Release Date: July 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Packaging Corp of America (PKG, Financial) reported second-quarter net income of $199 million, or $2.21 per share, with net sales of $2.1 billion, up from $2 billion in the same quarter last year.
- The company achieved a new all-time containerboard production record, driven by strong market conditions in the Packaging segment.
- Corrugated products demand strengthened, with shipments per day up 9.2% over last year's second quarter.
- Packaging Corp of America (PKG) is investing in a new state-of-the-art facility in Phoenix, Arizona, to serve a growing market and improve efficiencies.
- Cash provided by operations during the quarter totaled $278 million, with a quarter-end cash balance of approximately $800 million and liquidity of $1.1 billion.
Negative Points
- Second-quarter 2024 net income was lower compared to the second quarter of 2023, with a decrease from $209 million or $2.31 per share to $199 million or $2.21 per share.
- Total company EBITDA for the second quarter decreased from $418 million in 2023 to $404 million in 2024.
- Operating costs were higher by $0.31 per share, driven by inflationary cost increases in recycled fiber, labor, benefits, and other expenses.
- The Paper segment saw a decline in EBITDA from $39 million in the second quarter of 2023 to $31 million in the second quarter of 2024, with a margin decrease from 27.2% to 20.4%.
- Higher depreciation expense and a higher tax rate negatively impacted earnings by $0.03 per share each.
Q & A Highlights
Highlights of Packaging Corp of America's Q2 2024 Earnings Call
Q: What was the biggest factor in terms of costs that you've been trying to manage around, and what's the outlook for the third quarter?
A: (Robert Mundy, CFO) The biggest factor was running the Wallula mill full in the second quarter, which is our highest cost mill. Additionally, energy and OCC costs were higher. For the third quarter, costs should be fairly stable with slight increases in OCC and electricity usage.
Q: Can you talk about bookings and billings early in the quarter and the momentum out of Q2?
A: (Thomas Hassfurther, EVP) Bookings and billings remain robust, with a 12.5% increase in July so far. We had a strong start last quarter and are continuing that momentum into Q3.
Q: How has your mix of business changed, and what do you attribute to PKG's strong growth relative to the industry?
A: (Thomas Hassfurther, EVP) Our growth is primarily in the brown area, with a slight change in mix. Our strategy focuses on aligning with the right customers and markets, which has proven beneficial.
Q: What drove the beat in Q2 earnings relative to your guidance?
A: (Mark Kowlzan, CEO) The primary driver was higher volume, along with operational efficiencies.
Q: Can you provide an update on the Jackson mill's performance and its impact on EBITDA?
A: (Mark Kowlzan, CEO) The Jackson mill is performing well, exceeding its 2,000 ton/day target and running at 1,900-2,000 tons/day. It is delivering as expected on earnings and performance, with potential for future growth.
Q: What is the expected timeline for the new Arizona box plant, and how should we think about CapEx levels going forward?
A: (Mark Kowlzan, CEO) The Arizona plant is expected to start up in late Q1 or early Q2 of next year. CapEx levels will remain high as long as there are opportunities, with updates provided in future calls.
Q: Are you seeing any restocking from your customers?
A: (Thomas Hassfurther, EVP) Customers are keeping conservative inventory levels. The de-stocking process was completed some time ago, and current inventory levels are historically low.
Q: How are you thinking about build versus buy in terms of capital allocation?
A: (Mark Kowlzan, CEO) We evaluate all opportunities, including acquisitions and capital spending, to maximize returns. We remain flexible and opportunistic in our approach.
Q: What is the capacity upgrade for the new Arizona box plant compared to the existing site?
A: (Mark Kowlzan, CEO) The new plant will more than double the capacity of the existing site, addressing the need for local service and reducing reliance on distant plants.
Q: How do you view the competitive landscape and the trend towards pushing price?
A: (Mark Kowlzan, CEO) We focus on our strategy and do not comment on competitors. Our approach is to align with the right customers and markets to drive growth and profitability.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
