The Packaging Corporation of America held a conference call to discuss their fourth quarter and full year 2023 earnings results. CEO Mark Kowlzan, along with other executives, provided an overview of the financial results, including net income, net sales, and EBITDA. Excluding special items, the company reported a decrease in earnings compared to the previous year. Net sales also decreased. The company's EBITDA for 2023 was lower than the previous year.

In the fourth quarter and full year 2023, the company's net income included special items related to conversion activities and facility closures. Excluding these items, the decrease in fourth quarter earnings was due to lower prices and mix in the Packaging and Paper segments, as well as higher depreciation expenses. However, this was partially offset by strong volume, efficient processes, and lower expenses. The Packaging segment had an EBITDA margin of 21.7% in the fourth quarter and 21.8% for the full year, compared to 21.7% and 23.8% in the previous year, respectively.

In the Packaging segment, demand was stronger than expected during the quarter, leading to higher volume and lower operating costs due to capital spending and cost management efforts. The Wallula mill had a successful restart and the No. 2 machine is planned to be restarted in the first quarter. The Corrugated business saw a 5.1% increase in shipments per workday and a 6.9% increase in total shipments compared to the previous year's fourth quarter. Outside sales volume of containerboard was also higher. The order backlog and containerboard cut-up remained strong throughout the quarter.

In the fourth quarter of 2023, the company expects their shipments to continue to increase despite challenges such as inflation and higher interest rates. Prices and mix for domestic and export containerboard and corrugated products were lower compared to the previous quarter, but the company has announced price increases for linerboard and medium starting in 2024. The Paper segment had a decrease in EBITDA and sales compared to the previous year, mainly due to declines in index prices.

The company's sales volume for the fourth quarter was slightly below last year's and the third quarter of 2023. However, the management team and employees have been working to optimize inventory and operations. Cash provided by operations was $335 million and free cash flow was $194 million. The company issued $400 million in new 10-year notes and expects total capital expenditures to be between $470 million and $490 million for the upcoming year.

In 2023, PCA had strong financial results despite challenging market conditions. They completed cost reduction and process improvement projects, and their sales and customer service teams were dedicated and proactive in meeting customer needs. This led to profitable growth opportunities for customers and shareholders.

In 2023, the company's paper business achieved record margins and free cash flow, thanks to the efforts of its employees and strong partnerships with customers and suppliers. The company plans to continue its commitment to a strong balance sheet and balanced capital allocation. In the first quarter, demand is expected to remain strong, with higher corrugated product shipments and slightly higher prices. However, containerboard volume will be lower due to scheduled maintenance and conversion of machines. Prices for paper are expected to increase slightly with a better product mix.

The company is expecting higher recycled fiber and energy prices due to cold weather and increased operating costs. They also anticipate seasonal increases in labor and benefits costs and significant expenses from a scheduled outage. Despite a $20 decrease in November, they expect slightly higher pricing in the first quarter due to a January price increase. They have also accepted a $70 increase on the buy side.

In the paragraph, Tom Hassfurther and Mark Weintraub discuss the financial results for the fourth quarter of the company. Weintraub asks for clarification on the net increase of $20 and Hassfurther explains that it is factored into the box business and will continue to trend positively. They also discuss the strong demand for the business in January and take a question from Sandra Liang from Bank of America Securities. Mike Roxland then asks about the mix in the fourth quarter and Hassfurther explains that it was as expected.

In the third quarter, there was an increase in graphics business, but the fourth quarter followed the expected trend. The company expects steady growth in 2024 after facing challenges in 2023. The lower prices and mix in the fourth quarter were mostly due to price, but mix also played a role. The company expects a traditional mix in 2024. The company plans to finish the Jackson project and continue to run the I Falls asset as is for its modern facilities and cash generation. The next growth plans for PKG are not yet determined.

Mark Kowlzan discusses the company's future plans and their ability to adapt to changes in the market. He mentions the significant investments in equipment and new plants, as well as the option to increase containerboard supply through capacity expansions or acquisitions. He expresses confidence in the company's capabilities and their potential for growth in the next few years. A question from Mike Roxland is also mentioned.

Tom Hassfurther, a representative from a packaging company, states that they are invoicing all of their customers at higher prices for linerboard and medium. He also mentions that none of their customers have disputed the price increases and are frustrated with the market's reported prices not reflecting the actual market conditions. The company is exploring alternatives to using an index for pricing. In terms of production costs, the company had lower operating converting costs in the fourth quarter and is anticipating higher costs in the first quarter due to fiber, energy, and chemical prices.

The company had a good quarter in terms of costs, although there were some unexpected expenses such as higher OCC prices and fixed costs for services and equipment rentals. Going into the first quarter, there are some seasonal and timing-related cost increases, such as weather-related impacts and annual wage and benefit increases. However, these should flip back in the following quarters.

The speaker discusses the company's plans to bring on new customers and the impact on costs and inflation. They also mention their success in exceeding industry growth and attribute it to existing customers.

The speaker emphasizes the company's main growth engine and their efforts to align with long-term customers. They have won new business and outperformed the industry historically, but have lagged in some segments. The speaker also mentions the impact of the COVID-19 pandemic on certain segments. The conversation then shifts to discussing the Jackson conversion and the timing of costs and guidance. The speaker mentions ongoing discussions with customers about pricing and potential increases.

The company is expecting a traditional roll through for their products, and they are frustrated with the current market reporting for Pulp and Paper Week. They are considering alternative options with their customers, but will not disclose any details.

The company expects to spend $470 million to $490 million on capital expenditures in 2024, with $30 million to $40 million dedicated to the Jackson conversion. The majority of the spending will go towards maintenance and strategic projects in the box plants, with an estimated capacity increase of 175,000 to 200,000 tons per year for the Jackson machine. The company will continue to prioritize demand-driven production for its customers.

During a conference call, the Jackson machine was discussed as a way to increase production and lower costs. The demand outlook for the first half of the year is positive, with no specific industries standing out. Restocking has been conservative and there has been a slight increase, but not to pre-COVID levels. Operational and converting costs have decreased in the last two quarters, despite the reopening of the Wallula facility. Outage expenses for the Jackson machine are expected in the first half of the year.

The speaker asks if the gains seen in the second half of 2023 are expected to continue in 2024, especially with investments in box plants. The speaker confirms that operational and converting costs will continue to decrease due to ongoing efforts to improve processes and adopt new technologies. The company's strong transportation capability is also mentioned as a factor in cost management. The speaker also mentions the company's $1.1 billion liquidity and the balanced approach to capital deployment.

Mark Kowlzan discusses the company's financial strength and its ability to potentially take advantage of distressed markets. He mentions the company's strong cash flow and the potential for share buybacks and dividends. He also reminds investors of the company's successful past projects and the manageable level of capital expenditures going forward. Kowlzan emphasizes the company's flexibility and optionality in terms of potential acquisitions or investments.

During a conference call, Phil Ng expresses his appreciation to Mark Kowlzan for answering a question. The next question is from Mark Weintraub, who asks about the potential pricing structures for the company. Tom Hassfurther declines to provide any details, stating that it is between the company and its customers. Mark Weintraub also asks about the increase in costs from the fourth quarter to the first quarter and Bob Mundy provides an estimate. Gabrial Hajde tries to get more information about the company's thought process, but is unsuccessful.

The speaker discusses the current state of the price discovery process in the industry and suggests that it may not be as reliable as it once was. They also mention that the company sells custom-made boxes rather than just paper rolls, which adds value to their customers. The speaker acknowledges a disconnect between what is reported and what customers are experiencing in the marketplace and states that they need to address this issue.

Charlie Muir-Sands asks a question about the cost benefit of the Jackson mill once it is fully ramped up. Mark Kowlzan explains that the mill will be more efficient and will have the capability to produce linerboard at a lower cost than other mills in the system. The planned work on the mill will also result in cost savings of around $35-40 per ton. Bob Mundy adds that this is a significant opportunity for the company.

During the conference call, Richard Bourke from Bloomberg Intelligence asked about the announced price increase and whether it had caused customers to make purchases earlier in the fourth quarter. Tom Hassfurther stated that they did not see any impact on demand from the price increase. Mark Kowlzan thanked everyone for joining and the call was concluded.

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