Packaging Corporation of America

Good morning, everyone, and thank you for joining Packaging Corporation of America's first quarter 2024 Earnings Results Conference call. Your host today will be Mark Colzan, Chairman, Chief Executive Officer of PCA. Upon conclusion of his narrative, there will be a question and answer session. Please also note today's event is being recorded. At this time, I'd like to turn the floor over to Mr. Colzan. Please proceed when you're ready.

Thank you, Jamie. Good morning, everyone, and thank you for participating in Packaging Corporation of America's first quarter 2024 earnings release conference call. Again, I'm Mark Holzen, Chairman and CEO of Packaging Corporation of America, and with me on the call today is Tom Hasfurther, 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 first quarter results, and then I'll be turning it over to Tom and Bob who will provide further details. And then I'll wrap things up and we'd be glad to take questions. Yesterday, we reported first quarter net income of $147 million or $1.63 per share. Excluding special items, first quarter 2024 net income was $155 million or $1.72 per share compared to the first quarter of 2023's net income Of $198 million, or $2.20 per share, first quarter net sales were $2 billion in 2024 and 2023. Total company EBITDA for the first quarter, excluding special items, was $333 million in 2024 and $405 million in 2023. First quarter net income included special items expenses of $0.09 per share primarily for certain costs at our Jackson, Alabama mill for the paper to container board conversion related activities. Details of special items for both the first quarter of 2024 and 2023 were included in the schedules that accompanied our earnings press release. Excluding the special items, the $0.48 per share decrease in first quarter 2024 earnings compared to the first quarter of 2023, was driven primarily by lower prices and mix in the packaging segment for $1.33 and paper segment $0.08, higher scheduled mill outage expense $0.10, higher depreciation $0.03, higher expenses related to corrugated plant capital projects of $0.02, and other expenses $0.04. These items were partially offset by higher volumes in the packaging segment for 71 cents and paper segment 6 cents. We also had lower operating and converting costs of 15 cents driven by very good process efficiencies and control over other usages of fiber, chemicals, energy, materials, and labor. Although energy prices were lower versus last year's first quarter, they were more than offset by higher recycled fiber prices. In addition, we had lower freight and logistics expenses for four cents, lower interest expense, seven cents, and lower tax rate, nine cents. The results were 18 cents above the first quarter guidance of $1.54 per share, primarily due to the strong volume in both the packaging and paper segments, along with the continued emphasis on cost management and process efficiencies across our manufacturing and converting facilities. This drove operating and converting costs lower, even with the persistent inflation we continue to experience across most of the cost structure. Executing the conversion outage at our Jackson-Alabama mill better than planned resulted in lower scheduled mill maintenance outages expenses and freight and logistics expenses were less than guidance as well. Looking at the packaging business, EBITDA excluding special items in the first quarter of 2024 of 326 million with sales of 1.8 billion resulted in a margin of 18.1% versus last year's EBITDA of $392 million or sales of 1.8 billion or 21.7% margin. Throughout the quarter, container board and corrugated products demand exceeded our expectations. In addition to outstanding operational performance at our box plants and container board mills, we were able to service the high demand from excellent execution of the conversion outage at our Jackson mill. This enabled us to restart both machines earlier than anticipated, and we completed our work prior to the quarter end rather than in the month of April, which had been the original plan. Despite these efforts, with the higher demand, we ended the quarter at a record low weeks of inventory supply for this time of year. With just our Filer Michigan mill having a scheduled maintenance outage in the second quarter, we do expect to build our inventories back to targeted levels by the end of this quarter. I'll now turn it over to Tom, who will provide further details on container board sales and the corrugated business in general.

Thanks, Mark. As Mark mentioned, packaging segment volume for the quarter exceeded our guidance estimates. Corrugated product shipments per workday were up 11%, and total shipments with one less shipping day were up 9.2% compared to last year's first quarter. Compared to the pre-COVID period of the first quarter of 2019, shipments were up over 10.4% on a per-day basis. Outside sales volume of container board was 40,000 tons above last year's first quarter, and 15,000 tons below the fourth quarter of 2023. Our order backlog remained incredibly strong throughout the quarter, and although demand continues to be challenged by constant inflation, higher interest rates, and other factors, we expect to continue this positive momentum as we enter the second quarter. Domestic container board and corrugated products prices and mixed together move slightly higher from the fourth quarter of 2023 levels by one cent per share, which was less than we anticipated due to our total announced increase not being recognized in the published benchmark prices. Versus the first quarter of 2023, prices and mix were down $1.19 per share. Export container board prices and mix were down a penny per share compared to the fourth quarter of 2023 and down 14 cents per share compared to the first quarter of 2023. I'd like to point out that the capital spending and optimization strategy within our box plant system that we have been continuously focused on over the last few years is providing incredible benefits. This has allowed us to focus on the mix of customers we want to profitably grow our revenues with by providing them the product and service needs they desire and allows them to grow. Based on our current demand outlook for this year, this strategy has us on pace to set a new record for box shipments per plant. I'll now turn it back to Mark. Thanks, Tom.