Packaging Corporation of America (NYSE: PKG) today reported fourth quarter 2023 net income of $189 million, or $2.10 per share, and net income of $192 million, or $2.13 per share, excluding special items. Fourth quarter net sales were $1.94 billion in 2023 and $1.98 billion in 2022. Full year 2023 net income was $765 million, or $8.48 per share, and net income of $784 million, or $8.70 per share, excluding special items. Full year net sales were $7.8 billion in 2023 and $8.5 billion in 2022.

Reported earnings in the fourth quarter and full year 2023 include special items primarily for certain costs at the Jackson, AL mill for paper-to-containerboard conversion related activities and closure and other costs related to corrugated products facilities and design centers.

Excluding special items, the $(.22) per share decrease in fourth quarter 2023 earnings compared to the fourth quarter of 2022 was driven primarily by lower prices and mix ($1.93) in the Packaging segment, lower prices and mix ($.04) and volume ($.03) in the Paper segment, and higher depreciation expense ($.10). These items were partially offset by higher volume in the Packaging segment $1.07, lower operating and converting costs $.51, lower scheduled maintenance outage expenses $.19, lower freight and logistics expenses $.03, lower other expenses $.04, and a lower share count resulting from share repurchases $.04.

Results were $.37 above fourth quarter guidance of $1.76 per share primarily due to higher volume in the Packaging segment, lower operating and converting costs, and lower freight and logistics expenses.

Financial information by segment is summarized below and in the schedules with this release.

In the Packaging segment, shipments per day were up 5.1% and total corrugated products shipments, with one extra shipping day, were up 6.9% versus last year’s fourth quarter. Shipments per day were up 5.2% versus the third quarter of 2023. Containerboard production was 1,213,000 tons, and containerboard inventory was up 15,000 tons from the fourth quarter of 2022 and up 32,000 tons compared to the third quarter of 2023. In the Paper segment, sales volume was down 4,000 tons compared to the fourth quarter of 2022 and down 8,000 tons from the third quarter of 2023.

Commenting on reported results, Mark W. Kowlzan, Chairman and CEO, said, “Throughout the quarter, demand in the Packaging segment was stronger than our expectations. In addition, the higher volume along with the operational benefits of our capital spending program and continued emphasis on cost management and process efficiencies across our manufacturing and converting facilities drove operating and converting costs lower as well. We had an excellent restart of our Wallula, WA mill and the No. 3 machine to meet the stronger demand and build some needed inventory during the quarter. We plan to restart the No. 2 machine at the Wallula mill in the first quarter to help manage our expectations in the first half of 2024 for continued strong demand together with scheduled mill maintenance outages and the final phase of the containerboard conversion of the No. 3 machine at our Jackson, AL mill. The Paper segment had very good results with volume slightly higher than expected and costs managed extremely well.”

“Looking ahead as we move from the fourth and into the first quarter,” Mr. Kowlzan continued, “in our Packaging segment, we expect higher total corrugated products shipments from continued strong demand and two additional shipping days in the first quarter. Despite restarting the No. 2 machine at our Wallula Mill, containerboard volume will be lower due to downtime associated with the conversion of the No. 3 machine at our Jackson Mill and a scheduled maintenance outage at our Counce, TN mill. Prices and mix should be slightly higher with the implementation of our announced January price increases partially offset by a decrease in the published benchmark prices that occurred late in 2023, with export prices fairly flat. In our Paper segment, we expect an improved mix to move prices slightly higher with flat sales volume. Recycled fiber and energy prices will be higher, and unusually cold seasonal weather will negatively impact usages and yields for energy, wood and chemicals along with higher operating costs associated with the restart of full operations at the Wallula mill compared to fourth quarter operations. Labor and benefits costs will have seasonal timing-related increases that occur at the beginning of a new year related to annual wage and benefit increases, the restart of payroll taxes, and share-based compensation expenses. Scheduled outage expenses will be higher and will include the significant first quarter impact of the conversion outage at our Jackson Mill which is estimated to be ($.16) per share. Considering these items, we expect first quarter earnings of $1.54 per share.”

We present various non-GAAP financial measures in this press release, including diluted EPS excluding special items, segment income excluding special items and EBITDA excluding special items. We provide information regarding our use of non-GAAP financial measures and reconciliations of historical non-GAAP financial measures presented in this press release to the most comparable measure reported in accordance with GAAP in the schedules to this press release. We present our earnings expectation for the upcoming quarter excluding special items as special items are difficult to predict and quantify and may reflect the effect of future events. We currently anticipate special items in the first quarter of 2024 to include charges, fees, and expenses for paper-to-containerboard conversion related activities at the Jackson, AL mill. We do not currently expect any additional significant special items during the first quarter; however, additional special items may arise due to first quarter events.

PCA is the third largest producer of containerboard products and a leading producer of uncoated freesheet paper in North America. PCA operates eight mills and 86 corrugated products plants and related facilities.

Some of the statements in this press release are forward-looking statements. Forward-looking statements include statements about our future earnings and financial condition, the impact of the COVID-19 pandemic on our business, expected benefits from acquisitions and restructuring activities, our industry and our business strategy. Statements that contain words such as “will”, “should”, “anticipate”, “believe”, “expect”, “intend”, “estimate”, “hope” or similar expressions, are forward-looking statements. These forward-looking statements are based on the current expectations of PCA. Because forward-looking statements involve inherent risks and uncertainties, the plans, actions and actual results of PCA could differ materially. Among the factors that could cause plans, actions and results to differ materially from PCA’s current expectations include the following: the impact of general economic conditions; conditions in the paper and packaging industries, including competition, product demand and product pricing; fluctuations in wood fiber and recycled fiber costs; fluctuations in purchased energy costs; the possibility of unplanned outages or interruptions at our principal facilities; and legislative or regulatory requirements, particularly concerning environmental matters, as well as those identified under Item 1A. Risk Factors in PCA’s Annual Report on Form 10-K for the year ended December 31, 2022, and in subsequent quarterly reports on Form 10-Q, filed with the Securities and Exchange Commission and available at the SEC’s website at “www.sec.gov”.

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