Packaging Corporation of America

Thank you for joining Packaging Corporation of America's third 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 question and answer session. I will now turn the call over to Mr. Colzan, and please proceed when you are ready.

Good morning. Good morning. And thank you for participating in Packaging Corporation of America's third quarter 2020 earnings release conference call. I'm Mark Holzan, Chairman and CEO of PCA. And with me on the call today is Tom Hassfurther, Executive Vice President who runs the packaging business, and Bob Munday, our Chief Financial Officer. I'll begin the call with an overview of our third quarter results, and then I'll be turning the call over to Tom and Bob who will provide more details. And then I'll wrap things up and we'd be glad to take questions. Yesterday, we reported third quarter net income of $139 million or $1.46 per share. Excluding special items, third quarter 2020 net income was $149 million or $1.57 per share compared to the third quarter of 2019 net income. of $182 million or $1.92 per share. Third quarter net sales were $1.69 billion in 2020 and $1.75 billion in 2019. Total company EBITDA for the third quarter excluding special items was $323 million in 2020 and $364 million in 2019. Third quarter net income included special items expenses of 11 cents per share related primarily to the impact of Hurricane Laura on our de Ritter mill during the months of August and September. Bob will discuss that in more detail in a few minutes. Details of all the special items for the third quarter 2020 were included in the schedules that accompanied the earnings press release. Excluding the special items, the $0.35 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 of $0.36 and paper segment $0.07, lower volumes in our paper segment of $0.33, higher scheduled maintenance outage costs $0.04, and higher freight expense $0.02. THESE ITEMS WERE PARTIALLY OFFSET BY HIGHER VOLUMES IN OUR PACKAGING SEGMENT OF 22 CENTS, LOWER OPERATING COSTS OF 20 CENTS, WHICH WERE PRIMARILY FROM LOWER INDIRECT COSTS AT THE IDLE JACKSON MILL AS WELL AS LOWER INDIRECT AND FIXED COSTS IN OUR BOX PLANTS. WE ALSO HAD LOWER CONVERTING COSTS OF 4 CENTS AND LOWER OTHER COSTS OF 1 CENT. LOOKING AT OUR PACKAGING BUSINESS. EBITDA, excluding special items in the third quarter of 2020, of $324 million with sales of $1.5 billion resulted in a margin of 22% versus last year's EBITDA of $324 million and sales of $1.5 billion, also a 22% margin. In the packaging segment, demand was very strong throughout the quarter, and we set new all-time quarterly records. for total box shipments and shipments per day. Our flexible container board mill system was able to overcome the Hurricane Laura related downtime at our Derrida mill and avoid any disruptions to customers. The mill was able to mitigate a portion of the downtime by postponing a previously scheduled outage during the quarter and other productivity gains. However, this unplanned downtime, combined with the extremely strong demand, resulted in an inventory drop of 55,000 tons during the quarter, or 58,000 tons below last year's level. As a result, our weeks of supply at the end of the quarter was at an all-time low. We decided to postpone the large, planned, discretionary fourth quarter outage at the DeRidder mill that we had discussed on the last earnings call in order to enable us to build inventory ahead of next year's annual outage schedule and the expected continued strong demand we're seeing. The mills did a great job of managing through the hurricane-induced production challenges to supply the record-breaking needs of our box plants and the efficiencies and cost improvement at the plants continued throughout the quarter. I'll now turn it over to Tom, who will provide more details on container board sales and our corrugated business.

Thank you, Mark. As Mark mentioned, our corrugated products plants established new all-time quarterly records for total box shipments, up 6.4% compared to last year's third quarter, as well as shipments per day up 4.7% compared to last year. Through the first three quarters of 2020, our box shipment volume is up 4.4% in total, and 3.3% on a per day basis. Outside sales volume of container board was 28,000 tons below last year's third quarter as we ran our container board system to overcome the hurricane related downtime at Derrida and supply the record needs of our box plants. Domestic container board and corrugated products prices and mixed together were 34 cents per share below the third quarter of 2019 and up 5 cents per share compared to the second quarter of 2020, primarily due to a favorable product and customer mix. Export container board prices were down 2 cents per share compared to the third quarter of 2019 and flat compared to the second quarter of 2020. Finally, we recently notified our container board customers of a $50 per ton price increase effective November 1st, and in addition, we have also notified our box customers of a price increase. While we don't comment on forward pricing specifics, we would expect to realize some of the benefits of the increase during the fourth quarter, but the vast majority of the benefit would be expected in the first quarter of 2020. I'll now turn it back to Mark.