ready.

Thank you, Shelby. Thank you. Good morning, everyone, and thank you for participating in Packaging Corporation of America's first quarter 2020 earnings release conference call. Again, I'm Mark Colzan, Chairman and CEO of PCA, and with me on the call today is Tom Hasfurther, Executive Vice President who runs the packaging business, and Bob Munday, our Chief Financial Officer. Before we begin our prepared remarks relative to the first quarter performance, I want to make a few comments about the pandemic crisis in PCA. Without a doubt, these may be the most unpredictable and unprecedented times that hopefully we will ever encounter. There is no reference manual for managing through a public health crisis with severe economic ramifications, such as what has occurred with the COVID-19 pandemic. Our routines, habits, personal preferences, work and social activity, and many other aspects of our lives are sure to change forever as a result of this. PCA's operations qualify as an essential or critical element under the various state and local shelter-in-place orders. Our leadership team is in constant communication discussing safety, the state of our operations, business continuity, and other critical management topics. It is our responsibility at PCA to ensure that, first and foremost, we help provide for the well-being of our more than 15,000 employees and their families. We must do everything in our power to assist our customers and suppliers as well. We have implemented various procedures and safeguards at all our manufacturing, converting, and office locations across the country to help keep our employees safe and healthy as we provide the goods and services considered essential for assisting with our country's response to the pandemic. We've also put measures in place to assist them with the economic ramifications that have resulted from these response measures. To date, we have not experienced any significant interruptions at our operations or in our supply chain due to the virus. Our network of mills, converting facilities, and distribution operations strategically located throughout the United States gives PCA asset flexibility to manufacture and ship products to multiple locations. We will continue to closely monitor developments, take proactive measures to protect our employees, and provide our customers with the products and services they require. I could not be more proud of the effort, responsiveness, and sacrifices displayed by all PCA employees as well as our customers and suppliers. It has truly been an inspiring observation. I'll now begin with an overview of the first quarter results, and then I'm going to turn the call over to Tom and Bob, who will provide more details. I'll then wrap things up, and we'll be glad to take some questions. Yesterday, we reported first quarter net income of $142 million, or $1.49 per share. First quarter net income included special items expenses of one cent per share related primarily to costs and expenses associated with the COVID-19 pandemic. Excluding special items, first quarter 2020 net income was $143 million or $1.50 per share compared to the first quarter of 2019 net income of $187 million or $1.98 per share. First quarter net sales were 1.7 billion in both 2020 and 2019. Total company EBITDA for the first quarter excluding special items was $311 million in 2020 and $371 million in 2019. Details of the special items for both the first quarter of 2020 and 2019 were included in the schedules that accompanied the earnings press release. Excluding special items, The 48 cents per share decrease in first quarter 2020 earnings compared to the first quarter of 2019 was driven primarily by lower prices in mix in our packaging segment of 64 cents and paper segment 5 cents. Lower volumes in our paper segment of 3 cents. Higher annual outage expenses, 4 cents. Higher depreciation expense, 4 cents. Other expenses, 1 cent. and higher tax rate, one cent. The items were partially offset by higher volumes in our packaging segment of 14 cents, lower operating costs of nine cents, lower converting costs, four cents, lower freight and logistics costs, one cent, and lower interest expense, four cents, and non-operating pension expense, two cents. The results were $0.30 above the first quarter guidance of $1.20 per share, primarily due to higher volumes in our packaging segment of $0.03 and our paper segment of $0.01, higher prices and mix in the packaging segment of $0.02, and lower operating costs of $0.15, resulting from the excellent fiber and energy usage and lower input prices in our mills. Freight and logistics costs were lower than expected by $0.03 as were converting costs, annual outage costs, and other expenses, each lower than expectations by $0.02 per share. Looking at our packaging business, EBITDA, excluding special items in the first quarter of 2020 of $290 million with sales of $1.5 billion, resulted in a margin of 20% versus last year's EBITDA of $334 million and sales of $1.5 billion, or a 23% margin. Our container board mills established a new first quarter volume record, even while performing scheduled annual maintenance outage work at four of the mills. Our container board production allowed us to maintain our industry-leading integration rate of approximately 95% by supplying the necessary container board to our box plants, who achieved an all-time record for total box shipments, as well as a new first quarter shipments per day record. We were able to meet this greater than anticipated demand through proactive management, changing the sequencing of our scheduled maintenance outages, as well as outstanding execution of the work performed during these outages. Our enhanced capabilities to optimize the mix, freight, and logistics costs, inventory levels, and internal and external customer needs of the container board system provided to us by our machine conversion at the Lula mill were a key component as well. We ended the quarter with container board inventories at their lowest level since the acquisition of Boise's packaging business in 2013. I'll now turn it over to Tom, who will provide more details on container board sales and the corrugating business.

Thank you, Mark. Corrugated products and container board demand were very strong during the quarter. As Mark indicated, our corrugated products plants achieved a new all-time record for total box shipments, which were up 5.6% over last year, as well as a new first quarter record in shipments per day, which were up 3.9% compared to last year's first quarter. Outside sales volume of container board was 13% above last year's first quarter, primarily attributable to increased domestic demand, with export demand slightly higher as well. Domestic container board and corrugated products prices and mixed together were $0.54 per share below the first quarter of 2019 and down $0.06 per share compared to the fourth quarter of 2019. Export container board prices were down about $0.10 per share versus last year's first quarter and flat compared to the fourth quarter of 2019. I'll now turn it back to Mark.