Packaging Corporation of America

Good morning, everyone, and thank you for joining Packaging Corporation of America's second quarter 2023 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 Q&A session. I'd now like to turn the floor over to Mr. Colzan. Sir, please proceed when you're ready. Thank you, Jamie.

Thank you, Jamie. Good morning, everyone, and thank you for participating in Packaging Corporation of America's second quarter 2023 earnings release conference call. Again, I'm Mark Colzan, 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 I'll be turning the call over to Tom and Bob who will provide further details. I'll then wrap things up and then we'll be glad to take any questions. Yesterday, we reported second quarter net income of $203 million or $2.24 per share. Excluding special items, second quarter 2023 net income was $209 million or $2.31 per share compared to the second quarter of 2022 net income of $304 million were $3.23 per share. Second quarter net sales were $2 billion in 2023 and $2.2 billion in 2022. Total company EBITDA for the second quarter, excluding the special items, was $418 million in 2023 and $533 million in 2022. Second quarter net income included special items expenses of $0.07 per share for certain costs at the Jackson, Alabama mill for paper to container board conversion-related activities and closure costs related to corrugated products facilities and design centers. Details of special items for both the second quarter of 2023 and 2022 were included in the schedules that accompanied our earnings press release. Excluding special items, the $0.92 per share decrease in second quarter 2023 earnings compared to the second quarter of 2022, was driven primarily by lower volumes in the packaging segment for $0.90 and paper segment $0.07, lower price and mix in the packaging segment of $0.47, and higher depreciation expense $0.09, and higher other converting costs $0.03. These items were partially offset by lower operating costs of $0.34, primarily driven by lower fiber, energy, and chemical costs. We also had higher prices and mix in the paper segment for $0.12, a lower share count resulting from the share repurchase in the second half of 2022 for $0.13, lower scheduled maintenance outage expenses for $0.03, and a lower tax rate for $0.02. The results were 35 cents above the second quarter guidance of $1.96 per share, primarily due to lower operating costs resulting from efficiency and usage initiatives and lower freight and logistics expenses. Looking at our packaging business, EBITDA excluding special items in the second quarter of 2023 of $405 million with sales of $1.8 billion resulted in a margin of 23% versus last year's EBITDA of $525 million and sales of $2.1 billion, or a 25% EBITDA margin. Demand in the packaging segment was about where we expected for the quarter, and Tom will discuss this further in a moment. As they did in the first quarter, our employees remained focused on very efficient and cost effective operations as we balanced our supply according to the demand. Or said another way, we were extremely effective at managing what is in our control. In our mills, this included things like improving our wood yields, producing board closer to nominal basis weights, reducing fiber and chemical usage, and running our pulp mills more efficiently, increasing our internal energy generation while also reducing our energy consumption and executing our planned maintenance outages for less cost than we had estimated. Also at our mills and including our corrugated facilities, we closely monitored headcount and overtime as well as usage of materials and supplies in addition to other discretionary spending items. In addition, our mills and plants, together with our logistics and distribution personnel, worked effectively to minimize the negative impacts from rail rate increases at certain locations and changes in the mix of shipping locations as we ran our system to demand. Finally, as you know, we temporarily curtailed operations at our Wallula, Washington mill once we exited the planned maintenance outage early in the quarter. This was not a reaction to any change in our views on demand, but rather our thoughtful approach to manage container board supply as economically as possible. The mill remains temporarily curtailed, and we will continue to monitor any potential changes to this strategy, along with our outlook for demand during the second half of the year. I'll now turn it over to Tom, who will provide more details on container board sales and the corrugated business.

Thank you, Mark. Total prices and mix in the packaging segment came in where we anticipated, with domestic container board and corrugated products prices and mixed together $0.32 per share below the second quarter of 2022 and also $0.32 per share below the first quarter of 2023. Export container board prices were down $0.15 per share versus last year's second quarter and down $0.07 per share compared to the first quarter of 2023. As Mark indicated, packaging segment volume for the quarter also came in where we expected. Corrugated product shipments were down 9.8% in total and per workday, compared to last year's second quarter. Outside sales volume, a container board was 62,000 tons below last year's second quarter and 33,000 tons above the first quarter of 2023. With last year's box volume tying our shipments per workday second quarter record, we knew this would be a tough comparison period. As we said on last quarter's call, the same variables that have impacted demand the last few quarters would continue into the second quarter. The shift of consumer buying preferences more towards service-oriented spending, persistent inflation, and higher interest rates continue to negatively impact consumers' purchases of both durable and non-durable goods. Inventory destocking, both in boxes and at our customers' products, also continued to varying degrees across our customer bases, and the manufacturing index has remained in contraction territory for eight months in a row now. However, as we talked about last quarter, we expected some improvement relative to the inventory destocking of both customer product and boxes, as well as improvements based on certain customers' feedback regarding their business, and that is what helped the second quarter shipments improve almost 3% compared to the first quarter. We expect continued positive momentum this quarter, although there is one less workday compared to the second quarter. I'll now turn it back to Mark. Thanks, Tom.