Edited Transcript of PKG earnings conference call or presentation 28-Apr-20 1:00pm GMT

I could no exist more haughty of the effort, responsiveness and sacrifices displayed by complete PCA employees although healthful although our customers and suppliers. It has indeed been an inspiring observation.

I'll now begin with an overview of the first zone results, and then I'm going ought fetch the howl above ought Tom and Bob, who'll equip more details. I'll then wrap things up, and we'll exist cheerful ought acknowledge some questions.

Yesterday, we reported first zone net salary of $142 million or $1.49 per share. First zone net salary included especial items expenses of $0.01 per portion related primarily ought costs and expenses associated with the COVID-19 pandemic.

Excluding especial items, first zone 2020 net salary was $143 million or $1.50 per portion compared ought the first zone of 2019 net salary of $187 million or $1.98 per share. First zone net sales were $1.7 billion at both 2020 and 2019. entire corporation EBITDA although the first quarter, excluding especial items, was $311 million at 2020 and $371 million at 2019. Details of the especial items although both the first zone of 2020 and 2019 were included at the schedules that accompanied the salary periodical release.

Excluding especial items, the $0.48 per portion decrease at first zone 2020 salary compared ought the first zone of 2019 was driven primarily by lower prices and mingle at our Packaging section of $0.64 and Paper section of $0.05; lower volumes at our Paper section of $0.03; higher annual outage expenses, $0.04; higher depreciation expense, $0.04; other expenses, $0.01; and higher tax rate, $0.01.

These items were partially offset by higher volumes at our Packaging section of $0.14; lower operating costs of $0.09; lower converting costs, $0.04; lower merchandise and logistics costs, $0.01; and lower utilize expense, $0.04; and nonoperating pension expense, $0.02.

The results were $0.30 above the first zone guidance of $1.20 per share, primarily owing ought higher volumes at our Packaging section of $0.03 and our Paper section of $0.01, higher prices and mingle at the Packaging section of $0.02 and lower operating costs of $0.15, resulting from the prime fiber and energy custom and lower input prices at our mills. merchandise and logistics costs were lower than expected by $0.03, although were converting costs, annual outage costs and other expenses, each lower than expectations by $0.02 per share.

Looking can our Packaging business. EBITDA, excluding especial items at the first zone of 2020 of $290 million with sales of $1.5 billion resulted at a rim of 20% versus final year's EBITDA of $334 million and sales of $1.5 billion or a 23% margin.

Our containerboard mills established a new first zone volume record, even calm performing [scheduled maintenance] (corrected by corporation after the call) outage career can 4 of the mills. Our containerboard manufacture allowed us ought affirm our industry-leading integration estimate of around 95% by supplying the indispensable containerboard ought our box plants, who achieved an all-time record although entire box shipments although healthful although a new first zone shipments per engagement record. We were capable ought encounter this greater-than-anticipated demand over proactive management, changing the sequencing of our scheduled maintenance outages although healthful although prominent execution of the career performed during these outages. Our enhanced capabilities ought optimize the mix, merchandise and logistics costs, inventory levels and inner and exterior guest needs of the containerboard system provided ought us by our machine conversion can the Wallula mill were a key component although well. We ended the zone with containerboard inventories can their lowest levels although the acquisition of Boise's packaging commerce at 2013.

I'll now fetch it above ought Tom, who'll equip more details above containerboard sales and the corrugating business.

--------------------------------------------------------------------------------

Thomas A. Hassfurther, Packaging corporation of America - EVP of Corrugated Products [3]

--------------------------------------------------------------------------------

Thank you, Mark. Corrugated products and containerboard demand were identical healthful during the quarter. although signal indicated, our corrugated products plants achieved a new all-time record although entire box shipments, which were up 5.6% above final year although healthful although a new first zone record at shipments per day, which were up 3.9% compared ought final year's first quarter.

Outside sales volume of containerboard was 13% above final year's first quarter, primarily attributable ought increased domestic demand with export demand slightly higher although well.

Domestic containerboard and corrugated products prices and mingle together were $0.54 per portion below the first zone of 2019 and down $0.06 per portion compared ought the fourth zone of 2019. Export containerboard prices were down around $0.10 per portion versus final year's first zone and even compared ought the fourth zone of 2019. I'll now fetch it backward ought Mark.

--------------------------------------------------------------------------------

Mark W. Kowlzan, Packaging corporation of America - Chairman of the Board & CEO [4]

--------------------------------------------------------------------------------

Thank you, Tom. Looking can our Paper segment. EBITDA excluding especial items at the first zone of $42 million with sales of $217 million or 19% rim compared ought the first zone of 2019 EBITDA of $55 million and sales of $240 million or 23% margin. First zone Paper prices and mingle were below final year although expected, however, they were even compared ought the fourth zone of 2019. Our Paper volume was although healthful lower although expected, primarily owing ought the scheduled maintenance outage can our Jackson, Alabama mill; however, it was around 3% higher than we had assumed. although we ended the zone with our inventory slightly lower than planned, above April 1, we announced downtime can our Jackson, Alabama mill although the months of can and June ought ensure we govern the equip according ought our demand expectation although the second quarter. Throughout the quarter, the mills did an prominent task managing fiber and medication custom and maintained tight govern above indirect and fixed expenses.

I'll now fetch it above ought Bob.

--------------------------------------------------------------------------------

Robert P. Mundy, Packaging corporation of America - Executive VP & CFO [5]

--------------------------------------------------------------------------------

Thanks, Mark. We had record first zone money generation with money provided by operations of $237 million and record first zone liberate money flow of $166 million. The leading uses of money during the zone included main expenditures of $71 million and natural stock dividends of $75 million. We ended the zone with $764 million of money above hand or $913 million, including the money we recently moved ought marketable securities. Our liquidity can March 31 of above $1.2 billion is the highest ever although our corporation and with the refinancing we completed at the fourth zone of 2019, we dine no debt maturities although the next 3.5 years.

Regarding our announcement of taking our paper mill at Jackson, Alabama down although the months of can and June, our estimated second zone econmic shock of this determination is around $30 million or $0.24 per share.

I expectation ought update you above our complete year guidance although certain items that we provided above final quarter's call. although signal alluded ought earlier, we managed over identical healthful first zone demand at our Packaging business, partly by altering the sequencing of the scheduled maintenance outages can our containerboard mills, although healthful although the containerboard machines impacted versus what we discussed during final quarter's call. There are no changes ought the scheduled outages can our white paper mills. The genuine shock at the first zone was $0.22 per share, and the estimated shock by zone although the rest of the year is now $0.09 per portion at the second quarter, $0.16 at the third and $0.34 per portion at the fourth quarter. The complete year estimate rest can $0.81 per share, although we mentioned previously. Also, our complete year utilize spend is now expected ought exist $88 million versus $81 million. And our net money utilize is now estimated ought exist $92 million versus $84 million, primarily owing ought lower expected utilize income. Our money tax estimate rate is now slightly lower than our earlier estimate of 19%, partially owing ought the downtime we announced can our Jackson mill, and our effective tax estimate rest can around 25%. after a thorough publication of our main spending plans, we are no changing the mount of spending we provided previously, which was amid $400 million ought $425 million. Nor are we changing our complete year expectation although pension contributions or depreciation.

I'll now fetch it backward above ought Mark.

--------------------------------------------------------------------------------

Mark W. Kowlzan, Packaging corporation of America - Chairman of the Board & CEO [6]

--------------------------------------------------------------------------------

Thank you, Bob. I expectation ought reiterate the comments I made at yesterday's salary release. although I mentioned earlier, these can exist the most unpredictable and unprecedented epoch that hopefully we will ever encounter. no a engagement passes that we get something new being impacted at a path we had never concept of or imagined before. Our compatible path towards prudent main allocation and robust econmic governance has served us healthful although many, many years and is certainly helpful at epoch comparable this. PCA entered this ambigous era of time brought above by the COVID-19 emergency from a setting of econmic and rest bit strength. Our concentrate has been and will remain above preserving that energy over the actions and decisions we create although a management team. although Bob mentioned, our company's liquidity setting has never been higher nor has our faith at the future success of PCA. We are healthful positioned ought govern over whatever lies ahead, calm ensuring we acknowledge anxiety of the needs and expectations of our employees, customers, suppliers and shareholders.

However, the faith does no translate ought the same class of short-term predictability or guidance specifics that we normally equip can this time. Bob has provided you an update above estimates although certain forward-looking items. However, owing ought the ambigous scope and duration of the pandemic and the timing of the global recovery and economic normalization, we're no capable ought properly quantify our guidance although the second quarter.

We've already announced the actions being taken at our Paper business, and we believe these actions will setting us properly although what we hope precise now although the second half of 2020. However, nothing is certain, specially now, and it can ask farther action ought exist taken. We know that we experienced a demand ripple at our Packaging commerce at the first quarter, and the second zone has although healthful begun quite healthful although well. Our containerboard inventory is can the lowest levels, both at entire and at weeks-of-supply although our acquisition of the Packaging commerce from Boise. And calm recycled fiber prices began moving significantly higher during the first quarter, our setting although a primarily virgin fiber producer minimizes this shock compared ought other producers. However, it virgin makes logical sensation that demand at certain goal markets will answer ought more natural growth trends can some point, although we've been successful can securing new commerce at goal markets with a stronger demand expectation versus markets whose demand can exist impacted more negatively.

Also, it is impossible ought forecast what additional health-related measures will exist or get ought exist taken or dictated ought us by the different status and local governments where we operate. Such events and actions could adversely shock the deed of no virgin our facilities, besides although healthful the availability of services and products we trust upon from our suppliers. That being said, it is although healthful a fact that the products our corporation provides are basic ought the response efforts, the recovery and the well-being of our country. The needs although our cost-effective, sustainable and renewable products will continue. calm nobody knows the severity or longevity of the virus' shock above global economy, it is my certainty that this want will exist even more at demand although the earth recovers from this crisis.

With that, we'd exist merry ought amuse any questions, besides I get ought recall you that some of the statements we've made above the howl constituted forward-looking statements. The statements were based above contemporary estimates, expectations and projections of the company, and contain inherent risks and uncertainties, including the bid of the financial and those identified although danger factors at our annual explain above chart 10-K above row with the SEC. genuine results could differ materially from those expressed at the forward-looking statements. And with that, Shelby, I'd comparable ought proceed ahead and cavity up the howl although questions, please.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Your first puzzle comes from George Staphos of bank of America.

--------------------------------------------------------------------------------

George Leon Staphos, BofA Merrill Lynch, inquiry section - MD and Co-Sector main at Equity inquiry [2]

--------------------------------------------------------------------------------

Thanks although complete you're doing above COVID and congratulations above the quarter. I presume if you could award a tiny sheet more color above what was specially certain above the operating phase relative ought your guidance going into the quarter. You mentioned -- I conceive you mentioned fiber and fuel, besides if you could, ought the extent possible, comment a sheet farther there, that used to exist great. I had a attach of follow-ons.

--------------------------------------------------------------------------------

Mark W. Kowlzan, Packaging corporation of America - Chairman of the Board & CEO [3]

--------------------------------------------------------------------------------

Yes. George, when we started the first zone at January, we were looking can taking 4 of the mills down although their annual outages. And obviously, there's a destiny of unknowns there. after the career was done, starting up the mills, complete the mills started up remarkably healthful ahead of chart and are running flawlessly since. consequently that was a great certain although us. And also, at doing so, the utilization of energy and other raw materials flows through. We've been -- you used to know that with energy costs coming down, we were capable ought acknowledge utilize of lower energy pricing. And then again, impartial good effective utilization of fiber and conversion at the mills. besides again, impartial identical well-executed annual outages and utilization of the assets. And the same worry we're seeing at the box mill phase of the business, at the converting side. Bob, you expectation ought add something ought that?

--------------------------------------------------------------------------------

Robert P. Mundy, Packaging corporation of America - Executive VP & CFO [4]

--------------------------------------------------------------------------------

Yes. George, I'll impartial add. divide of what signal was referring ought and what we commented above earlier was above fiber and even although OCC prices were rising throughout the quarter, us being primarily virgin and with the woodyard scheme that we completed final summer can Counce, we saw important custom and pricing utilize from that scheme although healthful although other parts of the country. besides Counce was a great divide of that, that scheme we talked around nearly this -- late summer final year.

--------------------------------------------------------------------------------

Mark W. Kowlzan, Packaging corporation of America - Chairman of the Board & CEO [5]

--------------------------------------------------------------------------------

I mean, ought emphasize that, George, we're running Counce. Counce has essentially 1,000 ton a engagement recycling capability with OCC and DLK. And although complete intents and purposes, we're no and we dine no been using recycled fiber can Counce, it's complete virgin pine.

--------------------------------------------------------------------------------

George Leon Staphos, BofA Merrill Lynch, inquiry section - MD and Co-Sector main at Equity inquiry [6]

--------------------------------------------------------------------------------

Understood. I presume I had 2 additional questions and then, although fairness, I'll fetch it over. One, can you comment above what you're seeing at the first portion of the second quarter? What are your customers saying around the class ought which they conceive this volume pickup will exist sustained into the second quarter? acknowledge there are no guarantees with any of this, consequently we totally comprehend that. And then above the inventory side, are you comfortable with the even of inventories where they're at, recognizing they're lowest they've been although the Boise acquisition? Or it's great that they've gotten this low, besides you're uncomfortable with it and you want the rebuild inventory, if at fact demand used to allow you ought carry out that at the first place?

--------------------------------------------------------------------------------

Mark W. Kowlzan, Packaging corporation of America - Chairman of the Board & CEO [7]

--------------------------------------------------------------------------------

Tom, allow me begin off with the inventory question, and then I'll allow you acknowledge the first part. although distant although inventories go, obviously, I expectation we had some additional cushion, besides it is what it is. It's although healthful a high-class puzzle when you dine ought flow although effective and difficult although we are doing. I construct above the decades that our mills flow better when they are beneath duress, shall I say, and there's a challenge. besides no, it's quite impressive that we are running extremely lean at the inventories. besides although you could expect, our 95 box plants nationwide dine supported one another. There were epoch during the final attach of months that we've shifted some inventory from one box mill ought another ought backward the needs of their sister box plants. And again, having the complete capability of the Wallula mill operating above the final year, that's given us colossal flexibility and this entire logistics capability ought backward the nationwide footprint. consequently more than ever, having the mill system that we dine allows us ought flow identical efficiently even can the new represent inventory levels. consequently -- and Tom, why don't you proceed ahead and answer the first divide of that puzzle above where we are at the marketplace?

--------------------------------------------------------------------------------

Thomas A. Hassfurther, Packaging corporation of America - EVP of Corrugated Products [8]

--------------------------------------------------------------------------------

Yes. Okay. I'd impartial add, Mark, above the inventory side, one worry that's indeed helped us although healthful is the availability of transportation, consequently that, although this financial indeed begins ought cavity up and if that becomes beneath a tiny more duress, that can shock some of our decisions inventory wise. besides although signal said, it's amazing. We're capable ought flow can this inventory rate.