Packaging Corporation of America

Thank you for joining Packaging Corporation of America's first quarter 2021 earnings results conference call. Your host today will be Mark Colson, 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. Colson. Please proceed when you're ready.

Thank you. Good morning. And again, I appreciate everybody participating today. and Packaging Corporation of America's first quarter 2021 earnings release conference call. I'm Mark Colzan, Chairman and CEO of PCA, and with me on the call today is Tom Hasfurther, Executive Vice President who runs our packaging business, and Bob Munday, our Chief Financial Officer. I'll begin the call with an overview of our first quarter results and then turn the call over to Tom and Bob who will provide additional details. I'll then wrap things up and then we'll be glad to take questions. Yesterday, we reported first quarter net income of $167 million, or $1.75 per share. First quarter net income included special items expenses of $0.02 per share related to closure costs for certain corrugated products facilities and specific costs related to discontinuing paper operations associated with the previously announced conversion of the number three machine at our Jackson, Alabama mill to liner board. Excluding the special items, first quarter 2021 net income was $169 million or $1.77 per share compared to the first quarter 2020 net income of $143 million or $1.50 per share. First quarter net sales were $1.8 billion in 2021 and $1.7 billion in 2020. Total company EBITDA for the first quarter, excluding special items, was $342 million in 2021 and $311 million in 2020. Details of the special items for both the first quarter of 2021 and 2020 were included in the schedules that were accompanying the earnings press release. Excluding the special items, The 27 cents per share increase in first quarter 2021 earnings compared to the first quarter of 2020 was driven primarily by higher volumes of 45 cents and prices in mix, 31 cents in the packaging segment, and lower annual outage expenses for 12 cents. The items were partially offset by lower volumes, 28 cents, and prices in mix of 3 cents in the paper segment. Operating costs were 15 cents per share higher, primarily due to inflation-related increases, particularly in the areas of labor and benefits expenses and fiber costs and energy. We also had inflation-related increases in our converting costs, which were 2 cents per share higher. For the last three quarters, freight and logistics costs have risen and were 12 cents per share higher in the first quarter compared to last year. Significant increases in fuel costs, tight truck supply, and a higher mix of spot pricing to keep up with box demand are the primary drivers. And in the first quarter, we had the issues brought on by the winter storms as well. We also had other expenses of one cent per share. Looking at the packaging business, EBITDA, excluding special items in the first quarter of 2021, of $352 million with sales of $1.6 billion resulted in a margin of 22% versus last year's EBITDA of $290 million and sales of $1.5 billion or a 20% margin. Demand in the packaging segment remained very strong as sales volume in both our container board mills and our corrugated products plants set or matched all-time quarterly records. Although we were able to replenish some inventory during the quarter by utilizing the Jackson, Alabama mill for additional container board production, we again ended the period with inventory levels lower than planned and at record lows from a weeks of supply standpoint due to stronger than expected demand. Our mills and box plants displayed outstanding management of their operations to meet customer commitments in spite of several weather-related events that impacted their operations, created raw material availability issues, and presented both inbound and outbound freight and logistics challenges. In addition, our facilities continued to deliver on numerous cost reduction initiatives, efficiency improvements, and capital projects, and bringing the benefits of those efforts to the bottom line. We also recently completed two high-return strategic projects that we've mentioned to you before, the OCC project at our Wallula Mill and the Boiler project at our Filer Mill. The tremendous effort our employees put into these initiatives and projects helps us minimize some of the cost inflation we see every year, and especially now with what we're seeing in the areas I mentioned previously. I'll now turn it over to Tom, who will provide more details on container board sales in our corrugated business.

Thank you, Mark. As Mark mentioned, corrugated products and container board demand were very strong during the quarter. Total volume in our corrugated products plants was up 6.6% versus last year and equaled the all-time record for total box shipments that we just set in the fourth quarter of 2020. Shipments per day were up 8.3% over last year, which set a new first quarter record for us. Strong domestic demand drove outside sales volume of container board 13% above last year's first quarter. Domestic container board and corrugated products prices and mixed together were 26 cents per share above the first quarter of 2020 and up 52 cents per share compared to the fourth quarter of 2021. as we continued to implement our November 2020 announced price increases during the quarter and we began the implementation of our announced March increase. Export container board prices were up 5 cents per share versus last year's first quarter and up 4 cents per share compared to the fourth quarter of 2020. I'll now turn it back to Mark.