Packaging Corporation of America

Thank you for joining the Packaging Corporation of America's second quarter 2022 earnings results conference call. Your host today will be Mark Calzan, 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 over to Mr. Calzan. Please proceed when you are ready.

Good morning, and thank you for participating in Packaging Corporation of America's second quarter 2022 Earnings Release Conference Call. I'm Mark Holzan, Chairman and CEO of PCA, and with me on the call today is Tom Hasfurther, the 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 second quarter results, and then I'll be turning the call over to Tom and Bob, who will provide more details. I'll then wrap things up, and then we'd be glad to take questions. Yesterday we reported second quarter net income of $301 million or $3.20 per share. Second quarter net income included special items expenses of 2 cents per share primarily for certain costs at the Jackson, Alabama mill for paper to container board conversion related activities. The details of the special items for both the second quarter of 2022 and 2021 were included in the schedules that accompanied the earnings press release. Excluding special items, second quarter 2022 net income was $304 million or $3.23 per share compared to the second quarter 2021 net income of $207 million or $2.17 per share. Second quarter net sales were $2.2 billion in 2022 and $1.9 billion in 2021. Total company EBITDA for the second quarter, excluding the special items, was $533 million in 2022 and $397 million in 2021, excluding the special items. The $1.06 per share increase in second quarter 2022 earnings compared to the second quarter of 2021 was driven primarily by higher prices and mix of $2.04 and volume $0.12 in the packaging segment and higher prices and mix in the paper segment of $0.18. Scheduled outage expenses were favorable by $0.08 per share. interest expense was lower by 3 cents, a lower share count resulting from 2021 repurchases was favorable by 3 cents, and other items were favorable 3 cents per share. These items were partially offset by 95 cents of inflation-related operating costs, particularly with energy, fiber, chemicals, operating labor, repair labor and materials, and several other indirect and fixed cost areas. Freight and logistics expenses have now moved higher for eight quarters in a row and were $0.25 per share above the second quarter of 2021. We also had inflation-related increases in our converting costs, which were higher by $0.10 per share, and depreciation expense was up $0.08 per share over last year. Volume in our paper segment was lower by $0.06 per share compared to last year when we were still running uncoated free sheet on number one machine at the Jackson, Alabama mill, and our tax rate was higher by $0.01 per share. Results were $0.40 above the second quarter guidance of $2.83 per share, primarily due to higher prices and mix in the packaging segment. lower scheduled outage expenses of 7 cents per share resulting from the postponement of the International Falls outage from the second quarter to the third quarter, and lower fiber and energy costs resulting from efficiency and usage initiatives. Looking at the packaging business, EBITDA, excluding special items in the second quarter of 2022 of $525 million, with sales of $2.1 billion resulted in a margin of 25.4% versus last year's EBITDA of $409 million and sales of $1.7 billion or a 23.8% margin. We had great execution of our previously announced price increases and demand in our packaging segment was solid with corrugated demand about flat with last year's record second quarter along with demand out of our container board mills generating new second quarter production and sales volume records. Even with record production from our mills, we still ended the quarter with weeks of container board inventory supply below our historical levels due to demand needs from both internal and external customers. We will be attempting to build some much needed inventory during the third quarter ahead of the significant fourth quarter outage at the Jackson, Alabama mill for the first phase of the number three machine conversion to Virgin Liner Board. We're still experiencing significant inflationary headwinds in our operating costs as well as freight and logistics expenses. However, our mills and plants continue to do an outstanding job of meeting our customers' needs while delivering on numerous cost reduction initiatives, efficiency improvements, integration and optimization enhancements, and capital project benefits to maximize our returns and margins. I'll now turn it over to Tom, who will provide further details on the container board sales and our corrugating business.

Thank you, Mark. As Mark mentioned, total corrugated product shipments and shipments per day were essentially flat compared to last year's record second quarter, which was up 9.6% versus the previous year. Outside sales volume of container board was about 41,000 tons above last year's second quarter, which was our lowest outside volume quarter for 2021, but 6,000 tons below the first quarter of this year due to the lower export shipments, strong internal demand, and managing through the scheduled maintenance outages at our mills. Very good implementation of our previously announced price increases, together with profitable revenue growth and mix enhancements, delivered significant value for us during the quarter. Domestic container board and corrugated products prices and mixed together were $1.89 per share above the second quarter of 2021 and up 76 cents per share compared to the first quarter of 2022. Export container board prices were up 15 cents per share versus last year's second quarter and up slightly compared to the first quarter of 2022. As it pertains to our converting facilities, I'd like to reemphasize some of what Mark was pointing out regarding the many things we do to meet our customers' needs, help offset inflation, and improve our margins beyond just price increases. Our operations improvement and capital spending strategies in the corrugated plants have been extremely successful and put us in a position to serve our customers better than ever before, even against a backdrop of unprecedented supply chain and logistical challenges. Improving the processes, technology, and equipment in our plants and optimizing our geographical footprint is driven by our customers' needs and improving our capabilities to grow with them. This strategy also improves our operating and converting efficiencies and delivers cost savings in several areas throughout our facilities. I'll now turn it back to Mark.