Packaging Corporation of America

Thank you for joining Packaging Corporation of America's first quarter 2022 earnings result 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 call over to Mr. Colson, and please proceed when you are ready.

Thank you, Patricia. Good morning, everyone, and thank you all for participating in Packaging Corporation of America's first quarter 2022 earnings release conference call. I'm Mark Coles, and 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 Monday, our chief financial officer. I'll begin the call with an overview of the first quarter results. And then I'm going to be turning the call over to Tom and Bob who provide further details. And then I will wrap things up and we'll be glad to take questions. Yesterday we reported first quarter net income of $254 million or $2.70 per share. First quarter net income included special items expenses of two cents per share primarily for certain costs at the Jackson, Alabama mill for paper to container board conversion related activities. Details of the special items for both the first quarter of 2022 and 2021 were included in the schedules that accompanied our earnings press release. Excluding the special items, first quarter 2022 net income was $256 million or $2.72 per share compared to first quarter 2021 net income of $169 million or $1.77 per share. First quarter net sales were $2.1 billion in 2022 and $1.8 billion in 2021. Total company EBITDA for the first quarter excluding special items was $467 million in 2022 and $342 million in 2021. Excluding the special items, the 95 cents per share increase in first quarter 2022 earnings compared to the first quarter of 2021 was driven primarily by higher prices in mix of $1.83 and volume of 23 cents in the packaging segment, higher prices in mix in our paper segment for 15 cents, a lower share count resulting from share repurchases for 3 cents, and lower interest expenses of 2 cents. These items were partially offset by 71 cents of inflation-related operating cost increases, particularly with energy, fiber, chemicals, operating labor, and repair labor and materials. Freight and logistics expenses have now moved higher for seven quarters in a row and were 27 cents per share above the first quarter of 2021, and converting costs were higher by 11 cents per share driven by labor and materials expenses. We also had higher depreciation expenses of seven cents, lower volume in our paper segment for six cents, higher scheduled outage expenses, five cents, a higher tax rate resulting from some favorable items in last year's tax rate of three cents, and other costs, one cent. The results were 22 cents above our first quarter guidance of $2.50 per share, primarily due to higher prices in mix and higher volumes in both our packaging and paper segments, operating cost improvements from efficiency and usage initiatives, and favorable weather conditions. Looking at the packaging business, EBITDA excluding special items in the first quarter of 2022 was $464 million with sales of $1,960,000,000, which resulted in a 23.6% margin versus last year's EBITDA of $352 million and sales of $1.62 billion, or a 21.7% margin. Demand in the packaging segment remained very strong as sales volume in both our container board mills and our corrugated products plants had record-setting performances. The scheduled maintenance outages in our mills went very well, and both machines at our Jackson, Alabama mill produced container board the entire quarter. However, with strong internal and external demand, we ended the quarter once again with container board inventory levels below our targeted and historical levels. Although we still face unprecedented inflationary headwinds in our manufacturing costs as well as freight and logistics expenses, Our facilities continue to deliver on numerous cost reduction initiatives, efficiency improvements, integration and optimization enhancements, and capital project benefits to maximize our returns and our margins. I'll now turn it over to Tom, who'll provide further details on the container board sales and corrugated products business.

Thanks, Mark. As Mark mentioned, corrugated products and container board demand were very strong during the quarter. We set a new all-time total box shipments record as well as a new first quarter shipments per day record. Total volume in our corrugated product plants was up 2.9% and shipments per day were up 1.3% versus a very strong comp in last year's first quarter, which for us was up approximately 8% over the prior year. In addition to supplying the record internal needs of our box plants, our outside sales volume of container board was 46,000 tons above the first quarter of 2021, owing to continued strong domestic and export demand. Outside volume was 26,000 tons below the fourth quarter of 2021 in order to help supply our strong internal demand while managing through the scheduled maintenance outages at our mills. Domestic container board and corrugated products prices and mix contributed $1.60 per share above the first quarter of 2021, and we're up 23 cents per share compared to the fourth quarter of 2021. Export container board prices were up 23 cents per share versus last year's first quarter, and up a penny per share compared to the fourth quarter of 2021. The benefits of our disciplined approach for the implementation of price increases across our customer mix last year was a significant contributor to this year's first quarter results. Very good execution of the initial implementation of our recent March price increase contributed to results in the first quarter as well. I'd also like to point out that the capital spending and optimization strategy within our box plant system that we have been focused on over the last few years also plays a key role in our successful implementation process. The investments from this strategy provide the products and service needs that our customers desire and allows them to grow while focusing on the mix of customers we want to align and partner with. I'll now turn it back to Mark.