Packaging Corporation of America

Good morning, everyone, and thank you for joining Packaging Corporation of America's third quarter 2023 earnings results conference call. Your host today will be Mark Kalzan, Chairman and Chief Executive Officer of PCA. Upon conclusion of his narrative, there will be a question and answer session. Please note that this call is being recorded. At this time, I'd like to turn that floor over to Mr. Kalzan. Please proceed when you are ready.

Thank you, Jamie. Good morning, and thank you all for participating in Packaging Corporation of America's third quarter 2023 earnings release conference call. I'm Mark Holzan, 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 Munday, our Chief Financial Officer. As usual, I'll begin the call with an overview of the third quarter results, and then I'll turn the call over to Tom and Bob, who will provide further details. and then I'll wrap things up and then we'd be glad to take questions. Yesterday we reported third quarter net income of $183 million or $2.03 per share. Excluding special items, third quarter 2023 net income was $185 million or $2.05 per share compared to the third quarter of 2022's net income of $266 million or $2.83 per share. Third quarter net sales were $1.9 billion in 2023 and $2.1 billion in 2022. Total company EBITDA for the third quarter, excluding special items, was $388 million in 2023 and $477 million in 2022. Third 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 all special items for the third quarter of 2023 as well as 2022 were included in the schedules that accompanied earnings press release. Excluding the special items, the 78 cents per share decrease in third quarter 2023 earnings compared to the third quarter of 2022, was driven primarily by lower price and mix of $1.33 and volume $0.09 in the packaging segments, higher depreciation expense $0.11, lower volume in the paper segment $0.04, higher tax $0.02, and other expenses $0.02. These items were partially offset by lower operating costs of $0.58, primarily resulting from lower recycled fiber and energy prices, along with outstanding mill and plant operational execution. Other favorable items included a lower share count resulting from share repurchases in the second half of 2022 for 11 cents, higher prices and mix in the paper segment at 4 cents, lower converting costs, 4 cents, lower scheduled maintenance outage expenses of 4 cents, and lower freight and logistics expenses, 2 cents. The results were 17 cents above our third quarter guidance of $1.88 per share primarily due to higher volume in the packaging and paper segments and lower operating and converting costs. Looking at our packaging segment, EBITDA excluding special items in the third quarter of 2023 of $374 million with sales of 1.8 billion resulted in a margin of 21.3% versus last year's EBITDA of $467 million with sales of $1.9 billion and a 24.1 percent margin. The operational benefits of our capital spending program and the continued great focus and execution of our mills and corrugated products facilities on numerous process improvement initiatives once again delivered impressive results. This included areas such as machine and equipment efficiencies, fiber, chemical and material usages, internal energy generation and usage, and labor costs. Our approach to cost-effective management of container board supply with demand also delivered the benefits we were anticipating. This was primarily achieved by idling the Wallula mill for the entire quarter, which resulted in a market-related downtime of approximately 174,000 tons. However, with the stronger demand in our packaging segment, we ended the quarter with inventory levels lower than anticipated. Based on our current outlook for improved demand, together with current plans for the first quarter of 2024 for the scheduled mill maintenance outages and completing the final phase of the container board conversion on the number three machine at our Jackson, Alabama mill, we are planning to restart the number three machine at the Wallula, Washington mill during the fourth quarter, in order to bring our inventories to desired levels. I'll now turn it over to Tom, who will provide further details on container board sales and the corrugated business.

Thank you, Mark. Packaging segment volume for the quarter exceeded our guidance estimates. Corrugated product shipments per workday were up 1.9 percent, and total shipments with two less shipping days were down 1.3 percent compared to last year's third quarter. Versus the second quarter of 2023, Shipments per day were up 3.9% and total shipments were up 2.3% even though there was one less shipping day. Outside sales volume of container board was 33,000 tons above last year's third quarter and 5,000 tons above the second quarter of 2023. Demand headwinds from a shift of consumer buying preferences towards more service-oriented spending, persistent inflation, and higher interest rates continue to negatively impact consumers' purchases of both durable and non-durable goods. However, we mentioned last quarter that many customers were telling us the inventory destocking of boxes and their products was behind them, and we were hopeful that that would translate to improving volume throughout the second half of the year. We saw that occurring during the third quarter, and we expect that momentum to continue into the fourth quarter, although there is one less shipping day compared to the third quarter. Relative to the published reductions in the industry benchmark grades that occurred late last year and earlier this year, domestic container board and corrugated products prices and mixed together were $1.12 per share below the third quarter of 2022 and down 45 cents per share compared to the second quarter of 2023. Export container board prices and mix were down 21 cents per share compared to the third quarter of 2022 and and down 3 cents per share compared to the second quarter of 2023. And I'll turn it back to Mark. Thank you, Tom.