PCA reports strong containerboard, corrugated demand in Q2

Packaging Corp. of America (PCA), a packaging producer based in Lake Forest, Illinois, has reported healthy containerboard and corrugated demand in its latest earnings report.

Overall, PCA says it achieved second-quarter 2021 net income of $207 million, or $2.17 per share. Second-quarter 2021 net sales were $1.9 billion compared with $1.5 billion in the same time frame of 2020. The company says earnings before interest, taxes, depreciation and amortization (EBITDA) for the second quarter, excluding special items, totaled $397 million this year compared with $299 in the second quarter of 2020.

According to PCA’s second-quarter earnings report, the company’s latest earnings included special items expense and income rounding to a negligible impact, while the net income in the second quarter of 2020 included special items expenses of 79 cents per share related primarily to the impairment of goodwill associated with PCA’s Paper segment.

Several expenses were higher in the second quarter. According to PCA, inflation-related increases affected converting costs, and freight and logistics expenses were higher compared with the same time frame in 2020. Additionally, depreciation expense was slightly higher, and Paper segment prices and mix were slightly lower.

Also in the second quarter, the company worked to build up its inventory levels; however, Mark Kowlzan, PCA chairman and CEO says the company’s weeks-of-inventory supply reached a new low for this time of the year ahead of an expected busy second half of the year. He says the company’s Packaging and Paper segments implemented price increases in the second quarter, and the company continues to work on initiatives and capital projects to reduce costs and improve efficiencies at its mills and corrugated products plants. He adds that reducing costs and improving efficiencies will help the company as it navigates logistics challenges with inbound and outbound freight.

Packaging and Paper segment outlook

In PCA’s Packaging segment, total corrugated products shipments and shipments per day were up 9.6 percent in the second quarter of the year over the second quarter of 2020. PCA reports that containerboard production was 1.192 million tons, and containerboard inventory was up 20,000 tons from both the second quarter of 2020 and the first quarter of 2021.

“Our plants achieved a new all-time quarterly record for total box shipments as well as a second-quarter record for shipments per day, both of which were up 9.6 percent compared to last year’s second quarter,” said Tom Hassfurther, executive vice president of corrugated products at PCA, during the company’s second-quarter earnings call July 27.

He said outside sales volume of containerboard was 43,000 tons above the second quarter of 2020 but down slightly compared with the first quarter of the year because of lower export shipments.

“Demand in our Packaging segment remained very strong,” Kowlzan said. “Our mills and plants continued to do an outstanding job of meeting our customers’ needs while managing through certain material and chemical availability issues, a tight labor market, various freight and logistics challenges, as well as the planned maintenance outages at four of our mills during the second quarter.

He added, “The mills executed the planned outages extremely well and, with the help of the No. 3 machine at the Jackson mill, provided our plants the necessary containerboard to achieve an all-time record for total box shipments.”

In PCA’s Paper segment, sales volume was up 21,000 tons in the second quarter of 2021 compared with the second quarter of 2020 and down 24,000 tons compared with the first quarter of the year.

EBITDA excluding special items in the second quarter was $12 million for this segment with sales of $142 million or an 8 percent margin compared with second-quarter 2020 EBITDA of $5 million and sales of $123 million or a 4 percent margin. Kowlzan said volume in the Paper segment was up 17 percent in the second quarter of this year compared with the same time last year when pandemic issues caused the company to take both machines at its Jackson, Alabama, mill down for two months.

Looking ahead to the third quarter, Kowlzan said PCA expects demand will remain strong for containerboard and corrugated products with one additional day for box shipments. He said the company’s Paper segment volume should remain flat in the third quarter, primarily because of the scheduled maintenance outage at the company’s mill in Jackson.

Additionally, he said he expects recycled fiber costs to remain high in the third quarter of the year. “You have to believe with the current trends it’s going up and there is nothing that indicates it’s going to go down anytime soon. Some of the latest data that’s come out indicates record-low nationwide inventory levels of recycled fiber availability, all-time demand for all recycled fibers across the board. And so, unless something happens to the marketplace in the world, I don’t see that changing. … We build ourselves around flexibility, and we still remained the lowest dependent on [old corrugated containers] as an example compared to the rest of the industry. We can take advantage of it, but again, we’re always mindful of maintaining our flexibility and fiber utilization.”

He concluded, “We will also continue to implement our previously announced price increases in both our Packaging and Paper segments. Our annual outage costs will be lower with one outage in the third quarter versus four mill outages in the second quarter. Inflation associated with most of our operating costs as well as freight and logistics expenses is expected to continue. Energy costs will also be impacted due to higher seasonal usage, and wood costs in our southern mills will be higher due to wet weather, low inventory and high demand. Considering these items, we expect third-quarter earnings of $2.37 per share.”