PCA reports reduced Q2 earnings

Company says its containerboard shipments were steady, but office paper shipments fell in part because of mill downtime.

Lake Forest, Illinois-based Packaging Corp. of America (PCA) has reported second-quarter 2020 earnings per share, down 71 percent from the same quarter in 2019, and quarterly sales of $1.54 billion, down 12.4 percent from the second quarter of 2019.

The company says its reduced earnings in the second quarter of 2020 included 79 cents per share of special items expenses “primarily for the impairment of goodwill associated with our Paper segment.”

PCA says in its Packaging segment, its corrugated products shipments were up 1.2 percent compared with the second quarter of 2019.  Containerboard production for the quarter totaled slightly more than 1 million tons.

In PCA’s Paper segment, however, the “sales volume was down 103,000 tons compared to the second quarter of 2019, and down 93,000 tons from the first quarter of 2020, due to the previously announced downtime at our Jackson, Alabama, mill.”

Mark W. Kowlzan, PCA chairman and CEO, comments, “In the Packaging segment, [we] ran our containerboard system to demand while building some much-needed inventory, as we began the second quarter with containerboard inventories at our lowest levels since the Boise acquisition.” PCA, he adds, “ended the quarter with our weeks-of-inventory supply still below our average over the last five years.”

Kowlzan adds, “We are seeing the benefits of our corrugated products capital spending strategy reflected in our box plant volume improvement, as well as operating and converting cost reductions and efficiencies. We also saw the benefits from some of our mill cost reduction projects, especially in the areas of energy and fiber.”

In its Paper segment, which produces uncoated free sheet for office use, “Market conditions in the Paper segment continue to be challenged, as nationwide responses to help control the spread of the COVID-19 virus have resulted in a dramatic decrease in demand for our cut-size office papers. Our Jackson, Alabama, mill was temporarily idled for two months during the second quarter, and we expect the mill to stay down at least through the end of August.”

PCA says the write-down in its Paper segment was prompted by “a triggering event indicating possible impairment of goodwill and our long-lived assets within our Paper segment. We determined that goodwill was fully impaired for the Paper segment and recognized a non-cash impairment charge totaling $55.2 million.”

Kowlzan says, “Looking ahead to the third quarter, corrugated products demand has performed quite well so far this year, and we expect the third quarter to be even stronger. Our expectation is that we will end the quarter at [inventory] levels below where we started while managing scheduled outages at two of our mills.”

He continues, “We have already announced the actions being taken in our Paper business, and we will continue to evaluate the demand for our paper products throughout the third quarter. However, shelter-in-place and lockdown conditions continue to change constantly across the country, and such events and actions could adversely impact these expectations and the operation of not only our facilities but also the availability of services and products we rely upon from our suppliers. As a result, we are not able to appropriately quantify our guidance for the third quarter.”