NYSE:PKG Packaging Co. of America Q1 2023 Earnings Report $189.15 +4.46 (+2.41%) As of 03:59 PM Eastern Earnings HistoryForecast Packaging Co. of America EPS ResultsActual EPS$2.20Consensus EPS $2.27Beat/MissMissed by -$0.07One Year Ago EPS$2.72Packaging Co. of America Revenue ResultsActual Revenue$1.98 billionExpected Revenue$2.08 billionBeat/MissMissed by -$104.22 millionYoY Revenue Growth-7.50%Packaging Co. of America Announcement DetailsQuarterQ1 2023Date4/25/2023TimeAfter Market ClosesConference Call DateTuesday, April 25, 2023Conference Call Time9:00AM ETConference Call ResourcesConference Call AudioConference Call TranscriptPress Release (8-K)Quarterly Report (10-Q)Earnings HistoryCompany ProfilePowered by Packaging Co. of America Q1 2023 Earnings Call TranscriptProvided by QuartrApril 25, 2023 ShareLink copied to clipboard.There are 8 speakers on the call. Operator00:00:00Thank you for joining Packaging Corporation of America's First Quarter 2023 Earnings Results Conference Call. Your host today will be Mark Colzan, Chairman and Chief Executive Officer of PCA. Upon conclusion of this 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 conference call over to Mr. Operator00:00:24Kowlzan. Please proceed when you are ready. Speaker 100:00:27Thank you, Jamie. Good morning, and thank you for participating in Packaging Corporation of America's Q1 2023 earnings release conference call. Again, I'm Mark Kowlzan, 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 our Q1 results. Speaker 100:00:53Then I'll turn the call 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 1st quarter net income of $190,000,000 or $2.11 per share. Excluding special items, Q1 2023 net income was $198,000,000 or $2.20 per share compared to the Q1 of 2022 net income of $256,000,000 or $2.72 per share. 1st quarter net sales were $2,000,000,000 in 2023 and $2,100,000,000 in 2022. Speaker 100:01:39Total company EBITDA for the Q1 excluding special items Was $405,000,000 in 2023 $467,000,000 in 2022. 1st quarter net income included special items expenses of $0.09 per share, primarily for the closure costs related to corrugated products facilities and design centers. Details items for both the Q1 of 2023 and 2022 were included in the schedules that accompanied our earnings press release. Excluding the special items, the $0.52 per share decrease in Q1 2023 earnings compared to the Q1 of 2022 was driven primarily by lower volumes in our Packaging segment for 0 point 95 and Packaged and Paper segment $0.04 Although recycled fiber costs were lower than last year, overall operating costs We're $0.27 higher, primarily due to inflation on chemicals, labor and benefits, supplies, repair materials and services. Energy costs, although trending down, were also higher versus the Q1 of 2022. Speaker 100:03:01In addition, we had higher depreciation expense of $0.11 freight and logistics expenses, dollars 0.04 non operating pension expenses, dollars 0.04 and higher converting costs $0.02 These items were partially offset by higher prices and mix in the Packaging segment for $0.58 and Paper segment $0.18 a lower share count resulting from share repurchases we made in the Q2 of 2022 for $0.11 lower interest expense, dollars 0.03 lower other expenses for $0.03 lower scheduled maintenance outage expenses for $0.01 and lower tax rate 0.01 dollars The results were $0.03 below the Q1 guidance of $2.23 per share, primarily due to the lower volume and lower prices and mix in the Packaging segment. Looking at our Packaging segment, EBITDA excluding special items in the Q1 2023 of $392,000,000 with sales of $1,810,000,000 resulted in a margin of 21 point 7% versus last year's EBITDA of $464,000,000 and sales of 1,960,000,000 or 23.6 percent margin. Demand in the Packaging segment was well below our expectations for the quarter. Tom will discuss this further in a moment. The mills and corrugated products plants responded to the lower demand by remaining highly focused on efficient and cost effective operations as we balanced our supply accordingly. Speaker 100:04:46Our employees continue to deliver on numerous cost reduction initiatives, efficiency improvements, integration and optimization enhancements and Capital Project Benefits to not only minimize the negative demand impacts on the short term, but also to remain in position to capitalize on our longer term strategic goals. The accomplishments were achieved while building less inventory than we had planned and staying committed to ending the quarter at our targeted weeks of supply inventory. I'll now turn it over Tom will provide further details on containerboard sales and the corrugated business. Speaker 200:05:25Thanks, Mark. Domestic containerboard and corrugated products prices and mix were $0.64 per share above the Q1 of 2022 and we're down $0.50 per share compared to the Q4 of 2022. Export containerboard prices were down dollars 0.06 per share versus last year's Q1 and down $0.04 per share compared to the Q4 of 2022. Corrugated product shipments were down 12.7% in total and per workday compared to last year's Q1. Outside sales volume of containerboard was 69,000 tons below last year's Q1 and 33,000 tons above the Q4 of 20 22. Speaker 200:06:10With the Q1 of 2022 setting a shipments per workday record as well as being our all time record for total shipments, We knew this would be a tough comparison period. However, that being said, the lower demand in our Packaging segment that Mark spoke of was driven by several items, the combined impact of which resulted in our volumes being much lower than we anticipated. As we mentioned on last quarter's earnings call, was difficult to predict the demand curve given the numerous variables with varying degrees of impact. As noted in our earnings release yesterday, the shift of purchases of both durable and non durable goods. In addition, there is a varying degree of inventory destocking across our customer bases both in boxes and our customers' products. Speaker 200:07:07The inventory destocking situation has been a longer term issue than we originally anticipated. The manufacturing index has remained in contraction territory for several months now. And as you know, we have a large presence in the ag business in the Pacific Northwest and also down in Florida where both of these regions have been dealing with significant weather events. As we look to the Q2, we expect the inventory destocking of both customer product and boxes to be near completion. We expect to see recovery in our Ag business and we have received some positive feedback from our customers regarding improvements in their business. Speaker 200:07:43Our April volume as we see it today supports that position. I'd also like to point out that the capital spending and optimization strategy within our box plant That we have been focused on over the last few years continues to remain one of our top priorities. The current demand trends will not cause us to lose our focus in this area. The investments from this strategy provide the products and service needs that our customers desire and allows them to grow while focusing on the mix of customers we want to profitably grow our revenues with. I'll now turn it back to Mark. Speaker 100:08:19Thanks, Tom. Looking at our Paper segment, EBITDA excluding special items in the Q1 Was $41,000,000 with sales of $151,000,000 or a 27.2% margin Compared to the Q1 of 2022, EBITDA of $29,000,000 and sales of $153,000,000 or an and about 3% above for the Q4 of 2022. Sales volume was about 17% below last year's Q1, which included some of the inventory that had been sold from our Jackson, Alabama mill and just over 4.5% below the Q4 of 2022. The efforts of our employees to optimize the cost structure, inventory and product mix in our paper business helped minimize the inflationary cost increases compared to last year and deliver solid returns for the quarter. I'll now turn it over to Bob. Speaker 300:09:28Thanks, Mark. For the Q1, we generated cash from operations of $280,000,000 and free cash flow of 168,000,000 Key cash payments during the quarter included capital expenditures of $112,000,000 and common stock dividends of 112,000,000 We ended the quarter with $520,000,000 of cash on hand including marketable securities. I want to update you on a revision to the scheduled mill maintenance outage guidance we provided on last quarter's call. Current plans and the scope of work for the scheduled maintenance for the year of $0.75 per share versus the $0.67 per share we mentioned previously. The actual impact in the Q1 was $0.13 per share and the revised estimate impact by quarter for the remainder of the year It's now $0.18 per share in the 2nd quarter, dollars 0.24 in the 3rd and $0.20 per share in the 4th quarter. Speaker 300:10:38I'll now turn it back over to Mark. Speaker 100:10:41Thanks, Bob. Looking ahead, as we move from the first and into the second quarter, Although there is one less shipping day for the corrugated business, we expect improved volume in our Packaging segment. However, Prices will be lower as a result of the previously published domestic containerboard price decreases along with lower export prices. Sales volume as well as prices and mix in the Paper segment are assumed to be slightly lower based on lower demand. Although we do look for most operating costs to trend lower, our converting costs, scheduled maintenance outage expense And depreciation expense will be higher. Speaker 100:11:20Primarily due to recent increases in contract rail rates at most of our mills, we expect higher freight and logistics expenses compared to the Q1. Considering these items, we expect 2nd quarter earnings of $1.96 per share. With that, we'd be happy to entertain any questions, but I must remind you that some of the statements we've made on the call constituted Forward looking statements. The statements were based on current estimates, expectations and projections of the company and involve inherent risks and uncertainties, including the direction of the economy and those identified as risk factors in the annual report on Form 10 ks on file with the SEC. The actual results could differ materially from those And with that, Jamie, I'd like to open the call up for questions, please. Operator00:12:25With those instructions in mind, Our first question today comes from George Staphos from Bank of America Securities. Please go ahead with your question. Speaker 400:12:40Kowlzan. Mark, question for you. Normally, 2Q Is up sequentially from 1Q. And when we look back historically over time, the only time that we saw down 2Q, If we're correct, was the COVID second quarter, even if we went back to the Great Recession in 2008 and 2009, you had up 2Qs versus 1Q. As you sit here today and if you're in our seat, what is the bigger biggest driver of The drop off 2Q versus 1Q, is it the timing effect on the pricing and just how that's flowing through? Speaker 400:13:19Or is it the demand Effect the continued demand effect being worse than expected. If you could give us some qualitative comments on that, that would be helpful. And then a couple of follow ons. Speaker 100:13:28Yes, George, let me start that out. I think again, if you look at the November, December February price decreases and how they've rolled in, I think in the past 20 plus years, we've only had 1 or 2 incidences of this kind of timing of Price decreases, but Bob can give you some real detailed color on how that's impacting, but that's pretty much what's happening. Speaker 300:13:53Yes. No, you're right, Mark. And the magnitude, that $70 George, the timing of that, As you look at going from 1Q to 2Q, it's just that's unprecedented in the company's history. And we mentioned on last Quarter's call that the vast majority of those price declines would show up in the Q2 and that's exactly what's happening. So it's sort of an unprecedented Drop in price just based on the timing of the published decreases, is really what's driving that and that's pretty much the answer. Speaker 400:14:28Understood and I appreciate the color there. Could you give us a sense for how much demand might have been off relative to your prior expectations Kolzan. And what the bookings and billings look like early in 2Q? Speaker 500:14:43Yes. Tom, why Speaker 100:14:44don't you go ahead and Yes. Speaker 200:14:47Yes, George. Let me give you a little color on that. If you recall on our call last quarter, we were starting out January, pretty decent in the bookings. And as the quarter rolled on, I mean, it just got a little bit weaker each month. So that was disappointing. Speaker 200:15:06And of course, what I told you back then was, it was impossible to predict What was happening in the destocking and what was really happening in terms of consumer demand. And if you Look, all those indicators, whether it was consumer demand or the manufacturing index, the purchasing managers index, They all really kind of got more negative as the months went on and correlated exactly with kind of what the volume situation was. The good news is that there's been a big turnaround starting in April. And so We've got a good look 13 days into the month and our bookings right now just over March alone are up 11% And they're up 10% over the Q1. Still down 6% compared to April of 2022, but April of 2022 was our all time, all time record. Speaker 200:16:05So just to calibrate everybody, the volume continued to increase significantly Because of COVID all the way through April and then finally started to turn the other way. So we still got that really tough comp Coming in the month of April. But given the fact that we're double digits ahead of where we are in March is a huge improvement And it's across all of the sectors. Now we've still got some laggards in there, if you talk home improvement or you talk home building Or some of these other areas, but the other big plus for us is that we suffered badly in that Q1 in that ag business as we Kowlzan:] I alluded to, down in Florida from the hurricanes, in Northern California from the significant rain and Flooding that they had and of course in the Pacific Northwest because of the cold weather and That's coming back as well. So I think that we've got some I think we're towards the end of that big problem Relative to the volume situation. Speaker 400:17:14Thank you, Tom. Last quick one, I'll turn it over. Just from an operation standpoint, can you talk a little bit about the facility closures, kind of what they're allowing or optimizing for PCA. And given the shift in recycled costs versus virgin costs, this Question comes up periodically on your calls. How are you flexing your system relative to lower cost recycled and lower cost recycled board, Recognizing your customers ultimately dictate what kind of box they want, that ultimately dictates the Board. Speaker 400:17:43I'll let it go there. Thanks for everything. Speaker 200:17:45Okay. Thanks, George. Yes. Relative to the plant and the design center closure that we announced in the Q1, That is typical of the evaluation that we do of our footprint at all times And it's part of our capital planning process. So these are not knee jerk reactions To let you say a volume demand change or anything like that, these are all part of our capital planning process where we're trying to optimize our system. Speaker 200:18:18Of course, we've made acquisitions over the years and other things like that. So we do have some Duplicity in some of the markets that we want to fix. And so it's Speaker 300:18:31been a Speaker 200:18:31continuous process that we've been doing this. Relative to the recycled versus virgin, what PCA has been and I've said this before, what we have been focused on for years now In our mill system is to be able to match the just the right amount of fiber to the performance that's necessary in the marketplace. And some of those proprietary products and some of the things that we've done in our mill system has served us incredibly well in the marketplace and is Ultimately, even more competitive than recycled in most of those in virtually all of those markets. So I'm very, very pleased With what we've been able to do in the mill system, it's been an outstanding performance by all of our people. And we've talked about our engineering expertise. Speaker 200:19:21We've talked about our paper tech expertise and that's provided us. And of course, the flexibility we have in these mills And we will flex back and forth obviously with OCC to the degree we can, when the price is, of a nature that that makes the most sense. Speaker 400:19:40Thanks, Speaker 600:19:41Tom. Operator00:19:46Our next question comes from Mark Weintraub from Seaport Research Partners. Please go ahead with your question. Speaker 600:19:53Thank you. Good to hear that demand Looking better in April, but I did want to follow-up a little bit on George's question and I realize it's a bit of an overlap. But in the Q3 and the 4th Kowlzan. Your year over year box shipments were a bit below the industry and we don't have the industry data yet. We'll get that I guess on Friday, but Certainly, the 12.7% was surprised us to the downside and you guys as well. Speaker 600:20:20As if you look back over the last 6 months or so. Any thoughts as to why you might have been showing reduced market share Recognizing that over time, you've actually outgrown the industry very substantially and very profitably. And whether it's this ag business Or what were you coming up with in terms of to what might have been going on with your book of business? Speaker 100:20:47Yes. Mark, just remember back in 2008 into that 2009 period, we saw A more rapid downturn in volume than our competitors. And then when we started seeing the improvement in Spring, we came back stronger and faster than our competitors. And I believe most of that has to do with the Predominantly local book specialized local accounts, smaller local account business that we have. These accounts are much more tuned into what's happening with their own business. Speaker 100:21:25They can move very quickly. They're very nimble. But I'm going to let Tom elaborate on that because again it's not as simple as it seems. Speaker 200:21:35Yes, Mark. I think that the one of the things that I think is really important is number 1 is we haven't lost any volume. So we're not losing any market share. That's not Kowlzan. But if you think about the thing that we've talked about many times and we take great pride in It's the broad base of business that we have and the broad base of sectors that we deal across. Speaker 200:21:57Now In this particular during COVID, we had some of those sectors were up as much as 200%. And once COVID ended, of course, those are going to be down significantly. So it just depends on the sector. And that's why we've had to sort through this volume situation a little longer than what we would have hoped. But You do have a lot of these some of these various sectors are down significantly. Speaker 200:22:32Some of them have stayed level. Some of them are up slightly. But for the most part, that's the biggest factor. The other thing that we did during COVID is We had to run a lot of business that we could not get supplied from the outside, which we traditionally would have done. And We now have that business placed back on the outside again. Speaker 200:22:55So even though we keep the revenue and we keep the income, It's a drag on our volume and that's just kind of funny math, if you will, based on the way it has to be reported to the FDA, That's another factor that's affecting us. Does that help? Speaker 600:23:15It does. Just two quick follow ups. One is you mentioned Not lost volume. Were you basically saying you haven't lost customers? Obviously, your volumes are down. Speaker 200:23:25Well, yes, we haven't lost any Kohlzan. In terms of what you would call market share in terms of customers or things like that. Obviously, our volume is down, but it's We haven't lost any share within those accounts or anything like that. It's just that some of that broad based business, some of those sectors are down significantly. And as I mentioned, we've never had a period where we got hit with ag getting hit like it did in the regions where we have big footprints all at the Speaker 500:23:53same time. Got it. And then, Speaker 200:23:53just to All at the same time. Speaker 600:23:57Got it. And then, just to Operator00:23:58maybe a little bit of Speaker 600:23:59clarification, why would you given that Demand has been weak and you certainly have the capability to have fulfilled needs, which maybe were being fulfilled from the outside and now apparently you're fulfilling from the guess I'm kind of a little puzzled why you would given you've got plenty of capability, I would think, to meet it internally or maybe I don't understand exactly what you're saying. Speaker 200:24:22Well, the reason is because we have to produce that at a much higher cost than we can get done on the outside. And so it doesn't make sense for us to do that. But in order to take care of our customers, we opted to do it at a much higher cost point. So that's why we're doing it. And of course, we want to maintain the run our plants as efficiently as we possibly can. Speaker 200:24:46So it just from a cost standpoint makes the most sense. Speaker 600:24:50Okay. I'll take it back. Thanks so much. Speaker 100:24:53Thank you. Next question. Operator00:24:56Our next question comes from Phil Knight from Jefferies. Please go ahead with your question. Speaker 500:25:02Good morning, Mark, Bob, Tom, this is John on for Phil. I appreciate all the details. Thank you, guys. And I want to first start off asking, how much economic downtime you guys took in 1Q given the last couple of quarters you've called that out and it's been a bit outsized. Is that something you can quantify? Speaker 500:25:20And maybe how can we think about trends for that in 2Q with some of the demand starting to normalize? Speaker 300:25:29Yes, Bob? Yes, it was about 110,000 tons in the Q1. Speaker 500:25:38Okay. And any insights on how to think about 2Q? Speaker 100:25:43No. We'll just As we always done, we're just going to run to demand and do what we've got to do to satisfy our customer base. If you go back and look at the Q1, When we were in the January period of time, anticipating that volume was starting to settle down and improve. We anticipated going through our winter spring annual shutdowns that would have a greater need. So our Plan was to build a little more inventory. Speaker 100:26:10As a matter of fact, I think the number was about 30,000 tons more inventory through the Q1 that we ended the year last year. But in fact, as we saw the deteriorating volume, especially in February March, We certainly didn't need that extra volume, so we trimmed back and scaled back operations and only ended up 6,000 tons At the end of 1Q as opposed to where we thought would be. So again, we'll just continue running to demand. Speaker 500:26:43Okay. That's helpful. And then I just want to pivot over to the cost side. You guys have done a very good job taking out costs in the system. But in terms of The guidance, just a couple of questions. Speaker 500:26:55First, I want to get a better understanding of what's driving the higher converting costs. Is that maybe more on the labor side? And then on the rail rate increases, Is that something that you can maybe give us a little bit better understanding of the structure of those contracts, like how long REITs will kind of be in place when they get renegotiated, how much maybe it was weighing on 1Q and going into 2Q, just to give us some better tools to forecast the models out. Speaker 300:27:31Yes, John, it's Bob. As far as on The rail rate increases, most of that is some of it occurred during the Q1 and then we have some that just started at the beginning of the second. It's a large impact as you move from 1Q to 2Q because you'll have all of those pretty much higher as we start the 2nd quarter. So that's what's driving the freight cost up higher. I'm sorry, your first question was? Speaker 500:28:02Well, I guess just to stay on that for a second, are those contracted rates for the next year, next couple of years? Speaker 300:28:09Yes, typically, yes, typically. Typically, that's probably a good way to think about it. Speaker 500:28:14Okay. And the first question was around the converting costs and what's higher converting costs in Speaker 100:28:20the quarter. Speaker 300:28:21Yes. Really labor benefits obviously with just that's just that's part of it. The other is really at starch. Starch prices have just skyrocketed and That is something that we had another big increase this year. And as we Expect to our volume to start improving in the box plants and so forth and you're using more of those types of things and so that's what's driving labor and Some of your material costs that are also included in that converting number. Speaker 500:28:59Is this starts starting to Turnover or it's still Speaker 300:29:04No, no it's not. Speaker 400:29:05Okay. Speaker 300:29:06No. Speaker 500:29:06All right. I appreciate the insight. Thank you all. Speaker 100:29:09Thank you. Next question? Operator00:29:17Our next question comes from Anthony Pettinari from Citi. Please go ahead with your question. Speaker 700:29:24Good morning. Good morning. Kraftliner prices have been stable for a couple of months now. And understanding you don't much more in the open market and I'm not asking about forward pricing, but I'm just wondering if you had any thoughts about kind of where containerboard markets kind of feel like They are right now. I mean, you've seen a number of cycles, maybe some of these capacity projects have started up and maybe are being sort of absorbed. Speaker 700:29:50I just wanted to get your sense of containerboard markets versus maybe where we were a few months ago. Speaker 200:29:58Anthony, this is Tom. I'll take this one. Yes, prices have stabilized. There's no question about it. In fact, I can make an argument that there hasn't been there really hasn't been a whole lot of activity Relative to price in the past and I'm not a predictor of price going forward, but I can just tell you that I think the outlook is more positive. Speaker 200:30:24Of course, you've seen the industry really adjust dramatically to demand. And as I've said many times, I mean, the open market is a small open market today. So Those that have excess capacity are either taking the downtime or they're looking to export markets to Try to figure out how to sell into those markets, which are also under some duress. But I think that the market in general Is different than the past given the small open market that we have today. And I think that leads towards much more stability. Speaker 700:31:12Got it, Got it. That's helpful. And then just I wonder if you could talk a little bit given the balance sheet flexibility that you have about capital allocation And from a capital return perspective, I mean, you're paying an attractive dividend. I don't know if you can talk about maybe opportunities for repurchases. And then in terms of investing in the business, you're coming off maybe a big CapEx cycle where you were doing a lot of internal projects. Speaker 700:31:39Just wondering if you could Talk about where you're seeing the opportunities in capital allocation and capital return this year. Speaker 100:31:49Nothing's changed. As we've talked about for the last year, our plans were to bring capital down this year, and we're in that $400,000,000 range. And I would anticipate that working through into next year also. We've done most of the big Projects that we could foresee in the mills and we're just going to continue with the box plant optimization. As far as utilization of cash in terms of other opportunities Dividends, share repurchases, acquisitions, we'll remain flexible on any and all opportunities in that regard as we go forward. Speaker 100:32:25As we've done for many, many years now, we've got that flexibility to take advantage of all of these opportunities as they present themselves. And that's how we look at it day to day. Speaker 700:32:39Okay. That's helpful. I'll turn it over. Speaker 100:32:41Thanks. Next question. Operator00:32:43Our next question is a follow-up from George Staphos from Bank of America Securities. Please go ahead with your follow-up. Speaker 400:32:50Hi. Thank you so much. Actually, Anthony took my next question. So I will turn it over to the next Operator00:33:08Our next question is also a follow-up from Mark Weintraub from Seaport Research Partners. Please go ahead with your follow-up. Speaker 600:33:15Thank you. So I was thinking a little bit about how I believe your volumes ended up being up down about twice what you had or Anticipated back in January, I think you'd been talking about flat average day and so it would have been like 6% or 7% down and you ended Down 12.7 percent. Is it fair to therefore, if you talked about the negative impact Year over year on volumes being about $0.95 So if I just took half of that, had you was that the incremental Negative impact from the additional demand weakness that you experienced, so that had in fact the volumes come through as you In theory, you might have been closer to $2.70 particularly if we add the fact that you had the pricing down by $20 in February, which would have had some small impact. And then if that is the case, and I realize that maybe that math doesn't work, but if that was the case, That's a huge difference from sort of the 2.23 and presumably that relates to all the operating Adjustments that you had made and sort of just trying to get a sense to whether that's something you can hang on to or those were Measures taken because of what was going on in the business and maybe a little bit less certain types of spend that you could defer. Speaker 600:34:42So sort of just trying to get a sense of that underlying earnings power in a future type of environment. Speaker 300:34:53Yes. Mark, this is Bob. There's a lot going on there. If you're saying with our volumes were higher, we're Closer to what we had anticipated, you're looking at that $0.95 being something a lot larger? Speaker 600:35:08Well, I believe you had stated during the January call that you were looking for average daily box shipments to be flat In sequentially, which would have suggested about down 6.5% rather than the down 12.7%. Speaker 300:35:26Right. Speaker 600:35:27So basically I'm saying, well, does that mean that instead of being a $0.95 negative hit, it would have been about half of that, like a 47% negative. Yes. Speaker 300:35:36No. That volume is it's not just box shipments, right? It's There's export volume, there's trade, there's domestic outside volume. So that would not be a good way To look at it, however, directionally, yes, it would be a higher number, but you would also have a lot better Cost within your system because your mills would be running more full. Your box plants would be running More full. Speaker 300:36:10So your converting costs, your direct variable costs, all those types of things, your unabsorbed Costs would not be as high, would more than offset any additional decline that you would see in that price variance, if that makes sense, because of higher volumes. Speaker 600:36:29It does, but sort of comes back to the point that you're only $0.03 off what your guidance had Speaker 300:36:35Yes. And if you want to look at it sort of simply, the published price dropped $20 a ton after we gave our guidance. And if you sort of do the math on that and as we said before, when that price the published price Drops, pretty much hits our outside containerboard immediately. There's no delay. So If you sort of do the math, there's about $0.03 just from that price decline that occurred after we gave our guidance. Speaker 600:37:10Right. And so what I'm trying to get to is, if we get this sort of rebound in demand And I mean what it would seem that our the bounce back in earnings Could be very dramatic relative to sort of that 2.23% type of run rate you had suggested in a down 6.5%. Speaker 100:37:37Absolutely, Mark. Absolutely. That's what we would anticipate. Speaker 600:37:43Okay. I apologize for the fairly convoluted questioning here, but thank you. Operator00:37:52And our next question is also a follow-up from Phil Nye from Jefferies. Please go ahead with your question. Speaker 500:37:59Hey guys, this is John again. Kowlzan. I just wanted to quickly shift over to the paper segment. Demand was a bit lower than We had expected, just kind of looking to get some insights on how the paper segment volumes are trending. It looks like Maybe this next quarter where we should see another down double digit type of volume year over year. Speaker 500:38:25Just kind of what's And maybe what are the main factors impacting demand on the paper side? Speaker 100:38:32Again, as we spoke last year that we Our paper business now had become just the International Falls Mill up in Minnesota and that mill is capable of A little over 500,000 tons a year, and that's pretty much what we're selling to. We're down slightly off of that peak capability. But what that allows us to do really is just run and optimize the market and where we choose to sell and Where we want to sell to maximize profit. So we really have the luxury of being the 4th largest player. We don't have to do anything. Speaker 100:39:11I'd say we're in a real sweet spot right now down just a few 1,000 tons off of where we were last year. Speaker 500:39:20Okay. Thanks. Appreciate it. Speaker 100:39:22Thank you. Any other questions, please? Operator00:39:27And our final question comes from George Staphos, once again a follow-up from Bank of America Securities. Please go ahead with your follow-up. Speaker 100:39:39George? Speaker 400:39:40Hey, sorry, had technical issue here. Thanks guys. So I just want to reaffirm the guidance on the Paper segment is for pricing and volume to be down slightly sequentially. Was that the comment Mark and Tom and Bob? Thanks very much and good luck in the quarter. Speaker 300:39:56Yes. Yes, George. That's correct. Speaker 400:39:59Excellent. Thanks guys. Good luck in the quarter. Speaker 100:40:01Thank you, John. Thank you. Any other questions, please? Operator00:40:06Mr. Colzan, I see no more questions at this time. Do you have any closing comments? Speaker 100:40:12Thank you, everybody, for joining us on the call today and appreciate your time and we look forward to talking with you in July and covering the 2nd quarter earnings results. Have a nice day. Thank you. Operator00:40:25And ladies and gentlemen, with that, we'll conclude today's call is a presentation. We do thank you for joining. You may now disconnect your lines.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallPackaging Co. of America Q1 202300:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsPress Release(8-K)Quarterly report(10-Q) Packaging Co. of America Earnings HeadlinesPackaging Co. of America (NYSE:PKG) Shares Gap Down After Analyst DowngradeApril 24 at 1:31 AM | americanbankingnews.comPackaging Corporation of America (PKG) Reports Strong Q1 2025 EarningsApril 23 at 3:19 PM | gurufocus.comM.A.G.A. is Finished – This Could be even BetterYou’ve no doubt heard Trump’s rally cry: Make America Great Again. But recently the President made a big change. Make America Wealthy Again (M.A.W.A).April 24, 2025 | Paradigm Press (Ad)Packaging Corporation of America (PKG) Q1 2025 Earnings Call TranscriptApril 23 at 3:09 PM | seekingalpha.comAnalysts Set Packaging Co. of America (NYSE:PKG) Price Target at $237.80April 23 at 1:47 AM | americanbankingnews.comPackaging Corporation of America: Guidance Points To Significant Weakness AheadApril 22 at 9:38 PM | seekingalpha.comSee More Packaging Co. of America Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Packaging Co. of America? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Packaging Co. of America and other key companies, straight to your email. Email Address About Packaging Co. of AmericaPackaging Co. of America (NYSE:PKG) engages in the production of container products. It operates through the following segments: Packaging, Paper, and Corporate and Other. The Packaging segment offers a variety of corrugated packaging products, such as conventional shipping containers. The Paper segment manufactures and sells a range of papers, including communication-based papers, and pressure sensitive papers. The Corporate and Other segment focuses on transportation assets, such as rail cars, and trucks. 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There are 8 speakers on the call. Operator00:00:00Thank you for joining Packaging Corporation of America's First Quarter 2023 Earnings Results Conference Call. Your host today will be Mark Colzan, Chairman and Chief Executive Officer of PCA. Upon conclusion of this 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 conference call over to Mr. Operator00:00:24Kowlzan. Please proceed when you are ready. Speaker 100:00:27Thank you, Jamie. Good morning, and thank you for participating in Packaging Corporation of America's Q1 2023 earnings release conference call. Again, I'm Mark Kowlzan, 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 our Q1 results. Speaker 100:00:53Then I'll turn the call 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 1st quarter net income of $190,000,000 or $2.11 per share. Excluding special items, Q1 2023 net income was $198,000,000 or $2.20 per share compared to the Q1 of 2022 net income of $256,000,000 or $2.72 per share. 1st quarter net sales were $2,000,000,000 in 2023 and $2,100,000,000 in 2022. Speaker 100:01:39Total company EBITDA for the Q1 excluding special items Was $405,000,000 in 2023 $467,000,000 in 2022. 1st quarter net income included special items expenses of $0.09 per share, primarily for the closure costs related to corrugated products facilities and design centers. Details items for both the Q1 of 2023 and 2022 were included in the schedules that accompanied our earnings press release. Excluding the special items, the $0.52 per share decrease in Q1 2023 earnings compared to the Q1 of 2022 was driven primarily by lower volumes in our Packaging segment for 0 point 95 and Packaged and Paper segment $0.04 Although recycled fiber costs were lower than last year, overall operating costs We're $0.27 higher, primarily due to inflation on chemicals, labor and benefits, supplies, repair materials and services. Energy costs, although trending down, were also higher versus the Q1 of 2022. Speaker 100:03:01In addition, we had higher depreciation expense of $0.11 freight and logistics expenses, dollars 0.04 non operating pension expenses, dollars 0.04 and higher converting costs $0.02 These items were partially offset by higher prices and mix in the Packaging segment for $0.58 and Paper segment $0.18 a lower share count resulting from share repurchases we made in the Q2 of 2022 for $0.11 lower interest expense, dollars 0.03 lower other expenses for $0.03 lower scheduled maintenance outage expenses for $0.01 and lower tax rate 0.01 dollars The results were $0.03 below the Q1 guidance of $2.23 per share, primarily due to the lower volume and lower prices and mix in the Packaging segment. Looking at our Packaging segment, EBITDA excluding special items in the Q1 2023 of $392,000,000 with sales of $1,810,000,000 resulted in a margin of 21 point 7% versus last year's EBITDA of $464,000,000 and sales of 1,960,000,000 or 23.6 percent margin. Demand in the Packaging segment was well below our expectations for the quarter. Tom will discuss this further in a moment. The mills and corrugated products plants responded to the lower demand by remaining highly focused on efficient and cost effective operations as we balanced our supply accordingly. Speaker 100:04:46Our employees continue to deliver on numerous cost reduction initiatives, efficiency improvements, integration and optimization enhancements and Capital Project Benefits to not only minimize the negative demand impacts on the short term, but also to remain in position to capitalize on our longer term strategic goals. The accomplishments were achieved while building less inventory than we had planned and staying committed to ending the quarter at our targeted weeks of supply inventory. I'll now turn it over Tom will provide further details on containerboard sales and the corrugated business. Speaker 200:05:25Thanks, Mark. Domestic containerboard and corrugated products prices and mix were $0.64 per share above the Q1 of 2022 and we're down $0.50 per share compared to the Q4 of 2022. Export containerboard prices were down dollars 0.06 per share versus last year's Q1 and down $0.04 per share compared to the Q4 of 2022. Corrugated product shipments were down 12.7% in total and per workday compared to last year's Q1. Outside sales volume of containerboard was 69,000 tons below last year's Q1 and 33,000 tons above the Q4 of 20 22. Speaker 200:06:10With the Q1 of 2022 setting a shipments per workday record as well as being our all time record for total shipments, We knew this would be a tough comparison period. However, that being said, the lower demand in our Packaging segment that Mark spoke of was driven by several items, the combined impact of which resulted in our volumes being much lower than we anticipated. As we mentioned on last quarter's earnings call, was difficult to predict the demand curve given the numerous variables with varying degrees of impact. As noted in our earnings release yesterday, the shift of purchases of both durable and non durable goods. In addition, there is a varying degree of inventory destocking across our customer bases both in boxes and our customers' products. Speaker 200:07:07The inventory destocking situation has been a longer term issue than we originally anticipated. The manufacturing index has remained in contraction territory for several months now. And as you know, we have a large presence in the ag business in the Pacific Northwest and also down in Florida where both of these regions have been dealing with significant weather events. As we look to the Q2, we expect the inventory destocking of both customer product and boxes to be near completion. We expect to see recovery in our Ag business and we have received some positive feedback from our customers regarding improvements in their business. Speaker 200:07:43Our April volume as we see it today supports that position. I'd also like to point out that the capital spending and optimization strategy within our box plant That we have been focused on over the last few years continues to remain one of our top priorities. The current demand trends will not cause us to lose our focus in this area. The investments from this strategy provide the products and service needs that our customers desire and allows them to grow while focusing on the mix of customers we want to profitably grow our revenues with. I'll now turn it back to Mark. Speaker 100:08:19Thanks, Tom. Looking at our Paper segment, EBITDA excluding special items in the Q1 Was $41,000,000 with sales of $151,000,000 or a 27.2% margin Compared to the Q1 of 2022, EBITDA of $29,000,000 and sales of $153,000,000 or an and about 3% above for the Q4 of 2022. Sales volume was about 17% below last year's Q1, which included some of the inventory that had been sold from our Jackson, Alabama mill and just over 4.5% below the Q4 of 2022. The efforts of our employees to optimize the cost structure, inventory and product mix in our paper business helped minimize the inflationary cost increases compared to last year and deliver solid returns for the quarter. I'll now turn it over to Bob. Speaker 300:09:28Thanks, Mark. For the Q1, we generated cash from operations of $280,000,000 and free cash flow of 168,000,000 Key cash payments during the quarter included capital expenditures of $112,000,000 and common stock dividends of 112,000,000 We ended the quarter with $520,000,000 of cash on hand including marketable securities. I want to update you on a revision to the scheduled mill maintenance outage guidance we provided on last quarter's call. Current plans and the scope of work for the scheduled maintenance for the year of $0.75 per share versus the $0.67 per share we mentioned previously. The actual impact in the Q1 was $0.13 per share and the revised estimate impact by quarter for the remainder of the year It's now $0.18 per share in the 2nd quarter, dollars 0.24 in the 3rd and $0.20 per share in the 4th quarter. Speaker 300:10:38I'll now turn it back over to Mark. Speaker 100:10:41Thanks, Bob. Looking ahead, as we move from the first and into the second quarter, Although there is one less shipping day for the corrugated business, we expect improved volume in our Packaging segment. However, Prices will be lower as a result of the previously published domestic containerboard price decreases along with lower export prices. Sales volume as well as prices and mix in the Paper segment are assumed to be slightly lower based on lower demand. Although we do look for most operating costs to trend lower, our converting costs, scheduled maintenance outage expense And depreciation expense will be higher. Speaker 100:11:20Primarily due to recent increases in contract rail rates at most of our mills, we expect higher freight and logistics expenses compared to the Q1. Considering these items, we expect 2nd quarter earnings of $1.96 per share. With that, we'd be happy to entertain any questions, but I must remind you that some of the statements we've made on the call constituted Forward looking statements. The statements were based on current estimates, expectations and projections of the company and involve inherent risks and uncertainties, including the direction of the economy and those identified as risk factors in the annual report on Form 10 ks on file with the SEC. The actual results could differ materially from those And with that, Jamie, I'd like to open the call up for questions, please. Operator00:12:25With those instructions in mind, Our first question today comes from George Staphos from Bank of America Securities. Please go ahead with your question. Speaker 400:12:40Kowlzan. Mark, question for you. Normally, 2Q Is up sequentially from 1Q. And when we look back historically over time, the only time that we saw down 2Q, If we're correct, was the COVID second quarter, even if we went back to the Great Recession in 2008 and 2009, you had up 2Qs versus 1Q. As you sit here today and if you're in our seat, what is the bigger biggest driver of The drop off 2Q versus 1Q, is it the timing effect on the pricing and just how that's flowing through? Speaker 400:13:19Or is it the demand Effect the continued demand effect being worse than expected. If you could give us some qualitative comments on that, that would be helpful. And then a couple of follow ons. Speaker 100:13:28Yes, George, let me start that out. I think again, if you look at the November, December February price decreases and how they've rolled in, I think in the past 20 plus years, we've only had 1 or 2 incidences of this kind of timing of Price decreases, but Bob can give you some real detailed color on how that's impacting, but that's pretty much what's happening. Speaker 300:13:53Yes. No, you're right, Mark. And the magnitude, that $70 George, the timing of that, As you look at going from 1Q to 2Q, it's just that's unprecedented in the company's history. And we mentioned on last Quarter's call that the vast majority of those price declines would show up in the Q2 and that's exactly what's happening. So it's sort of an unprecedented Drop in price just based on the timing of the published decreases, is really what's driving that and that's pretty much the answer. Speaker 400:14:28Understood and I appreciate the color there. Could you give us a sense for how much demand might have been off relative to your prior expectations Kolzan. And what the bookings and billings look like early in 2Q? Speaker 500:14:43Yes. Tom, why Speaker 100:14:44don't you go ahead and Yes. Speaker 200:14:47Yes, George. Let me give you a little color on that. If you recall on our call last quarter, we were starting out January, pretty decent in the bookings. And as the quarter rolled on, I mean, it just got a little bit weaker each month. So that was disappointing. Speaker 200:15:06And of course, what I told you back then was, it was impossible to predict What was happening in the destocking and what was really happening in terms of consumer demand. And if you Look, all those indicators, whether it was consumer demand or the manufacturing index, the purchasing managers index, They all really kind of got more negative as the months went on and correlated exactly with kind of what the volume situation was. The good news is that there's been a big turnaround starting in April. And so We've got a good look 13 days into the month and our bookings right now just over March alone are up 11% And they're up 10% over the Q1. Still down 6% compared to April of 2022, but April of 2022 was our all time, all time record. Speaker 200:16:05So just to calibrate everybody, the volume continued to increase significantly Because of COVID all the way through April and then finally started to turn the other way. So we still got that really tough comp Coming in the month of April. But given the fact that we're double digits ahead of where we are in March is a huge improvement And it's across all of the sectors. Now we've still got some laggards in there, if you talk home improvement or you talk home building Or some of these other areas, but the other big plus for us is that we suffered badly in that Q1 in that ag business as we Kowlzan:] I alluded to, down in Florida from the hurricanes, in Northern California from the significant rain and Flooding that they had and of course in the Pacific Northwest because of the cold weather and That's coming back as well. So I think that we've got some I think we're towards the end of that big problem Relative to the volume situation. Speaker 400:17:14Thank you, Tom. Last quick one, I'll turn it over. Just from an operation standpoint, can you talk a little bit about the facility closures, kind of what they're allowing or optimizing for PCA. And given the shift in recycled costs versus virgin costs, this Question comes up periodically on your calls. How are you flexing your system relative to lower cost recycled and lower cost recycled board, Recognizing your customers ultimately dictate what kind of box they want, that ultimately dictates the Board. Speaker 400:17:43I'll let it go there. Thanks for everything. Speaker 200:17:45Okay. Thanks, George. Yes. Relative to the plant and the design center closure that we announced in the Q1, That is typical of the evaluation that we do of our footprint at all times And it's part of our capital planning process. So these are not knee jerk reactions To let you say a volume demand change or anything like that, these are all part of our capital planning process where we're trying to optimize our system. Speaker 200:18:18Of course, we've made acquisitions over the years and other things like that. So we do have some Duplicity in some of the markets that we want to fix. And so it's Speaker 300:18:31been a Speaker 200:18:31continuous process that we've been doing this. Relative to the recycled versus virgin, what PCA has been and I've said this before, what we have been focused on for years now In our mill system is to be able to match the just the right amount of fiber to the performance that's necessary in the marketplace. And some of those proprietary products and some of the things that we've done in our mill system has served us incredibly well in the marketplace and is Ultimately, even more competitive than recycled in most of those in virtually all of those markets. So I'm very, very pleased With what we've been able to do in the mill system, it's been an outstanding performance by all of our people. And we've talked about our engineering expertise. Speaker 200:19:21We've talked about our paper tech expertise and that's provided us. And of course, the flexibility we have in these mills And we will flex back and forth obviously with OCC to the degree we can, when the price is, of a nature that that makes the most sense. Speaker 400:19:40Thanks, Speaker 600:19:41Tom. Operator00:19:46Our next question comes from Mark Weintraub from Seaport Research Partners. Please go ahead with your question. Speaker 600:19:53Thank you. Good to hear that demand Looking better in April, but I did want to follow-up a little bit on George's question and I realize it's a bit of an overlap. But in the Q3 and the 4th Kowlzan. Your year over year box shipments were a bit below the industry and we don't have the industry data yet. We'll get that I guess on Friday, but Certainly, the 12.7% was surprised us to the downside and you guys as well. Speaker 600:20:20As if you look back over the last 6 months or so. Any thoughts as to why you might have been showing reduced market share Recognizing that over time, you've actually outgrown the industry very substantially and very profitably. And whether it's this ag business Or what were you coming up with in terms of to what might have been going on with your book of business? Speaker 100:20:47Yes. Mark, just remember back in 2008 into that 2009 period, we saw A more rapid downturn in volume than our competitors. And then when we started seeing the improvement in Spring, we came back stronger and faster than our competitors. And I believe most of that has to do with the Predominantly local book specialized local accounts, smaller local account business that we have. These accounts are much more tuned into what's happening with their own business. Speaker 100:21:25They can move very quickly. They're very nimble. But I'm going to let Tom elaborate on that because again it's not as simple as it seems. Speaker 200:21:35Yes, Mark. I think that the one of the things that I think is really important is number 1 is we haven't lost any volume. So we're not losing any market share. That's not Kowlzan. But if you think about the thing that we've talked about many times and we take great pride in It's the broad base of business that we have and the broad base of sectors that we deal across. Speaker 200:21:57Now In this particular during COVID, we had some of those sectors were up as much as 200%. And once COVID ended, of course, those are going to be down significantly. So it just depends on the sector. And that's why we've had to sort through this volume situation a little longer than what we would have hoped. But You do have a lot of these some of these various sectors are down significantly. Speaker 200:22:32Some of them have stayed level. Some of them are up slightly. But for the most part, that's the biggest factor. The other thing that we did during COVID is We had to run a lot of business that we could not get supplied from the outside, which we traditionally would have done. And We now have that business placed back on the outside again. Speaker 200:22:55So even though we keep the revenue and we keep the income, It's a drag on our volume and that's just kind of funny math, if you will, based on the way it has to be reported to the FDA, That's another factor that's affecting us. Does that help? Speaker 600:23:15It does. Just two quick follow ups. One is you mentioned Not lost volume. Were you basically saying you haven't lost customers? Obviously, your volumes are down. Speaker 200:23:25Well, yes, we haven't lost any Kohlzan. In terms of what you would call market share in terms of customers or things like that. Obviously, our volume is down, but it's We haven't lost any share within those accounts or anything like that. It's just that some of that broad based business, some of those sectors are down significantly. And as I mentioned, we've never had a period where we got hit with ag getting hit like it did in the regions where we have big footprints all at the Speaker 500:23:53same time. Got it. And then, Speaker 200:23:53just to All at the same time. Speaker 600:23:57Got it. And then, just to Operator00:23:58maybe a little bit of Speaker 600:23:59clarification, why would you given that Demand has been weak and you certainly have the capability to have fulfilled needs, which maybe were being fulfilled from the outside and now apparently you're fulfilling from the guess I'm kind of a little puzzled why you would given you've got plenty of capability, I would think, to meet it internally or maybe I don't understand exactly what you're saying. Speaker 200:24:22Well, the reason is because we have to produce that at a much higher cost than we can get done on the outside. And so it doesn't make sense for us to do that. But in order to take care of our customers, we opted to do it at a much higher cost point. So that's why we're doing it. And of course, we want to maintain the run our plants as efficiently as we possibly can. Speaker 200:24:46So it just from a cost standpoint makes the most sense. Speaker 600:24:50Okay. I'll take it back. Thanks so much. Speaker 100:24:53Thank you. Next question. Operator00:24:56Our next question comes from Phil Knight from Jefferies. Please go ahead with your question. Speaker 500:25:02Good morning, Mark, Bob, Tom, this is John on for Phil. I appreciate all the details. Thank you, guys. And I want to first start off asking, how much economic downtime you guys took in 1Q given the last couple of quarters you've called that out and it's been a bit outsized. Is that something you can quantify? Speaker 500:25:20And maybe how can we think about trends for that in 2Q with some of the demand starting to normalize? Speaker 300:25:29Yes, Bob? Yes, it was about 110,000 tons in the Q1. Speaker 500:25:38Okay. And any insights on how to think about 2Q? Speaker 100:25:43No. We'll just As we always done, we're just going to run to demand and do what we've got to do to satisfy our customer base. If you go back and look at the Q1, When we were in the January period of time, anticipating that volume was starting to settle down and improve. We anticipated going through our winter spring annual shutdowns that would have a greater need. So our Plan was to build a little more inventory. Speaker 100:26:10As a matter of fact, I think the number was about 30,000 tons more inventory through the Q1 that we ended the year last year. But in fact, as we saw the deteriorating volume, especially in February March, We certainly didn't need that extra volume, so we trimmed back and scaled back operations and only ended up 6,000 tons At the end of 1Q as opposed to where we thought would be. So again, we'll just continue running to demand. Speaker 500:26:43Okay. That's helpful. And then I just want to pivot over to the cost side. You guys have done a very good job taking out costs in the system. But in terms of The guidance, just a couple of questions. Speaker 500:26:55First, I want to get a better understanding of what's driving the higher converting costs. Is that maybe more on the labor side? And then on the rail rate increases, Is that something that you can maybe give us a little bit better understanding of the structure of those contracts, like how long REITs will kind of be in place when they get renegotiated, how much maybe it was weighing on 1Q and going into 2Q, just to give us some better tools to forecast the models out. Speaker 300:27:31Yes, John, it's Bob. As far as on The rail rate increases, most of that is some of it occurred during the Q1 and then we have some that just started at the beginning of the second. It's a large impact as you move from 1Q to 2Q because you'll have all of those pretty much higher as we start the 2nd quarter. So that's what's driving the freight cost up higher. I'm sorry, your first question was? Speaker 500:28:02Well, I guess just to stay on that for a second, are those contracted rates for the next year, next couple of years? Speaker 300:28:09Yes, typically, yes, typically. Typically, that's probably a good way to think about it. Speaker 500:28:14Okay. And the first question was around the converting costs and what's higher converting costs in Speaker 100:28:20the quarter. Speaker 300:28:21Yes. Really labor benefits obviously with just that's just that's part of it. The other is really at starch. Starch prices have just skyrocketed and That is something that we had another big increase this year. And as we Expect to our volume to start improving in the box plants and so forth and you're using more of those types of things and so that's what's driving labor and Some of your material costs that are also included in that converting number. Speaker 500:28:59Is this starts starting to Turnover or it's still Speaker 300:29:04No, no it's not. Speaker 400:29:05Okay. Speaker 300:29:06No. Speaker 500:29:06All right. I appreciate the insight. Thank you all. Speaker 100:29:09Thank you. Next question? Operator00:29:17Our next question comes from Anthony Pettinari from Citi. Please go ahead with your question. Speaker 700:29:24Good morning. Good morning. Kraftliner prices have been stable for a couple of months now. And understanding you don't much more in the open market and I'm not asking about forward pricing, but I'm just wondering if you had any thoughts about kind of where containerboard markets kind of feel like They are right now. I mean, you've seen a number of cycles, maybe some of these capacity projects have started up and maybe are being sort of absorbed. Speaker 700:29:50I just wanted to get your sense of containerboard markets versus maybe where we were a few months ago. Speaker 200:29:58Anthony, this is Tom. I'll take this one. Yes, prices have stabilized. There's no question about it. In fact, I can make an argument that there hasn't been there really hasn't been a whole lot of activity Relative to price in the past and I'm not a predictor of price going forward, but I can just tell you that I think the outlook is more positive. Speaker 200:30:24Of course, you've seen the industry really adjust dramatically to demand. And as I've said many times, I mean, the open market is a small open market today. So Those that have excess capacity are either taking the downtime or they're looking to export markets to Try to figure out how to sell into those markets, which are also under some duress. But I think that the market in general Is different than the past given the small open market that we have today. And I think that leads towards much more stability. Speaker 700:31:12Got it, Got it. That's helpful. And then just I wonder if you could talk a little bit given the balance sheet flexibility that you have about capital allocation And from a capital return perspective, I mean, you're paying an attractive dividend. I don't know if you can talk about maybe opportunities for repurchases. And then in terms of investing in the business, you're coming off maybe a big CapEx cycle where you were doing a lot of internal projects. Speaker 700:31:39Just wondering if you could Talk about where you're seeing the opportunities in capital allocation and capital return this year. Speaker 100:31:49Nothing's changed. As we've talked about for the last year, our plans were to bring capital down this year, and we're in that $400,000,000 range. And I would anticipate that working through into next year also. We've done most of the big Projects that we could foresee in the mills and we're just going to continue with the box plant optimization. As far as utilization of cash in terms of other opportunities Dividends, share repurchases, acquisitions, we'll remain flexible on any and all opportunities in that regard as we go forward. Speaker 100:32:25As we've done for many, many years now, we've got that flexibility to take advantage of all of these opportunities as they present themselves. And that's how we look at it day to day. Speaker 700:32:39Okay. That's helpful. I'll turn it over. Speaker 100:32:41Thanks. Next question. Operator00:32:43Our next question is a follow-up from George Staphos from Bank of America Securities. Please go ahead with your follow-up. Speaker 400:32:50Hi. Thank you so much. Actually, Anthony took my next question. So I will turn it over to the next Operator00:33:08Our next question is also a follow-up from Mark Weintraub from Seaport Research Partners. Please go ahead with your follow-up. Speaker 600:33:15Thank you. So I was thinking a little bit about how I believe your volumes ended up being up down about twice what you had or Anticipated back in January, I think you'd been talking about flat average day and so it would have been like 6% or 7% down and you ended Down 12.7 percent. Is it fair to therefore, if you talked about the negative impact Year over year on volumes being about $0.95 So if I just took half of that, had you was that the incremental Negative impact from the additional demand weakness that you experienced, so that had in fact the volumes come through as you In theory, you might have been closer to $2.70 particularly if we add the fact that you had the pricing down by $20 in February, which would have had some small impact. And then if that is the case, and I realize that maybe that math doesn't work, but if that was the case, That's a huge difference from sort of the 2.23 and presumably that relates to all the operating Adjustments that you had made and sort of just trying to get a sense to whether that's something you can hang on to or those were Measures taken because of what was going on in the business and maybe a little bit less certain types of spend that you could defer. Speaker 600:34:42So sort of just trying to get a sense of that underlying earnings power in a future type of environment. Speaker 300:34:53Yes. Mark, this is Bob. There's a lot going on there. If you're saying with our volumes were higher, we're Closer to what we had anticipated, you're looking at that $0.95 being something a lot larger? Speaker 600:35:08Well, I believe you had stated during the January call that you were looking for average daily box shipments to be flat In sequentially, which would have suggested about down 6.5% rather than the down 12.7%. Speaker 300:35:26Right. Speaker 600:35:27So basically I'm saying, well, does that mean that instead of being a $0.95 negative hit, it would have been about half of that, like a 47% negative. Yes. Speaker 300:35:36No. That volume is it's not just box shipments, right? It's There's export volume, there's trade, there's domestic outside volume. So that would not be a good way To look at it, however, directionally, yes, it would be a higher number, but you would also have a lot better Cost within your system because your mills would be running more full. Your box plants would be running More full. Speaker 300:36:10So your converting costs, your direct variable costs, all those types of things, your unabsorbed Costs would not be as high, would more than offset any additional decline that you would see in that price variance, if that makes sense, because of higher volumes. Speaker 600:36:29It does, but sort of comes back to the point that you're only $0.03 off what your guidance had Speaker 300:36:35Yes. And if you want to look at it sort of simply, the published price dropped $20 a ton after we gave our guidance. And if you sort of do the math on that and as we said before, when that price the published price Drops, pretty much hits our outside containerboard immediately. There's no delay. So If you sort of do the math, there's about $0.03 just from that price decline that occurred after we gave our guidance. Speaker 600:37:10Right. And so what I'm trying to get to is, if we get this sort of rebound in demand And I mean what it would seem that our the bounce back in earnings Could be very dramatic relative to sort of that 2.23% type of run rate you had suggested in a down 6.5%. Speaker 100:37:37Absolutely, Mark. Absolutely. That's what we would anticipate. Speaker 600:37:43Okay. I apologize for the fairly convoluted questioning here, but thank you. Operator00:37:52And our next question is also a follow-up from Phil Nye from Jefferies. Please go ahead with your question. Speaker 500:37:59Hey guys, this is John again. Kowlzan. I just wanted to quickly shift over to the paper segment. Demand was a bit lower than We had expected, just kind of looking to get some insights on how the paper segment volumes are trending. It looks like Maybe this next quarter where we should see another down double digit type of volume year over year. Speaker 500:38:25Just kind of what's And maybe what are the main factors impacting demand on the paper side? Speaker 100:38:32Again, as we spoke last year that we Our paper business now had become just the International Falls Mill up in Minnesota and that mill is capable of A little over 500,000 tons a year, and that's pretty much what we're selling to. We're down slightly off of that peak capability. But what that allows us to do really is just run and optimize the market and where we choose to sell and Where we want to sell to maximize profit. So we really have the luxury of being the 4th largest player. We don't have to do anything. Speaker 100:39:11I'd say we're in a real sweet spot right now down just a few 1,000 tons off of where we were last year. Speaker 500:39:20Okay. Thanks. Appreciate it. Speaker 100:39:22Thank you. Any other questions, please? Operator00:39:27And our final question comes from George Staphos, once again a follow-up from Bank of America Securities. Please go ahead with your follow-up. Speaker 100:39:39George? Speaker 400:39:40Hey, sorry, had technical issue here. Thanks guys. So I just want to reaffirm the guidance on the Paper segment is for pricing and volume to be down slightly sequentially. Was that the comment Mark and Tom and Bob? Thanks very much and good luck in the quarter. Speaker 300:39:56Yes. Yes, George. That's correct. Speaker 400:39:59Excellent. Thanks guys. Good luck in the quarter. Speaker 100:40:01Thank you, John. Thank you. Any other questions, please? Operator00:40:06Mr. Colzan, I see no more questions at this time. Do you have any closing comments? Speaker 100:40:12Thank you, everybody, for joining us on the call today and appreciate your time and we look forward to talking with you in July and covering the 2nd quarter earnings results. Have a nice day. Thank you. Operator00:40:25And ladies and gentlemen, with that, we'll conclude today's call is a presentation. We do thank you for joining. 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