The speaker, Mark Kowlzan, is the Chairman and CEO of Packaging Corporation of America and is joined by Tom Hassfurther, Executive Vice President, and Bob Mundy, Chief Financial Officer, on the conference call to discuss the company's third quarter 2023 earnings. Kowlzan provides an overview of the results, stating that net income was $183 million or $2.03 per share, excluding special items. Net sales were $1.9 billion and EBITDA was $388 million. He notes that net income includes special items expenses of $0.02 per share for costs related to paper to container board conversion. Details of all special items are included in the accompanying schedules.

The decrease in third quarter 2023 earnings, excluding special items, was primarily due to lower prices and mix in the packaging segments, as well as higher depreciation expense, lower volume in the paper segment, and other expenses. However, this was partially offset by lower operating costs and other favorable items. The results were above the third quarter guidance, thanks to higher volume and lower costs. In the packaging segment, EBITDA and sales were lower compared to last year, but the margin was still strong due to operational improvements. These improvements were seen in areas such as efficiency, material usage, and cost-effective management of container board supply. The idling of the Wallula mill also contributed to the market-related downtime of approximately 174,000 tons.

The packaging segment saw stronger demand in the third quarter, resulting in lower inventory levels than anticipated. Plans for future mill maintenance and conversion will help bring inventories to desired levels. Container board sales in the corrugated business exceeded expectations, with an increase in shipments compared to the previous quarter. However, demand was still impacted by consumer buying preferences and economic factors. Despite this, the company expects volume to continue improving in the fourth quarter.

The paper segment of the company saw a decrease in EBITDA due to lower container board and corrugated products prices, but an increase in sales compared to the third quarter of 2022. The International Falls mill had a successful maintenance outage, and the company had a strong cash flow during the quarter. Significant cash payments included capital expenditures, dividends, income tax payments, and pension contributions.

The company repurchased shares of stock, has a significant amount of cash and liquidity, and expects higher shipments and lower prices in the packaging segment in the fourth quarter. They also anticipate lower volume and prices in the paper segment, along with higher costs and depreciation expenses. The estimated earnings for the fourth quarter are $1.76 per share. The speaker also reminds listeners that some statements made on the call are forward-looking.

The company's statements were based on current estimates and involve risks and uncertainties. Actual results may differ from the forward-looking statements. The call was opened for questions and the first question was about the improved performance and potential for further improvement in operating and converting costs. The CEO attributes the improvement to ongoing continuous improvement projects.

The company has been focused on cost reduction and operational excellence in its box plants and mills for a number of years, and this will continue in the future. The company's leaders are pleased with the results and have a solid plan in place for next year. They are also considering market requirements and how to deploy capital effectively. The restart of a plant in Wallula is expected to help rebuild inventories, but the company is not able to discuss customer demand for 2024 at this time.

Mark Kowlzan, CEO of a company, is answering a question about the potential for a decrease in demand and how it would affect their operations. He explains that they will always run their operations based on demand and that they have the flexibility to adjust accordingly. Tom Hassfurther, another executive, adds that their demand is currently 8% higher than their low point in the first quarter of 2023 and that this is the main reason for restarting operations at a facility.

The company's bookings are up 14% at the beginning of the quarter, but this number may be lower in the actual quarter due to bookings being for future dates. However, the backlog and cut-up demand are strong, leading to a positive outlook for the fourth quarter and next year. The trend remains positive, with an 8% increase in demand compared to the first quarter. The Jackson project is expected to be completed in the fourth quarter and first quarter.

Mark Kowlzan discusses the final phase of the completion work for the big machine, which will take place next year and involve adding high-pressure dryer cans, modifying the press section, and installing a new shoe press. This will increase productivity and improve the cost position of the mill. The machine will be able to produce over 2,000 tons per day, with a target of 2,400 tons per day. The improvement in cost will be close to $40 per ton.

The speaker discusses the benefits of a new project, which will result in increased volume and decreased costs. They mention that the machine will be the most productive and low-cost in the Western Hemisphere. They also note that mix is a factor in pricing for different segments, with some being impacted by external factors such as interest rates and strikes. However, overall the company is performing well and price impacts have been minimal.

Mike Roxland thanks Mark Kowlzan and Bob for taking his questions and congratulates them on a solid quarter. He asks for more color on the cadence of shipments during the quarter and which end markets showed significant growth. Kowlzan mentions the ag business and e-commerce as strong markets, and overall sales in food and beverage are steady. He also mentions that the predictability of these markets has improved due to destocking and lean operations. Roxland then asks about potential headwinds for other mills as Wallula is brought back.

Mark Kowlzan, CEO of a paper company, discusses the impact of a mill being down on their production and the potential for growth in the future. He mentions the need to run their mills at full capacity due to inventory issues and the importance of working closely with their diverse customer base to grow the business. Tom Hassfurther, another executive, adds that they are constantly looking for opportunities to expand and are focused on providing the best value to their customers. The company is currently working on a project at their Wallula mill to drive growth.

Mark Kowlzan, CEO of Packaging Corporation of America, thanks an analyst for their question and wishes them good luck for the quarter. The next question comes from an analyst at Wells Fargo, who asks about the company's targeted inventory levels and the impact of the Jackson outage. Kowlzan does not provide specific numbers, but mentions that the company started the third quarter with lower inventory levels than their goals. He also discusses the cost structure of the Wallula mill, stating that it is the company's highest cost mill but remains critical for their Pacific Northwest box plants.

The company will continue to run to demand and satisfy their needs. The Wallula mill operating in a large market will give them more flexibility in their box plant and advantage in the heavy ag market. The restart of Wallula will not have significant cash costs but may have non-cash costs. When comparing to the third quarter, almost half of the cost increase is due to restarting Wallula. The company will continue to run to demand in 2024 and focus on deploying cash effectively.

The speaker discusses the company's plans for capital spending and generating excess cash, as well as their focus on taking care of customers. They also address the impact of new recycled capacity in the market and their position as a primarily virgin board producer.

The company has several mills that are capable of converting recycled materials, but they do not rely solely on this source of fiber. The integration of these mills has had little impact on the marketplace, and customers remain loyal due to the company's quality and service. The company values its flexibility in sourcing fiber and has adapted to market changes in the past. This ability to tailor their products to customer needs is a competitive advantage.

Mark Kowlzan discusses the stability of virgin fiber prices and input costs compared to recycled fiber. He believes that relying solely on recycled fiber can lead to unpredictable conversion costs. He also mentions that the company will continue with their current model. The analyst asks about the implied 4Q guide box shipments, and Bob Mundy clarifies that the analyst's calculations are not accurate. The company expects a strong fourth quarter, but the exact percentage increase is not disclosed.

In the paragraph, the speaker responds to a question about holiday demand and clarifies the amount of economic downtime for Wallula. They confirm that holiday demand is strong and that the 174,000 tons of economic downtime only applies to Wallula. They thank the participants and announce the next call in January.

This summary was generated with AI and may contain some inaccuracies.