Packaging Corporation of America (NYSE: PKG) today reported third quarter 2023 net income of $183 million, or $2.03 per share, and net income of $185 million, or $2.05 per share, excluding special items. Third quarter net sales were $1.9 billion in 2023 and $2.1 billion in 2022.

Reported earnings in the third quarter of 2023 include special items primarily for certain costs at the Jackson, AL mill for paper-to-containerboard conversion related activities.

Excluding special items, the ($.78) per share decrease in third quarter 2023 earnings compared to the third quarter of 2022 was driven primarily by lower price and mix ($1.33) and volume ($.09) in the Packaging segment, higher depreciation expense ($.11), lower volume in the Paper segment ($.04), a higher tax rate ($.02), and other expenses ($.02). These items were partially offset by lower operating costs $.58, a lower share count resulting from share repurchases in the second half of 2022 $.11, higher prices and mix in the Paper segment $.04, lower converting costs $.04, lower scheduled maintenance outage expenses $.04, and lower freight and logistics expenses $.02.

Results were $.17 above third quarter guidance of $1.88 per share primarily due to higher volume in the Packaging and Paper segments and lower operating and converting costs.

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

In the Packaging segment, corrugated products shipments per day were up 1.9% over last year’s third quarter and total shipments, with two less shipping days, were down (1.3%). Shipments per day were up 3.9% versus the second quarter of 2023. Containerboard production was 1,118,000 tons, and containerboard inventory was down 84,000 tons from the third quarter of 2022 and down 12,000 tons compared to the second quarter of 2023. In the Paper segment, sales volume was down 10,000 tons compared to the third quarter of 2022 and up 14,000 tons compared to the second quarter of 2023.

Commenting on reported results, Mark W. Kowlzan, Chairman and CEO, said, “We were able to exceed our guidance for the quarter with better demand in our Packaging and Paper segments and by remaining focused on process efficiency optimization efforts across our mills and corrugated products facilities. The scheduled maintenance outages at our mills were executed well, and we also ran the containerboard system in a very cost-effective manner to match our supply with demand, which included keeping our Wallula, WA mill temporarily idled during the quarter. With the stronger demand in our Packaging segment, we ended the quarter with inventory levels lower than anticipated. Based on our current outlook for improving demand together with current plans in the first half of 2024 for scheduled mill maintenance outages and completing the final phase of the containerboard conversion of the No. 3 machine at our Jackson, AL mill, we are planning to restart the No. 3 machine at our Wallula mill during the fourth quarter in order to bring our inventories to desired levels.”

“Looking ahead as we move from the third and into the fourth quarter,” Mr. Kowlzan added, “in our Packaging segment, we expect less market-related downtime as we build our inventories back to appropriate levels along with higher shipments per day in our corrugated products facilities, although our plants will have one less shipping day compared to the third quarter. We also expect lower average prices primarily due to the majority of the May decrease in the published benchmark index grades being realized throughout the third quarter as well as a seasonally less rich mix. In our Paper segment, volume will be lower compared to the seasonally stronger third quarter, and prices and mix are assumed to trend lower with declines in the index prices. Operating and converting costs will increase driven by higher recycled fiber prices, seasonal energy costs, and the re-start of the Wallula mill. Depreciation expense is estimated to be slightly higher, and scheduled maintenance outage expenses will be lower. Considering these items, we expect fourth quarter earnings of $1.76 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 fourth quarter of 2023 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 fourth quarter; however, additional special items may arise due to fourth 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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