Packaging Corporation of America

Thank you for joining Packaging Corporation of America's fourth quarter and full year 2023 earnings results conference call. Your host today will be Mark Colzan, Chairman and Chief Executive Officer of PCA. Upon conclusion of his narrative, there will be a question and answer session. I'd now like to turn the floor over to Mr. Colzan. Please proceed when you are ready.

Thank you, Jamie. Good morning, everyone, and thank you all for participating in Packaging Corporation of America's fourth quarter and full year 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. As usual, I'll begin the call with an overview of the fourth quarter and full year results, and then I'll be turning the call over to Tom and Bob who'll provide further details. After they're done, I'll wrap things up, and then we'll be glad to take questions. Yesterday we reported fourth quarter 2023 net income of $189 million, or $2.10 per share. Excluding special items, fourth quarter 2023 net income was $192 million, or $2.13 per share compared to the fourth quarter of 2022's net income of $215 million or $2.35 per share. Fourth quarter net sales were $1.94 billion in 2023 and $1.98 billion in 2022. Total company EBITDA for the fourth quarter excluding special items was $394 million in 2023 and $409 million in 2022. Excluding the special items, we also reported full-year 2023 earnings of $784 million or $8.70 per share compared to the 2022 earnings of $1.04 billion or $11.14 per share. Net sales were $7.8 billion in 2023 and $8.5 billion in 2022. Excluding special items, total company EBITDA in 2023 was $1.6 billion compared to the $1.9 billion in 2022. Fourth quarter and full year 2023 net income included special items primarily for certain costs at our Jackson, Alabama mill for the paper to container board conversion related activities and the closure and other costs related to corrugated products facilities and design center. Details of all special items for the year 2023 and 2022 were included in the schedules that accompanied our earnings press release. Excluding the special items, the 22 cents per share decrease in fourth quarter 2023 earnings compared to the fourth quarter of 2022 was driven primarily by lower prices in mix of $1.93 in the packaging segment, lower prices in mix, 4 cents, and volume, 3 cents in the paper segment, and higher depreciation expense, 10 cents. These items were partially offset by very good volume in the packaging segment of $1.07 per share. We also had lower operating and converting costs of 51 cents driven by very good process efficiencies and control over other usages of fiber, chemicals, energy, materials, and labor, as well as lower energy and wood fiber prices. In addition, we have lower scheduled maintenance outage expenses of 19 cents, lower freight and logistics expenses, 3 cents, lower other expenses, 4 cents, and a lower share count resulting from share repurchases, 4 cents. The results were 37 cents above the fourth quarter guidance of $1.76 per share, primarily due to higher volumes in our packaging segment, lower operating and converting costs, lower freight and logistics expenses. Looking at the packaging business, EBITDA excluding special items in the fourth quarter of 2023 of $385 million with sales of $1.8 billion resulted in a margin of 21.7% versus last year's EBITDA of $392 million and sales of $1.8 billion and also a 21.7% margin. For the full year 2023, packaging segment EBITDA excluding special items was $1.6 billion with sales of $7.1 billion or a 21.8% margin compared to the full year 2022 EBITDA of $1.8 billion with sales of $7.8 billion or a 23.8% margin. Throughout the quarter, demand in the packaging segment was stronger than our expectations. This higher volume, along with the operational benefits of our capital spending program and continued emphasis on cost management and process efficiencies across the entire manufacturing and converting facility system drove operating and converting costs lower as well. We had an excellent restart of the Wallula Washington mill and the number three machine during the latter part of October and ran exceptionally well during the November and December period. And that helped us meet the stronger demand and build some needed inventory during the quarter to ensure that our customers are supplied with their needs. We plan to restart the number two machine at the Wallula Mill in this first quarter to help manage our expectations in the first half of 2024 for continued strong demand together with scheduled mill maintenance outages and the final phase of the container board conversion of the number three machine at our Jackson, Alabama mill. I'll now turn it over to Tom who will provide more details on container board sales and the corrugated business.

Thank you, Mark. As Mark mentioned, packaging segment volume for the quarter exceeded our guidance estimates. Corrugated product shipments per workday were up 5.1%, and total shipments with one additional shipping day were up 6.9% compared to last year's fourth quarter. Versus the third quarter of 2023, shipments per day were up 5.2%, and total shipments were up 3.4%, even though there was one less shipping day. Outside sales volume of Container Board was 88,000 tons above last year's fourth quarter and 17,000 tons above the third quarter of 2023. Our order backlog and Container Board cut-up remain incredibly strong throughout the quarter. Although demand continues to be challenged by persistent inflation, higher interest rates, and other factors, we expect our shipments to continue this positive momentum as we enter the first half of 2024. Relative to the published reductions in the industry benchmark grades that occurred in 2023, domestic container board and corrugated products prices and mixed together were $1.73 per share below the fourth quarter of 2022 and down 40 cents per share compared to the third quarter of 2023, which included a richer mix of graphics and point of purchase display business. Export container board prices and mix were down 20 cents per share compared to the fourth quarter of 2022, and down a penny per share compared to the third quarter of 2023. Beginning January 1, 2024, we began invoicing a $70 per ton price increase for liner board and a $100 per ton increase for medium, according to our recent price announcement. As you are probably aware, this past Friday, the RISI Pulp and Paper Week publication did not recognize any increase in the industry's benchmark prices for either liner board or medium. I'm sure you will have some questions for us on this topic and we'll be happy to discuss them with you shortly. I'll turn it back to Mark.