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Packaging Corporation of America’s net sales increases in Q1 2017

Packaging Corporation of America has reported first quarter 2017 net income of $117m or $1.24 per share and $1.27 per share excluding special items.

First quarter net sales were $1.5 billion in 2017 and $1.4 billion in 2016.

Reported earnings include the impact of $.03 of special items expense in the first quarter of 2017 and $.02 of special items expense in 2016.

Our current estimate of the total property damage and business interruption losses associated with the DeRidder Mill incident is between $20 million to $25 million, including capital costs of approximately $4 million.The estimated impact to first quarter earnings, excluding capital costs, is $15 million of which $5 million, or $.03 per share, is included in special items expense for the quarter representing our property damage and business interruption deductible.

The remaining loss of $10 million, or $.07 per share, that impacted our first quarter results is expected to be resolved with our insurance carrier over the next several months. Additionally, to ensure adequate linerboard inventory during the extended DeRidder mill annual outage, we moved a previously scheduled maintenance outage at our Counce Mill from the first quarter to the second quarter of 2017, which improved expected first quarter results by $.01 per share.

Excluding special items, the $.16 per share increase in first quarter 2017 earnings compared to the first quarter of 2016, was driven primarily by higher containerboard and corrugated products prices and mix ($.16) and sales volumes ($.12), higher paper segment prices and mix ($.04), higher containerboard production volumes ($.07), and lower wood costs ($.05). These items were partially offset by lower paper segment sales and production volumes ($.06), higher costs for recycled fiber ($.07), energy ($.06), and freight ($.02), higher labor and fixed costs ($.02), and higher expenses for depreciation ($.03) and interest ($.02).

In the Packaging segment, total corrugated products shipments with one additional workday were up 10.7% and shipments per day were up 8.9% over last year’s first quarter. Containerboard production was 932,000 tons, and containerboard inventory was down 16,000 tons compared to year end 2016 and 12,000 tons below the first quarter of 2016.

Paper segment price and mix was higher than the first and fourth quarters of 2016 primarily due to the previously announced shutdown of pulp operations at our Wallula Mill in December 2016. Sales volume was lower than the first quarter of 2016 and slightly higher compared to the fourth quarter of 2016.

Commenting on the quarter, Mark W. Kowlzan, Chairman and CEO, said, “Our results were driven by strong demand and higher prices for containerboard and corrugated products as well as from the benefits of our recent TimBar and Columbus Container acquisitions. We continued to implement our announced containerboard and corrugated products price increases throughout the quarter, which helped us offset higher inflation in many of our manufacturing and converting costs and higher freight costs.

The integration of our recent corrugated plant acquisitions has gone very well and is ahead of schedule, and our containerboard inventory levels were below those of a year ago and year-end levels despite the additional containerboard inventory requirements of our acquisitions.”

“Looking ahead to the second quarter,” Mr. Kowlzan added, “we expect to continue implementing our previously announced packaging segment price increases, and we expect higher corrugated products shipments resulting from strong demand and our two recent acquisitions. Mill maintenance outage costs will be higher as we have scheduled outages at our three largest containerboard mills.

We expect flat paper volumes although price and mix should move lower. We also anticipate continued price inflation in recycled fiber, certain chemicals and freight costs, but our energy costs should improve as we move into seasonally milder weather. Considering these items, we expect second quarter earnings of $1.45 per share. This does not include any potential additional costs or anticipated recoveries related to the DeRidder Mill insurance claim.”

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. Additional special items may arise due to second quarter events.

PCA is the fourth largest producer of containerboard and corrugated packaging products and the third largest producer of uncoated freesheet paper in the United States. PCA operates eight mills and 93 corrugated products plants and related facilities.