Packaging Corporation of America

Good day, everyone. Thank you for joining Packaging Corporation of America's fourth quarter and full year 2022 earnings results conference call. Your host will be Mark Kalazan, Chairman and Chief Executive Officer of PCA. Upon conclusion of his narrative, there will be a question and answer session. Please also note today's conference call is being recorded. At this time, I'd like to turn the call over to Mr. Kalazan. Please proceed when you are ready.

Thank you, Jamie. Good morning, and thank you all for participating in Packaging Corporation of America's fourth quarter and full year 2022 earnings release conference call. Again, 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 Mundy, our Chief Financial Officer. I'll begin the call with an overview of our fourth quarter and full year results, and then I'm going to be turning the call over to Tom and Bob provide further details and then i'll wrap things up and we'd be glad to take questions yesterday we reported fourth quarter 2022 net income of 212 million dollars or 2.31 for share excluding special items fourth quarter 2022 net income was 215 million dollars or $2.35 per share compared to the fourth quarter of 2021 net income of $262 million or $2.76 per share. Fourth quarter net sales were $1.98 billion in 2022 and $2.04 billion in 2021. Total company EBITDA for the fourth quarter excluding special items was $409 million in 2022 and $463 million in 2021. Excluding special items, we also reported full-year 2022 earnings of $1.04 billion or $11.14 per share compared to 2021 earnings of $894 million or $9.39 per share. Net sales were $8.5 billion in 2022 and $7.7 billion in 2021. Excluding special items, total company EBITDA in 2022 was $1.9 billion compared to $1.7 billion in 2021. Fourth quarter and full year, 2022 net income included special items primarily for certain costs at the Jackson, Alabama mill for paper to container board conversion related activities. Details of all the special items for the years 2022 and 2021 were included in the schedules that accompanied the earnings press release. Excluding special items, the 41 cents per share decrease in fourth quarter 2022 earnings compared to the fourth quarter of 2021 was driven primarily by lower volumes in our packaging segment, $1.14, and paper segment, two cents. We also had higher operating costs of 48 cents, primarily from inflation on energy, chemicals, labor and benefits, supplies, repair materials and services, and other indirect and fixed costs. Freight and logistics expenses were unfavorable, 13 cents, along with higher depreciation expense, nine cents, higher converting costs, six cents, and higher scheduled maintenance outage expenses of one cent. These items were partially offset by higher prices in MIX in the packaging segment of $1.18 and paper segment of 21 cents. A lower share count resulting from share repurchases, eight cents, lower interest expense, four cents, and a lower tax rate, one cent. Results were 13 cents above the fourth quarter guidance of $2.22 per share, primarily due to higher prices and mix in the packaging segment, lower freight and logistics expenses, a lower share count resulting from share repurchases, and a lower tax rate. Looking at our packaging business, EBITDA excluding special items in the fourth quarter of 2022 of $392 million with sales of $1.8 billion resulted in a margin of 21.7% versus last year's EBITDA of $461 million and sales of $1.9 billion or a 24.5% margin. For the full year 2022, packaging segment EBITDA excluding these special items was $1.8 billion with sales of 7.8%. billion or a 23.8 percent margin compared to full year 2021 EBITDA of 1.7 billion with sales of 7.1 billion dollars or a 23.9 percent margin. Demand in the packaging segment was below expectations for the quarter causing us to run our container board system to these lower demand levels. Our employees did a very good job with their cost management and process optimization efforts at these lower production rates to offset the negative volume impact. Total economic-related downtime for the fourth quarter was approximately 231,000 tons. The scheduled maintenance outage and conversion work at our Jackson, Alabama mill was completed successfully during the fourth quarter, and we restarted the mill earlier this month after being down as a result of the lower demand. The number three machine achieved its first phase design capacity and is producing a very high-quality virgin liner board. However, based on current container board demand levels, we've decided to move the second phase of the conversion work from this spring to next year in 2024. I'll now turn it over to Tom, who will provide further details on container board sales and the corrugated business.

Thank you, Mark. Domestic container board and corrugated products prices and mixed together were $1.19 per share above the fourth quarter of 2021 and flat compared to the third quarter of 2022. Export container board prices and mix were down a penny per share compared to the fourth quarter of 2021 and down two cents per share compared to the third quarter of 2022. Corrugated product shipments were down 8.7% per workday and down 10.2% in total with one less workday compared to last year's fourth quarter. Outside sales volume of container board was 131,000 tons below last year's fourth quarter and 38,000 tons below the third quarter of 2022. The lower demand in our packaging segment was driven by several items. The inventory correction in both boxes and our customers' product has been more prolonged than what we originally anticipated at the start. Inflationary pressures on the consumers have also added to the problem by reducing the consumer's discretionary spending capabilities. In addition, consumer behavior changed very quickly as we exited the extreme COVID period, resulting in more of a preference towards travel, entertainment, and experience versus that of tangible goods. Container board and box demand continues to be negatively impacted from the deterioration in US and global economic conditions, rising interest rates, and a cooler housing market. As we move from the fourth quarter into the first quarter, we estimate the rate of shipments per day to be fairly similar as we expect many of these conditions to continue. However, there are four additional shipping days in the first quarter, so total actual shipments will be higher when compared to the fourth quarter of 2022. In spite of the numerous issues currently impacting demand, we continue to perform at levels above pre-COVID, and anticipate our first quarter shipments to exceed first quarter of 2019 shipments by approximately 6% on a per day basis. Now I'll turn it back to Mark.