Packaging Corporation of America (NYSE:PKG) Q2 2024 Earnings Conference Call July 24, 2024 9:00 AM ET Company Participants Mark Kowlzan - Chairman & Chief Executive Officer Tom Hassfurther - Executive Vice President, Corrugated Products Bob Mundy - Chief Financial Officer Conference Call Participants George Staphos - Bank of America Securities Mike Roxland - Truist Mark Weintraub - Seaport Research Partners Anthony Pettinari - Citi Gabe Hajde - Wells Fargo Philip Ng - Jefferies Charlie Muir-Sands - BNP Pari ...

Core Insights - Packaging Corporation of America (PKG) reported adjusted earnings per share (EPS) of $2.20 for Q2 2024, exceeding the Zacks Consensus Estimate of $2.12 and the company's guidance of $2.07, although it represented a 5% decrease year over year [1][2] Financial Performance - Sales for Q2 2024 increased by 6.3% year over year to $2.08 billion, surpassing the Zacks Consensus Estimate of $2.03 billion [3] - The Packaging segment's sales rose by 6.6% year over year to $1.91 billion, exceeding the estimate of $1.84 billion [4] - Adjusted operating profit was $280 million, down from $290 million in the prior-year quarter, while the estimated segmental adjusted operating income was $242 million [5] - The Paper segment's revenues were $150 million, up 5.1% year over year, beating the estimate of $133 million, with an adjusted operating profit of $26 million compared to $34 million in the previous year [14] Cost and Cash Position - Cost of products sold increased by 8.6% year over year to $1.64 billion, with gross profit falling by 1.6% to $438 million [12] - The company had a cash balance of $1.17 billion at the end of Q2 2024, up from $0.63 billion at the end of the prior-year quarter [15] Future Outlook - The company anticipates improved prices and mix for both Packaging and Paper segments in Q3 2024, driven by previously announced price hikes and higher containerboard export prices [6] - Projected EPS for Q3 2024 is $2.45 [16] - In the Paper segment, volumes are expected to decline sequentially in Q3, with higher operating and converting costs anticipated [17] Market Performance - Packaging Corp's shares have increased by 43.2% over the past year, compared to the industry's growth of 11.7% [7]

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Shares of Packaging Corp. have returned +1.9% over the past month versus the Zacks S&P 500 composite's +2% change. The stock currently has a Zacks Rank #1 (Strong Buy), indicating that it could outperform the broader market in the near term. While investors scrutinize revenue and earnings changes year-over-year and how they compare with Wall Street expectations to determine their next move, some key metrics always offer a more accurate picture of a company's financial health. For the quarter ended June 2024 ...

Packaging Corp. (PKG) came out with quarterly earnings of $2.20 per share, beating the Zacks Consensus Estimate of $2.12 per share. This compares to earnings of $2.31 per share a year ago. These figures are adjusted for non-recurring items. This quarterly report represents an earnings surprise of 3.77%. A quarter ago, it was expected that this maker of containerboard and corrugated packaging products would post earnings of $1.63 per share when it actually produced earnings of $1.72, delivering a surprise of ...

Packaging Corporation of America Q2 2024 Earnings Release [Financial Highlights](index=1&type=section&id=Financial%20Highlights) The company reported Q2 2024 net sales of $2.1 billion and adjusted EPS of $2.20, exceeding guidance Q2 2024 Key Financial Metrics (vs. Q2 2023) | Metric | Q2 2024 | Q2 2023 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $2,075.3 M | $1,952.1 M | +6.3% | | Net Income | $198.9 M | $202.7 M | -1.9% | | Diluted EPS (Reported) | $2.21 | $2.24 | ($0.03) | | Diluted EPS (Excluding Special Items) | $2.20 | $2.31 | ($0.11) | - The Q2 2024 diluted EPS of **$2.20** (excluding special items) was **$0.13 above the company's guidance** of $2.07 per share, driven by higher volume in the Packaging segment and lower costs[11](index=11&type=chunk) - The year-over-year decrease of $0.11 in adjusted EPS was primarily caused by lower prices and mix in both Packaging ($-0.87) and Paper ($-0.07) segments, partially offset by higher volumes[1](index=1&type=chunk) [Segment Performance](index=1&type=section&id=Segment%20Performance) Strong volume growth in the Packaging segment set a new production record, though income declined for both segments Segment Performance (Q2 2024 vs Q2 2023, $ in millions) | Segment | Net Sales (Q2 2024) | Net Sales (Q2 2023) | Segment Income (Excl. Special Items, Q2 2024) | Segment Income (Excl. Special Items, Q2 2023) | | :--- | :--- | :--- | :--- | :--- | | Packaging | $1,908.3 | $1,790.3 | $279.9 | $289.7 | | Paper | $150.1 | $142.8 | $26.1 | $33.5 | | Corporate and Other | $16.9 | $19.0 | $(30.5) | $(30.5) | - Packaging segment volumes showed significant strength with corrugated products shipments per day **increasing by 9.2% YoY** and containerboard production reaching a **record 1,281,000 tons**[30](index=30&type=chunk) - Paper segment sales volume **increased by 12%** compared to Q2 2023 but decreased by 8% compared to Q1 2024[30](index=30&type=chunk) [Management Commentary & Outlook](index=3&type=section&id=Management%20Commentary%20%26%20Outlook) Management highlighted strong market conditions and issued Q3 2024 earnings guidance of $2.45 per share - CEO Mark W. Kowlzan attributed the strong quarterly results to robust market conditions, which led to **record containerboard production** and corrugated shipment levels in June[15](index=15&type=chunk) - For Q3 2024, the company expects higher prices and continued strength in corrugated shipment volume, offset by higher seasonal operating and converting costs[31](index=31&type=chunk) - The company expects third quarter 2024 earnings of **$2.45 per share**[31](index=31&type=chunk) [Consolidated Financial Statements](index=5&type=section&id=Consolidated%20Financial%20Statements) This section presents the unaudited consolidated earnings results for the three and six months ended June 30, 2024 Consolidated Earnings Results (Unaudited, $ in millions) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $2,075.3 | $1,952.1 | $4,054.8 | $3,928.4 | | Gross profit | $437.7 | $444.7 | $808.1 | $876.1 | | Income from operations | $276.0 | $284.4 | $472.0 | $555.0 | | Income before taxes | $266.7 | $267.8 | $454.3 | $521.1 | | Net income | $198.9 | $202.7 | $345.9 | $392.8 | | Diluted EPS | $2.21 | $2.24 | $3.84 | $4.35 | [Reconciliation of Non-GAAP Financial Measures](index=7&type=section&id=Reconciliation%20of%20Non-GAAP%20Financial%20Measures) This section reconciles GAAP figures to non-GAAP measures like EBITDA and earnings excluding special items - Management presents non-GAAP measures to evaluate ongoing operational performance and facilitate period-over-period comparisons[3](index=3&type=chunk)[24](index=24&type=chunk) [Net Income and EPS Excluding Special Items](index=9&type=section&id=Net%20Income%20and%20EPS%20Excluding%20Special%20Items) This reconciliation adjusts reported Net Income and Diluted EPS for special items related to mill conversion and closures Q2 Reconciliation of Net Income and EPS ($ in millions, except per-share data) | Description | Income before Taxes | Income Taxes | Net Income | Diluted EPS | | :--- | :--- | :--- | :--- | :--- | | **As reported (Q2 2024)** | **$266.7** | **$(67.8)** | **$198.9** | **$2.21** | | Total special items | $(0.5) | $0.2 | $(0.3) | $0.00 | | **Excluding special items (Q2 2024)** | **$266.2** | **$(67.6)** | **$198.6** | **$2.20** | Six Months Reconciliation of Net Income and EPS ($ in millions, except per-share data) | Description | Income before Taxes | Income Taxes | Net Income | Diluted EPS | | :--- | :--- | :--- | :--- | :--- | | **As reported (YTD 2024)** | **$454.3** | **$(108.4)** | **$345.9** | **$3.84** | | Total special items | $9.7 | $(2.4) | $7.3 | $0.08 | | **Excluding special items (YTD 2024)** | **$464.0** | **$(110.8)** | **$353.2** | **$3.92** | [EBITDA and EBITDA Excluding Special Items](index=10&type=section&id=EBITDA%20and%20EBITDA%20Excluding%20Special%20Items) This table reconciles GAAP Net Income to EBITDA, showing Q2 2024 adjusted EBITDA of $404.0 million Reconciliation of Net Income to EBITDA ($ in millions) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | Net income | $198.9 | $202.7 | $345.9 | $392.8 | | Interest expense, net | $10.4 | $14.6 | $19.9 | $29.9 | | Provision for income taxes | $67.8 | $65.1 | $108.4 | $128.3 | | Depreciation, amortization, and depletion | $128.5 | $127.9 | $256.9 | $257.5 | | **EBITDA** | **$404.5** | **$412.3** | **$728.9** | **$812.5** | | Special items | $(0.5) | $5.2 | $8.3 | $9.9 | | **EBITDA excluding special items** | **$404.0** | **$417.5** | **$737.2** | **$822.4** | [Segment Income to EBITDA Excluding Special Items](index=11&type=section&id=Segment%20Income%20to%20EBITDA%20Excluding%20Special%20Items) This section provides a segment-level breakdown of the reconciliation from segment income to adjusted EBITDA Packaging Segment EBITDA Reconciliation (Q2 2024 vs Q2 2023, $ in millions) | Metric | Q2 2024 | Q2 2023 | | :--- | :--- | :--- | | Segment income | $279.8 | $285.8 | | Depreciation, amortization, and depletion | $120.1 | $116.3 | | **EBITDA** | **$399.9** | **$402.1** | | Special Items | $0.1 | $3.2 | | **EBITDA excluding special items** | **$400.0** | **$405.3** | Paper Segment EBITDA Reconciliation (Q2 2024 vs Q2 2023, $ in millions) | Metric | Q2 2024 | Q2 2023 | | :--- | :--- | :--- | | Segment income | $26.7 | $29.1 | | Depreciation, amortization, and depletion | $4.5 | $7.7 | | **EBITDA** | **$31.2** | **$36.8** | | Special Items | $(0.6) | $2.0 | | **EBITDA excluding special items** | **$30.6** | **$38.8** |

Core Viewpoint - Packaging Corp. (PKG) is highlighted as a strong candidate for investors due to its consistent performance in beating earnings estimates and its favorable positioning for future earnings reports [1]. Company Performance - Packaging Corp. has a solid track record of exceeding earnings estimates, with an average surprise of 11.93% over the last two quarters [2]. - In the last reported quarter, the company achieved earnings of $1.72 per share, surpassing the Zacks Consensus Estimate of $1.63 per share by 5.52% [3]. - For the previous quarter, the company reported earnings of $2.13 per share against an expected $1.80 per share, resulting in a surprise of 18.33% [3]. Earnings Estimates and Predictions - Estimates for Packaging Corp. have been trending upward, supported by its history of earnings surprises [4]. - The company currently has a positive Zacks Earnings ESP of +0.66%, indicating increased analyst optimism regarding its near-term earnings potential [7]. - The combination of a positive Earnings ESP and a Zacks Rank of 2 (Buy) suggests a strong likelihood of another earnings beat in the upcoming report [7]. Earnings ESP Insights - The Zacks Earnings ESP is a comparison between the Most Accurate Estimate and the Zacks Consensus Estimate, reflecting the latest analyst revisions [6]. - Stocks with a positive Earnings ESP and a Zacks Rank of 3 (Hold) or better have a nearly 70% chance of producing a positive surprise [5].

The Zacks Consensus Estimate for PKG's second-quarter revenues is pegged at $2.01 billion, indicating 3.1% growth from the year-ago reported figure. | --- | --- | --- | --- | --- | |---------|--------------------------------------|-------|-------|-------| | | de Consensus Estimate Trend (60 \nQ1 | Q2 | F1 | F2 | | Current | 2.11 | 2.33 | 8.33 | 9.29 | | | 2.10 | 2.33 | 8.33 | 9.29 | | | 2.10 | 2.33 | 8.27 | 9.19 | | | 2.10 | 2.33 | 8.27 | 9.18 | Solid Earnings Surprise History | --- | --- | --- | --- | --- ...

Core Viewpoint - The upcoming earnings report for Packaging Corp. is anticipated to influence stock movement, with better-than-expected results likely to drive the stock higher, while disappointing results may lead to a decline [1]. Revenue Expectations - Revenues for the upcoming quarter are projected to be $2.01 billion, reflecting a year-over-year increase of 3.1% [2]. Earnings Per Share (EPS) Estimates - The consensus EPS estimate for the quarter remains unchanged over the last 30 days, indicating a stable reassessment by analysts [3]. - Packaging Corp. is expected to report quarterly earnings of $2.11 per share, which represents a year-over-year decline of 8.7% [12]. Earnings Surprise Prediction - The Zacks Earnings ESP model suggests that Packaging Corp. is likely to beat the consensus EPS estimate, with a positive Earnings ESP of +0.67% [22]. - The company has a strong track record, having beaten consensus EPS estimates in the last four quarters [24]. Analyst Sentiment - Analysts have recently become more optimistic about Packaging Corp.'s earnings prospects, as indicated by the Most Accurate Estimate being higher than the Zacks Consensus Estimate [22]. - The stock currently holds a Zacks Rank of 2, suggesting a favorable outlook [16]. Market Context - Wall Street anticipates a year-over-year decline in earnings despite higher revenues for the quarter ended June 2024, making the comparison of actual results to estimates crucial for stock price movement [10]. - The sustainability of any immediate price changes will largely depend on management's commentary during the earnings call [11].

In December 2021, the company acquired all assets of Advanced Packaging Corporation in a cash-free transaction. PKG acquired a full-line 500,000-square-foot corrugated products facility located in Grand Rapids, MI. The deal supported Packaging Corp's focus on enhancing its containerboard portfolio through organic box volume growth and strategic box plant acquisitions. Following the buyout, PKG's containerboard integration increased almost 80,000 tons. This enhanced its mill capacity and box plant operations ...