Packaging Corporation of America (PKG)

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Packaging Corporation of America (PKG)

F1Q10 Earnings Call

April 20, 2010 10:00 AM ET

Executives

Paul Stecko - Chairman & CEO

Mark Kowlzan - SVP, Containerboard

Tom Hassfurther - EVP, Corrugated Products

Rick West - CFO

Analysts

Chip Dillon - Credit Suisse

George Staphos - Bank of America

Mark Weintraub - Buckingham Research

Richard Skidmore - Goldman Sachs

Mark Wilde - Deutsche Bank

Claudia Shank Hueston - JPMorgan

Mark Connelly - CLSA

Joshua Zaret - Longbow Research

George Staphos - Bank of America

Mark Weintraub - Buckingham Research

Fritz von Carp - Sage Asset Management

Presentation

Operator

Thank you for joining Packaging Corporation of America’s first quarter 2010 earnings conference call. Your host today will be Paul Stecko, Chairman and CEO. Upon the conclusion of the narrative there will be a Q-and-A session.

I will now turn the conference call over to Mr. Stecko. Please go ahead when you're ready.

Paul Stecko

Thank you and good morning and thanks for joining the PCA’s first quarter earnings release call. On the call with me today as usual as Tom Hassfurther, who runs our Box business; Mark Kowlzan, who runs our paper mills; and Rick West, our CFO and they will assist me on the call and again, thanks for participating and when I finish the prepared remarks, we will take your questions.

Yesterday we reported first quarter earnings of $19 million or $0.19 a share. The reported results including $9 million and $0.9 per share addition to income from alternative fuel mixture tax credits, which were generated in 2009 and then after tax charge $2.5 million or $0.02 of share from asset disposable for related to work counts and Valdosta major energy projects as well as the announce closure of the Ackerman, Mississippi saw mill.

The increase in earnings from alternative fuel packs credits was the result of removing a reserve that has been established to cover potential ambiguity that was subsequent result concerning the methodology of calculating the fuel credits.

Our net sales for the first quarter were $551 million compared to $512 million in the first quarter of 2009. Excluding the additional income from alternative fuel mixture credits and the asset disposals, net income was $12 million or $0.12 of share versus first quarter of 2009 earnings of $26 million or $0.25 of share.

The decrease and earnings per share compare to last year was driven by lower containerboard and corrugated products pricing mix of $0.26 of share. Higher recycle fiber costs of $0.06 of share and higher pulpwood cost of $0.03 of share. These items were partially offset by higher volume of $0.16 of share lower energy costs of $0.04 of share and lower chemical costs of $0.02 of share.

Looking at some of the details of operations both our containerboard and corrugated products demand continue to strengthen at a faster phase then we had expected and was up significantly over last year. Our corrugated products shipments for work day were up 12.4% over the last year’s first quarter and with one more work day this were up 14.2% in total.

Shipments were consistently strong throughout the quarter, up 10% in January and 15% in February both on per day and total of shipment basis and in March shipments were up 12.5% for work day and with one more work day this year were up 17.5% in total. Remember however that last year’s first quarter was very weak and these numbers were very good did benefit from a fairly easy comparison.

Our asset sales of containerboard were also very strong up 40,000 tones or 48% over last year’s first quarter. Asset sales could have been even stronger then we have to limit some sales in this market due to our low containerboard inventory level and depending annual maintenance outages in the second quarter.

Our mills produced 569,000 tones of containerboard operating at 94% of capacity, that’s up 54,000 tones from last year’s first quarter. We had about 35,000 tones of mill downtime during the first quarter which included 7,000 tones from wood fiber shortages that our Counce mills. 20,000 tones for more Counce annual maintenance outage and 8,000 tones at our Valdosta mill from downtime related to energy project tie in work.

The earnings impact from the downtime including higher operating cost was about $0.07 per share during the first quarter. Overall our mills ran exception new well considering the maintenance and energy project related outages and the extreme fiber shortages. Our containerboard inventory at the end of the first quarter was about 12,000 tones below 2009, year end levels.

This is a pretty low level considering that we have annual maintenance outages scheduled at three of our four mills in the second quarter and as reported by the FBA last Friday industry inventories also remained at historic loss was March ending inventories that only 2.083 million tones or 3.8 weeks of supply. This is a lowest March ending inventory in terms of tones since 1981 and is the lowest ever in terms of weeks’ supply dating back at 1974, which is the last for which we have records.

Moving on to pricing containerboard and box prices were down compared to last year’s first quarter as a result of price decreases that occurred through out 2009. These price decreases along with some mix differences reduced earnings by about $0.26 a share compared to last year’s first quarter. Published industry containerboard prices increased $50 per tone in January and our corresponding first quarter box price increase went as planned and was essentially completed by April 1.

Read the rest of this transcript for free on seekingalpha.com