Packaging Corporation of America

Thank you for joining Packaging Corporation of America's second 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, and please proceed when you are ready.

Good morning, and thank you for participating in Packaging Corporation of America's SECOND QUARTER 2020 EARNINGS RELEASE CONFERENCE CALL. I'M MARK COLZAN, CHAIRMAN AND CEO OF PCA, AND WITH ME ON THE CALL TODAY IS TOM HASSFURTHER, EXECUTIVE VICE PRESIDENT WHO RUNS OUR PACKAGING BUSINESS, AND BOB MONDAY, OUR CHIEF FINANCIAL OFFICER. I'LL BEGIN THE CALL WITH AN OVERVIEW OF OUR SECOND QUARTER RESULTS, AND THEN I'LL TURN THE CALL OVER TO TOM AND BOB WHO WILL PROVIDE MORE DETAILS, AFTER WHICH I'LL WRAP THINGS UP AND THEN WE'LL BE GLAD TO TAKE ANY QUESTIONS. Yesterday, we reported second quarter net income of $57 million, or 59 cents per share. Excluding the special items, second quarter 2020 net income of $132 million, or $1.38 per share, compared to the second quarter of 2019 net income of $194 million, or $2.04 per share. Second quarter net income, was $1.54 billion in 2020 and $1.76 billion in 2019. Total company EBITDA for the second quarter, excluding special items, was $299 million in 2020 and $376 million in 2019. Second quarter net income included special items expenses of 79 cents per share related primarily to the impairment of goodwill associated with our paper segment. Bob will discuss that in more detail in a few minutes. Special items expenses also included the previously reported closure of our corrugated products facility in San Lorenzo, California, and costs and expenses associated with the COVID-19 pandemic. Details of all special items for the second quarter of 2020 were included in the schedules that accompanied our earnings press release. Excluding the special items that we mentioned, the 66 cents per share decrease in second quarter 2020 earnings compared to the second quarter of 2019 was driven primarily by lower prices in mix in our packaging segment of 66 cents and paper segment 5 cents. LOWER VOLUMES IN OUR PAPER SEGMENT, 40 CENTS, AND HIGHER DEPRECIATION EXPENSE, 4 CENTS. THESE ITEMS WERE PARTIALLY OFFSET BY LOWER OPERATING COSTS OF 33 CENTS, PRIMARILY IN THE AREAS OF LABOR AND FRINGES, REPAIRS, MATERIALS, AND SUPPLIES IN SEVERAL FIXED COST AREAS. WE ALSO HAD LOWER ANNUAL OUTAGE EXPENSES OF 10 CENTS, LOWER CONVERTING COSTS, 3 CENTS, lower freight expenses, $0.02, and other costs, $0.01. Looking at our packaging business, EBITDA, excluding special items in the second quarter of 2020 of $313 million, with sales of $1.4 billion resulted in a margin of 22% versus last year's EBITDA of $349 million and sales of $1.5 billion, or a 23% margin. We ran our container board mills to demand, built some much needed inventory from the historically low levels at the end of the first quarter, and maintained the industry leading integration rate by supplying our box plants with the necessary container board to establish a new second quarter record for box shipments per day. We ended the second quarter with inventory still at the relatively low levels but inadequate position to meet our expected stronger third quarter demand. Our efficiencies and cost control at the mills and corrugated products facilities throughout the quarter were truly remarkable, and we continue to see improvements in freight and logistics expenses through the optimization of our trucking operations and geographic footprint of our container board supply. I'll now turn it over to Tom, who will provide more details on our container board sales and the corrugated business.

Thanks, Mark. Demand for our corrugated products was very good in the second quarter, especially during the month of June. As Mark indicated, our corrugated products plants achieved a new second quarter record for shipments per day, which were up 1.2% compared to last year's second quarter. Total shipments for the quarter were also up 1.2% over last year. As a comparison for the second quarter, the industry was down 1.4% in total and on a workday basis. Through the first half of 2020, our box shipment volume is up 2.5% on a per day basis versus the industry being up 0.6%. Outside sales volume of container board was about 10,000 tons below last year's second quarter and 23,000 tons below the first quarter of 2020 as we ran our container board system to demand supplied the record needs of our box plants, and positioned our inventory for even higher demand during an expected stronger third quarter. Domestic container board and corrugated products prices and mixed together were 61 cents per share below the second quarter of 2019 and down 18 cents per share compared to the first quarter of 2020. Export container board prices were down about 5 cents per share versus last year's second quarter and flat compared to the first quarter of 2020. Finally, I'd like to point out that the benefits from our capital spending strategy in the box plants that we've spoken about over the last couple of years are continuing to gain traction. As we have said many times, this strategy of improving the technology and equipment in various plants, as well as the construction of new box plants, is based upon our customers' needs and demands and improving our capabilities to grow with them. We're seeing this in our volume growth with new and existing customers, operating efficiencies, and various operating and conversion cost areas. I'll now turn it back to Mark.