Packaging Corporation of America reported fourth quarter 2018 net income of $205m, or $2.16 per share and $2.17 per share excluding special items. Fourth quarter net sales were $1.75 billion in 2018 and $1.68 billion in 2017.
Full year 2018 net income was $738 million, or $7.80 per share and $8.03 per share excluding special items. Full year 2018 net sales were $7.01 billion compared to 2017 net sales of $6.44 billion
Reported earnings in the fourth quarter and full year 2018 and 2017 include special items primarily for certain costs related to discontinuing paper operations associated with the previously announced conversion of the No. 3 paper machine at our Wallula, Washington mill to linerboard as well as income from various tax-related items resulting from the December 2017 Tax Cut and Jobs Act.
Excluding special items, the $.61 per share increase in fourth quarter 2018 earnings compared to the fourth quarter of 2017 was driven primarily by higher prices and mix $.42 and volumes $.17 in our Packaging segment, higher prices and mix $.15 in our Paper segment, lower scheduled maintenance outage costs $.06, lower interest expense $.03, lower depreciation expense $.02, and a favorable tax rate $.27 primarily resulting from Tax Reform changes.
These items were partially offset by lower volumes ($.11) in our Paper segment, higher operating costs ($.26), higher freight expense ($.04), higher converting costs ($.03), and the timing of the fourth quarter 2017 benefit from the final insurance recovery related to the February 2017 DeRidder Mill incident ($.07).
Results were $.02 above fourth quarter guidance of $2.15 per share primarily due to better prices and mix in our Packaging and Paper segments, lower mill indirect costs, and a lower tax rate. These items were partially offset by lower than expected volumes in our Packaging segment.
In the Packaging segment, total corrugated products shipments and shipments per day were up 0.2% over last year’s fourth quarter. Containerboard production was 1,021,000 tons, and containerboard inventory was up 9,000 tons compared to the fourth quarter of 2017 and down 26,000 tons from the third quarter of 2018. In the Paper segment, compared to the fourth quarter of 2017, sales volume was 23% lower and production volume was 11% lower, primarily due to discontinuing the paper business at the Wallula Mill.
Commenting on reported results, Mark W. Kowlzan, Chairman and CEO, said, “Our containerboard mills established a new fourth quarter production record while reducing our containerboard inventory by 26,000 tons from the end of the third quarter. We ran our system to demand and managed natural gas supply issues that negatively impacted production at our Wallula Mill. Our containerboard production allowed us to maintain our industry leading integration rate by supplying the necessary containerboard to achieve a new all-time quarterly record for box shipments per day. Additionally, in 2018, we established new annual records for containerboard shipments, total box shipments and box shipments per day. The final phase of the containerboard conversion work at our Wallula Mill was very successful with the machine starting up on schedule. During the quarter, the machine operated at its design capacity, producing a high quality virgin linerboard. Volume in our Paper segment was seasonally lower as expected, but our market conditions were very good and our prices and mix came in better than anticipated. The benefits of market conditions and good operational execution in both of our segments helped us offset higher inflation in many of our operating and converting costs as well as higher freight and logistics expenses.”
“Looking ahead as we move into the first quarter of 2019,” Mr. Kowlzan added, “we expect continued strong demand in our Packaging segment for both containerboard volume and corrugated products volume, and we expect strong market conditions in our Paper segment to continue. We anticipate higher labor and benefits costs with annual wage increases and other timing-related expenses. Although we expect costs for freight and recycled fiber to be fairly flat, we do anticipate some inflation with most of our chemical and repair and materials costs, while seasonally colder weather will increase energy usage and wood costs. We also expect our tax rate to be slightly higher. Finally, the recent decrease in the published price for domestic medium will have a minimal effect on earnings. Considering these items, we expect first quarter earnings of $1.97 per share”.
We present various non-GAAP financial measures in this press release, including net income and 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 do not currently expect special items to have a significant effect on first quarter earnings. However, additional special items may arise due to first quarter events.
PCA is the third largest producer of containerboard products and the third largest producer of uncoated freesheet paper in North America. PCA operates eight mills and 95 corrugated products plants and related facilities.
Source: Company Press Release