Packaging Corporation of America

Thank you for joining Packaging Corporation of America's second quarter 2021 earnings results conference call. Your host for 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. Please proceed when you're ready.

Thank you, Stephanie. Good morning and thank you for participating in Packaging Corporation of America's second quarter 2021 earnings release conference call. I'm Mark Kolzan, 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 second quarter results and then turn the call over to Tom and Bob who will provide further details. I'll then wrap things up, and then we'd be glad to take questions. Yesterday, we reported second quarter net income of $207 million, or $2.17 per share. Excluding special items, second quarter 2021 net income was also $207 million, or $2.17 per share, compared to the second quarter 2020 net income of $132 million, or $1.38 per share. Second quarter net sales were $1.9 billion in 2021 and $1.5 billion in 2020. Total company EBITDA for the second quarter excluding special items was $397 million in 2021 and $299 million in 2020. Reported earnings in the second quarter of 2021 included special items expense and income rounding to a negligible impact, while last year's 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. Details of all special items for the second quarters of 2021 and 2020 were included in the schedules that accompanied our earnings release conference, press release. Excluding special items, the 79 cents per share increase in second quarter 2021 earnings compared to the second quarter of 2020 was driven primarily by higher prices in mix of $1.01 and volume 74 cents in our packaging segment higher volume in our paper segment of $0.03, and lower non-operating pension expense of $0.03. These items were partially offset by higher operating costs of $0.57, primarily due to inflation-related increases in the areas of labor and fringes, repairs, materials and supplies, recycled fiber costs, as well as other indirect and fixed cost areas. We also had inflation related increases in our converting costs, which were higher by five cents per share, while annual outage expenses were up 19 cents per share compared to last year. Freight and logistics expenses were higher by 19 cents per share, driven by historically high load to truck ratios, driver shortages, increases in fuel costs, and a higher mix of spot pricing to keep pace with the box demand. Lastly, depreciation expense was higher by one cent per share and paper segment prices and mix were lower by one cent per share. Looking at our packaging business, EBITDA excluding special items in the second quarter of 2021 of $409 million with sales of $1.7 billion resulted in a margin of 24% versus last year's EBITDA of $313 million and sales of $1.4 billion or a 22% margin. Our mills and plants continue to do an outstanding job of meeting our customer needs while managing through certain material and chemical availability issues, a tight labor market, various freight and logistics challenges, as well as the planned maintenance outages at four of our mills during the second quarter. The mill executed the planned outages extremely well, and with the help of the number three machine at our Jackson, Alabama mill, provided our plants the necessary container board to achieve an all-time record for total box shipments. Although we were able to build some much-needed inventory, due to very high demand, we ended the second quarter below our targeted levels and at a new low for weeks of inventory supply for this time of year, and ahead of expected very busy third and fourth quarters. In the second half of the year, we still anticipate a planned outage at our Jackson, Alabama mill later in the third quarter, as well as a significant planned outage at our DeRidder mill in the fourth quarter. Implementation of the previously announced price increases continues to be executed extremely well by our sales organization, while our engineering and technology organization and the employees at all of our mills and corrugated products plants continue to successfully implement numerous initiatives and projects to reduce cost through efficiency, productivity, and optimization improvements. With inflation-driven cost increases across most all areas of our company, coupled with truck, rail, and barge challenges for both incoming and outgoing products and materials at our facilities, these efforts are absolutely critical to our success. In addition, being a primarily virgin fiber-based producer of container board minimizes the impact of significant increases in recycled fiber costs over the last several quarters. I'll now turn it over to Tom, who will provide more details on container board sales and the corrugated business.

Thank you, Mark. As Mark indicated, container board and corrugated products demand remains very strong across most of all of our end markets. Our plants achieved a new all-time quarterly record for total box shipments as well as a second quarter record for shipments per day, both of which were up 9.6% compared to last year's second quarter. Through the first half of 2021, our box shipment volume is up 9% on a per-day basis versus the industry being up 6.8%. Driven by higher domestic demand, outside sales volume of container board was about 43,000 tons above the second quarter of 2020, but was down slightly versus the first quarter of this year due to lower export shipments, supplying the record requirements of our box plants and the need to position inventory levels ahead of what appears to be a strong second half of the year. We are getting good realization from the implementation of our previously announced price increases across all product lines. Domestic container board and corrugated products prices and mixed together were 92 cents per share above the second quarter of 2020 and up 51 cents per share compared to the first quarter of 2021. Export container board prices were up 9 cents per share versus last year's second quarter and up 4 cents compared to the first quarter of 2021. Finally, I'd like to reemphasize some of what Mark was pointing out regarding the many things we do to help offset inflation and improve our margins beyond just price increases. The benefits from our capital spending strategy and the box plants that we've spoken about over the last few years have been extremely successful and put us in position to serve our customers better than ever before. Our strategy of improving the technology and equipment in our plants and optimizing our footprint through the construction of new facilities as well as closing certain plants to consolidate business with other locations 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 savings, and cost reductions in several conversion areas throughout our plants. I'll now turn it back to Mark.