Packaging Corporation of America Reports Second Quarter 2024 Results

Rhea-AI Summary

Packaging of America (NYSE: PKG) reported Q2 2024 net income of $199 million, or $2.21 per share. Excluding special items, earnings were $2.20 per share, down $0.11 from Q2 2023. Net sales increased to $2.1 billion from $2.0 billion in Q2 2023. The Packaging segment saw corrugated products shipments up 9.2% per day, with containerboard production at 1,281,000 tons. The Paper segment's sales volume increased by 12% year-over-year. Despite lower prices and higher costs, strong market conditions in Packaging drove results, including a new containerboard production record. Management expects Q3 earnings of $2.45 per share, with continued price increases and strong shipments in both segments.

Positive

• Q2 2024 net sales increased to $2.1 billion from $2.0 billion in Q2 2023
• Corrugated products shipments per day up 9.2% year-over-year
• Containerboard production reached a new all-time record at 1,281,000 tons
• Paper segment sales volume up 12% compared to Q2 2023
• Management expects Q3 2024 earnings of $2.45 per share, higher than Q2

Negative

• Q2 2024 earnings per share of $2.20 (excluding special items) decreased by $0.11 compared to Q2 2023
• Lower prices and mix in both Packaging and Paper segments
• Higher operating costs and depreciation expense
• Higher tax rate impacting earnings

Insights

Financial Analyst

Packaging Corporation of America's (PCA) second-quarter results for 2024 reveal a mixed performance. While net income was $199 million, translating to $2.21 per share, excluding special items it stood at $2.20 per share. This is a slight drop compared to last year's $2.31 per share. However, the company's revenue increased from $2.0 billion in 2023 to $2.1 billion in 2024. The financial health of PCA seems stable with increased volumes in the Packaging segment, but the diluted EPS decline signals higher operating costs and a less favorable price mix.

Investors must note that the higher volume in the Packaging segment, driven by a 10.9% increase in shipments, indicates strong demand. However, the impact of inflationary pressures is evident in higher operating and converting costs. The company's ability to manage these costs and continue to build inventory strategically suggests a well-planned response to market dynamics.

Going forward, PCA's forecasted third-quarter earnings of $2.45 per share signal expected improvement, attributed to higher prices in both Packaging and Paper segments and moves to build inventory ahead of scheduled maintenance. Investors should weigh these projections against potential seasonal cost increases and the impact of one less shipping day.

Market Research Analyst

The second-quarter results for Packaging Corporation of America reflect a solid market position, especially within the Packaging segment. The company achieved a new record in containerboard production and saw significant growth in shipment volumes, a clear indication of strong market demand.

From a market perspective, the 9.2% increase in corrugated products shipments per day is substantial, showcasing PCA's adeptness at meeting demand growth efficiently. This growth is compounded by the strategic inventory build-up, suggesting positive expectations for the market in the second half of 2024.

Despite the favorable volume metrics, the reduced segment income and EBITDA figures compared to last year highlight the pressure from operational costs. Nevertheless, PCA's ability to manage inflationary impacts and still forecast higher future earnings underscores their operational resilience and market strength.

Retail investors should consider the short-term volatility due to seasonal costs but recognize that PCA's proactive strategy in inventory management and price increases positions them well for sustained growth.

Tech Expert

PCA's focus on technological advancements in its operations is apparent. The company's efforts to minimize inflationary cost increases through efficiency and usage initiatives, as well as capital project benefits across mills and converting facilities, are noteworthy.

In particular, the implementation of advanced logistics and production tracking systems can be inferred from their ability to achieve higher shipment volumes and manage inventory effectively. Such technologies are important in maintaining operational efficiency and responding swiftly to market demands.

Looking ahead, the continued investment in technology to enhance production capabilities and reduce costs will be vital for PCA. Investors should monitor PCA's progress in this area, as further technological integration could lead to improved margins and sustained competitive advantage.

LAKE FOREST, Ill.--(BUSINESS WIRE)-- Packaging Corporation of America (NYSE: PKG) today reported second quarter 2024 net income of $199 million, or $2.21 per share, and net income of $199 million, or $2.20 per share, excluding special items. Second quarter net sales were $2.1 billion in 2024 and $2.0 billion in 2023.

Diluted earnings per share attributable to Packaging Corporation of America shareholders
	Three Months Ended
	June 30
	2024				2023				Change
Reported Diluted EPS (1)	$	2.21			$	2.24			$	(0.04)
Special Items Expense (Income) (2)	-				0.07				(0.07)
Diluted EPS excluding Special items (1)	$	2.20			$	2.31			$	(0.11)
(1) Amounts may not foot due to rounding.
(2) For descriptions and amounts of our special items, see the schedule with this release.

Excluding special items, the ($.11) per share decrease in second quarter 2024 earnings compared to the second quarter of 2023 was driven primarily by lower prices and mix in the Packaging segment ($.87) and Paper segment ($.07), higher operating costs ($.31), higher depreciation expense ($.03), and a higher tax rate ($.03). These items were partially offset by higher volume in the Packaging segment $.94 and Paper segment $.07, lower other converting costs $.07, lower freight and logistics expenses $.06, and lower interest expense $.06.

Results were $.13 above second quarter guidance of $2.07 per share primarily due to higher volume in the Packaging segment, lower operating and converting costs, and lower freight costs.

Financial information by segment is summarized below and in the schedules with this release.

	(dollars in millions)
	Three Months Ended
	June 30
		2024				2023
Segment income (loss)
Packaging	$	279.8			$	285.8
Paper		26.7				29.1
Corporate and Other		(30.5	)			(30.5	)
	$	276.0			$	284.4
Segment income (loss) excluding special items
Packaging	$	279.9			$	289.7
Paper		26.1				33.5
Corporate and Other		(30.5	)			(30.5	)
	$	275.5			$	292.7
EBITDA excluding special items
Packaging	$	400.0			$	405.3
Paper		30.6				38.8
Corporate and Other		(26.6	)			(26.6	)
	$	404.0			$	417.5

In the Packaging segment, corrugated products shipments per day were up 9.2% over last year’s second quarter and total shipments, with one additional shipping day, were up 10.9%. Containerboard production was 1,281,000 tons, and containerboard inventory was up 16,000 tons compared to the second quarter of 2023 and up 20,000 tons versus the first quarter of 2024. In the Paper segment, sales volume was up 12% compared to the second quarter of 2023 and down (8%) versus the first quarter of 2024.

Commenting on reported results, Mark W. Kowlzan, Chairman and CEO, said, “results for the quarter reflect our strong market conditions in the Packaging segment. This drove a new all-time containerboard production record in order to service corrugated products and containerboard demand which grew stronger each month, ending with a new corrugated shipments-per-day record for the month of June. We were also able to build some inventory ahead of what we expect to be a busy second half of the year. Packaging segment prices and mix moved higher from first quarter levels as we continue to implement our announced price increases. Paper segment prices and mix as well as volume came in as expected, and the scheduled outage at our International Falls mill was managed very well. Results also reflect our constant focus on minimizing inflationary cost increases through efficiency and usage initiatives and capital project benefits throughout our mills and converting facilities.”

Mr. Kowlzan continued, “Looking ahead as we move from the second and into the third quarter, prices and mix in both our Packaging and Paper segments will move higher as we continue to implement previously announced increases along with higher containerboard export prices. Although there is one less shipping day for the corrugated business we expect shipments-per-day to continue to strengthen, potentially setting a new third quarter record, and higher containerboard volume. With current containerboard inventory below our target levels, we will also attempt to build some inventory ahead of the scheduled maintenance outage at our Deridder mill in October. Paper volume will be slightly lower primarily due to the timing of the back-to-school business received in the second quarter. Operating and converting costs should be higher primarily due to seasonal electricity usage and prices and slightly higher recycled fiber costs, with scheduled outage expenses expected to be slightly lower. Considering these items, we expect third quarter earnings of $2.45 per share.”

We present various non-GAAP financial measures in this press release, including diluted EPS excluding special items, segment income excluding special items and EBITDA excluding special items. We provide information regarding our use of non-GAAP financial measures and reconciliations of historical non-GAAP financial measures presented in this press release to the most comparable measure reported in accordance with GAAP in the schedules to this press release. We present our earnings expectation for the upcoming quarter excluding special items as special items are difficult to predict and quantify and may reflect the effect of future events. We do not currently expect any significant special items during the third quarter; however, additional special items may arise due to third quarter events.

PCA is the third largest producer of containerboard products and a leading producer of uncoated freesheet paper in North America. PCA operates eight mills and 86 corrugated products plants and related facilities.

Some of the statements in this press release are forward-looking statements. Forward-looking statements include statements about our future earnings and financial condition, expected benefits from acquisitions and restructuring activities, our industry and our business strategy. Statements that contain words such as “will”, “should”, “anticipate”, “believe”, “expect”, “intend”, “estimate”, “hope” or similar expressions, are forward-looking statements. These forward-looking statements are based on the current expectations of PCA. Because forward-looking statements involve inherent risks and uncertainties, the plans, actions and actual results of PCA could differ materially. Among the factors that could cause plans, actions and results to differ materially from PCA’s current expectations include the following: the impact of general economic conditions; conditions in the paper and packaging industries, including competition, product demand and product pricing; fluctuations in wood fiber and recycled fiber costs; fluctuations in purchased energy costs; the possibility of unplanned outages or interruptions at our principal facilities; and legislative or regulatory requirements, particularly concerning environmental matters, as well as those identified under Item 1A. Risk Factors in PCA’s Annual Report on Form 10-K for the year ended December 31, 2023, and in subsequent quarterly reports on Form 10-Q, filed with the Securities and Exchange Commission and available at the SEC’s website at “www.sec.gov”.

Conference Call Information:
WHAT:	Packaging Corporation of America’s 2nd Quarter 2024 Earnings Conference Call Conference ID:Packaging Corporation of America
WHEN:	Wednesday, July 24, 2024 at 9:00am Eastern Time
PRE-REGISTRATION:	https://dpregister.com/sreg/10184912/fb348a7e90
CALL-IN NUMBER:	(833) 816-1102 (U.S.); (866) 605-3852 (Canada) or (412) 317-0684 (International) Dial in by 8:45am Eastern Time
WEBCAST INFO:	www.packagingcorp.com
REBROADCAST DATES:	July 24, 2024 through August 7, 2024
REBROADCAST NUMBERS:	(877) 344-7529 (U.S.); (855) 669-9658 (Canada) or (412) 317-0088 (International) Passcode: 7255107

Packaging Corporation of America
Consolidated Earnings Results
Unaudited
(dollars in millions, except per-share data)
			Three Months Ended										Six Months Ended
			June 30,										June 30,
				2024					2023					2024					2023
Net sales			$	2,075.3				$	1,952.1				$	4,054.8				$	3,928.4
Cost of sales				(1,637.6	)				(1,507.4	)	(2	)		(3,246.7	)	(1	)		(3,052.3	)	(2	)
Gross profit				437.7					444.7					808.1					876.1
Selling, general, and administrative expenses				(149.5	)				(145.6	)	(2	)		(301.3	)				(293.9	)	(2	)
Other expense, net				(12.2	)	(1	)		(14.7	)	(2	)		(34.8	)	(1	)		(27.2	)	(2	)
Income from operations				276.0					284.4					472.0					555.0
Non-operating pension income (expense)				1.1					(2.0	)				2.2					(4.0	)
Interest expense, net				(10.4	)				(14.6	)				(19.9	)				(29.9	)
Income before taxes				266.7					267.8					454.3					521.1
Provision for income taxes				(67.8	)				(65.1	)				(108.4	)				(128.3	)
Net income			$	198.9				$	202.7				$	345.9				$	392.8
Earnings per share:
Basic			$	2.22				$	2.25				$	3.86				$	4.37
Diluted			$	2.21				$	2.24				$	3.84				$	4.35
Computation of diluted earnings per share under the two class method:
Net income			$	198.9				$	202.7				$	345.9				$	392.8
Less: Distributed and undistributed income available to participating securities				(1.4	)				(1.9	)				(2.5	)				(3.5	)
Net income attributable to PCA shareholders			$	197.5				$	200.8				$	343.4				$	389.3
Diluted weighted average shares outstanding				89.5					89.5					89.5					89.5
Diluted earnings per share			$	2.21				$	2.24				$	3.84				$	4.35
Supplemental financial information:
Capital spending			$	245.0				$	126.4				$	321.7				$	238.8
Cash, cash equivalents, and marketable debt securities			$	1,172.8				$	629.6				$	1,172.8				$	629.6

(1)	The three and six months ended June 30, 2024 include the following:
	a.	$0.6 million of income and $9.7 million of charges, respectively, related to the announced discontinuation of production of uncoated freesheet paper grades on the No. 3 machine at the Jackson, Alabama mill associated with the permanent conversion of the machine to produce linerboard and other paper-to-containerboard conversion related activities. The costs were recorded in “Cost of sales” and “Other expense, net”, as appropriate.
	b.	$0.1 million of charges consisting of closure costs related to corrugated products facilities. For the six months ended June 30, 2024, these charges were completely offset by $0.1 million of income primarily related to a favorable lease buyout for a closed corrugated products facility during the first quarter of 2024. These items were recorded in "Cost of sales" and "Other expense, net", as appropriate.
(2)	The three and six months ended June 30, 2023 include the following:
	a.	$4.4 million and $5.7 million, respectively, of charges related to the announced discontinuation of production of uncoated freesheet paper grades on the No. 3 machine at the Jackson, Alabama mill associated with the permanent conversion of the machine to produce linerboard and other paper-to-containerboard conversion related activities. The costs were recorded in “Cost of sales” and “Other expense, net”, as appropriate.
	b.	$3.9 million and $13.6 million, respectively, of charges consisting of closure costs related to corrugated products facilities and design centers. These items were recorded in "Cost of sales", "Selling, general, and administrative expenses", and "Other expense, net", as appropriate.

Packaging Corporation of America
Segment Information
Unaudited
(dollars in millions)
		Three Months Ended								Six Months Ended
		June 30,								June 30,
			2024				2023				2024				2023
Segment sales
Packaging		$	1,908.3			$	1,790.3			$	3,706.5			$	3,598.9
Paper			150.1				142.8				313.9				293.7
Corporate and Other			16.9				19.0				34.4				35.8
		$	2,075.3			$	1,952.1			$	4,054.8			$	3,928.4
Segment income (loss)
Packaging		$	279.8			$	285.8			$	483.6			$	553.7
Paper			26.7				29.1				56.4				63.2
Corporate and Other			(30.5	)			(30.5	)			(68.0	)			(61.9	)
Income from operations			276.0				284.4				472.0				555.0
Non-operating pension income (expense)			1.1				(2.0	)			2.2				(4.0	)
Interest expense, net			(10.4	)			(14.6	)			(19.9	)			(29.9	)
Income before taxes		$	266.7			$	267.8			$	454.3			$	521.1
Segment income (loss) excluding special items (1)
Packaging		$	279.9			$	289.7			$	487.5			$	567.0
Paper			26.1				33.5				62.2				69.2
Corporate and Other			(30.5	)			(30.5	)			(68.0	)			(61.9	)
		$	275.5			$	292.7			$	481.7			$	574.3
EBITDA excluding special items (1)
Packaging		$	400.0			$	405.3			$	726.2			$	796.8
Paper			30.6				38.8				71.2				79.9
Corporate and Other			(26.6	)			(26.6	)			(60.2	)			(54.3	)
		$	404.0			$	417.5			$	737.2			$	822.4

(1)	Segment income (loss) excluding special items, earnings before non-operating pension income (expense), interest, income taxes, and depreciation, amortization, and depletion (EBITDA), and EBITDA excluding special items are non-GAAP financial measures. Management excludes special items as it believes these items are not necessarily reflective of the ongoing results of operations of our business. We present these measures because they provide a means to evaluate the performance of our segments and our company on an ongoing basis using the same measures that are used by our management, because these measures assist in providing a meaningful comparison between periods presented and because these measures are frequently used by investors and other interested parties in the evaluation of companies and the performance of their segments. The tables included in "Reconciliation of Non-GAAP Financial Measures" on the following pages reconcile the non-GAAP measures with the most directly comparable GAAP measures. Any analysis of non-GAAP financial measures should be done only in conjunction with results presented in accordance with GAAP. The non-GAAP measures are not intended to be substitutes for GAAP financial measures and should not be used as such.

Packaging Corporation of America
Reconciliation of Non-GAAP Financial Measures
Unaudited
(dollars in millions)
	Three Months Ended								Six Months Ended
	June 30,								June 30,
		2024				2023				2024				2023
Packaging
Segment income	$	279.8			$	285.8			$	483.6			$	553.7
Facilities closure and other costs		0.1				3.9				-				13.6
Jackson mill conversion-related activities		-				-				3.9				(0.3	)
Segment income excluding special items (1)	$	279.9			$	289.7			$	487.5			$	567.0
Paper
Segment income	$	26.7			$	29.1			$	56.4			$	63.2
Jackson mill conversion-related activities		(0.6	)			4.4				5.8				6.0
Segment income excluding special items (1)	$	26.1			$	33.5			$	62.2			$	69.2
Corporate and Other
Segment loss	$	(30.5	)		$	(30.5	)		$	(68.0	)		$	(61.9	)
Segment loss excluding special items (1)	$	(30.5	)		$	(30.5	)		$	(68.0	)		$	(61.9	)
Income from operations	$	276.0			$	284.4			$	472.0			$	555.0
Income from operations, excluding special items (1)	$	275.5			$	292.7			$	481.7			$	574.3
(1) See footnote (1) on page 2, for a discussion of non-GAAP financial measures.

Packaging Corporation of America
Reconciliation of Non-GAAP Financial Measures
Unaudited
(dollars in millions)
Net Income and EPS Excluding Special Items (1)
			Three Months Ended June 30,
			2024																2023
			Income before taxes				Income Taxes				Net Income				Diluted EPS				Income before taxes			Income Taxes				Net Income			Diluted EPS
As reported			$	266.7			$	(67.8	)		$	198.9			$	2.21			$	267.8		$	(65.1	)		$	202.7		$	2.24
Special items (2):
	Jackson mill conversion-related activities			(0.6	)			0.2				(0.4	)			-				4.4			(1.1	)			3.3			0.04
	Facilities closure and other costs			0.1				-				0.1				-				3.9			(1.0	)			2.9			0.03
Total special items				(0.5	)			0.2				(0.3	)			-				8.3			(2.1	)			6.2			0.07
Excluding special items			$	266.2			$	(67.6	)		$	198.6			$	2.20 (3	)		$	276.1		$	(67.2	)		$	208.9		$	2.31
			Six Months Ended June 30,
			2024																2023
			Income before taxes				Income Taxes				Net Income				Diluted EPS				Income before taxes			Income Taxes				Net Income			Diluted EPS
As reported			$	454.3			$	(108.4	)		$	345.9			$	3.84			$	521.1		$	(128.3	)		$	392.8		$	4.35
Special items (2):
	Jackson mill conversion-related activities			9.7				(2.4	)			7.3				0.08				5.7			(1.4	)			4.3			0.05
	Facilities closure and other costs			-				-				-				-				13.6			(3.4	)			10.2			0.11
Total special items				9.7				(2.4	)			7.3				0.08				19.3			(4.8	)			14.5			0.16
Excluding special items			$	464.0			$	(110.8	)		$	353.2			$	3.92			$	540.4		$	(133.1	)		$	407.3		$	4.51

(1)		Net income and earnings per share excluding special items are non-GAAP financial measures. Management excludes special items as it believes these items are not necessarily reflective of the ongoing results of operations of our business. We present these measures because they provide a means to evaluate the performance of our company on an ongoing basis using the same measures that are used by our management, because these measures assist in providing a meaningful comparison between periods presented and because these measures are frequently used by investors and other interested parties in the evaluation of companies and their performance. Any analysis of non-GAAP financial measures should be done only in conjunction with results presented in accordance with GAAP. The non-GAAP measures are not intended to be substitutes for GAAP financial measures and should not be used as such.
(2)		Pre-tax special items are tax-effected at a combined federal and state income tax rate in effect for the period the special items were recorded and this rate is adjusted for each subsequent quarter to be consistent with the estimated annual effective tax rate, in accordance with ASC 270, Interim Reporting, and ASC 740-270, Income Taxes – Intra Period Tax Allocation. For all periods presented, income taxes on pre-tax special items represent the current amount of tax. For more information related to these items, see the footnotes to the Consolidated Earnings Results on page 1.
(3)		Amount may not foot due to rounding.

Packaging Corporation of America
Reconciliation of Non-GAAP Financial Measures
Unaudited
(dollars in millions)
EBITDA and EBITDA Excluding Special Items (1)
EBITDA represents income before non-operating pension (income) expense, interest, income taxes, and depreciation, amortization, and depletion. The following table reconciles net income to EBITDA and EBITDA excluding special items:
	Three Months Ended							Six Months Ended
	June 30,							June 30,
		2024				2023			2024				2023
Net income	$	198.9			$	202.7		$	345.9			$	392.8
Non-operating pension (income) expense		(1.1	)			2.0			(2.2	)			4.0
Interest expense, net		10.4				14.6			19.9				29.9
Provision for income taxes		67.8				65.1			108.4				128.3
Depreciation, amortization, and depletion		128.5				127.9			256.9				257.5
EBITDA (1)	$	404.5			$	412.3		$	728.9			$	812.5
Special items:
Jackson mill conversion-related activities		(0.6	)			2.0			8.3				1.7
Facilities closure and other costs		0.1				3.2			-				8.2
EBITDA excluding special items (1)	$	404.0			$	417.5		$	737.2			$	822.4
(1) See footnote (1) on page 2, for a discussion of non-GAAP financial measures.

Packaging Corporation of America
Reconciliation of Non-GAAP Financial Measures
Unaudited
(dollars in millions)
The following table reconciles segment income (loss) to EBITDA excluding special items:
	Three Months Ended								Six Months Ended
	June 30,								June 30,
		2024				2023				2024				2023
Packaging
Segment income	$	279.8			$	285.8			$	483.6			$	553.7
Depreciation, amortization, and depletion		120.1				116.3				238.6				235.2
EBITDA (1)		399.9				402.1				722.2				788.9
Facilities closure and other costs		0.1				3.2				-				8.2
Jackson mill conversion-related activities		-				-				4.0				(0.3	)
EBITDA excluding special items (1)	$	400.0			$	405.3			$	726.2			$	796.8
Paper
Segment income	$	26.7			$	29.1			$	56.4			$	63.2
Depreciation, amortization, and depletion		4.5				7.7				10.5				14.7
EBITDA (1)		31.2				36.8				66.9				77.9
Jackson mill conversion-related activities		(0.6	)			2.0				4.3				2.0
EBITDA excluding special items (1)	$	30.6			$	38.8			$	71.2			$	79.9
Corporate and Other
Segment loss	$	(30.5	)		$	(30.5	)		$	(68.0	)		$	(61.9	)
Depreciation, amortization, and depletion		3.9				3.9				7.8				7.6
EBITDA (1)		(26.6	)			(26.6	)			(60.2	)			(54.3	)
EBITDA excluding special items (1)	$	(26.6	)		$	(26.6	)		$	(60.2	)		$	(54.3	)
EBITDA excluding special items (1)	$	404.0			$	417.5			$	737.2			$	822.4
(1) See footnote (1) on page 2, for a discussion of non-GAAP financial measures.

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20240723941292/en/

Barbara Sessions

Packaging Corporation of America

INVESTOR RELATIONS: (877) 454-2509

PCA’s Website: www.packagingcorp.com

Source: Packaging Corporation of America

FAQ

What was Packaging of America's (PKG) net income for Q2 2024?

Packaging of America reported a net income of $199 million, or $2.21 per share, for Q2 2024.

How did PKG's Q2 2024 earnings compare to Q2 2023?

PKG's Q2 2024 earnings of $2.20 per share (excluding special items) decreased by $0.11 compared to Q2 2023.

What was the growth in corrugated products shipments for PKG in Q2 2024?

Corrugated products shipments per day were up 9.2% in Q2 2024 compared to Q2 2023.

What is PKG's earnings guidance for Q3 2024?

PKG expects third quarter 2024 earnings of $2.45 per share.

How did PKG's Paper segment perform in Q2 2024?

PKG's Paper segment sales volume increased by 12% in Q2 2024 compared to Q2 2023.