PCA(US:PKG)2024-08-08 14:41PART I Item 1. Financial Statements Presents unaudited consolidated financial statements for Q2 2024 and 2023, covering income, balance sheets, cash flows, and detailed notes Consolidated Statements of Income and Comprehensive Income Net income for Q2 2024 was $198.9 million, a slight decrease from $202.7 million in Q2 2023, with diluted EPS at $2.21 Consolidated Statements of Income (in millions, except per-share data) | Indicator | 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 | | Net income | $198.9 | $202.7 | $345.9 | $392.8 | | Diluted EPS | $2.21 | $2.24 | $3.84 | $4.35 | | Dividends declared per share | $1.25 | $1.25 | $2.50 | $2.50 | Consolidated Balance Sheets Total assets increased to $8,982.1 million as of June 30, 2024, driven by higher receivables and PPE, with stockholders' equity also growing Consolidated Balance Sheet Highlights (in millions) | Account | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total current assets | $3,483.9 | $3,254.4 | | Property, plant, and equipment, net | $3,961.5 | $3,863.8 | | Total assets | $8,982.1 | $8,681.1 | | Total current liabilities | $1,431.5 | $1,265.7 | | Long-term debt | $2,473.2 | $2,472.2 | | Total liabilities | $4,855.5 | $4,683.8 | | Total stockholders' equity | $4,126.6 | $3,997.3 | Consolidated Statements of Cash Flows Net cash from operations decreased to $538.7 million for H1 2024, with increased cash used in investing and financing activities, resulting in a net cash decrease Six Months Ended June 30 - Cash Flow Summary (in millions) | Cash Flow Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $538.7 | $640.3 | | Net cash used for investing activities | ($323.8) | ($242.2) | | Net cash used for financing activities | ($249.3) | ($241.0) | | Net (decrease) increase in cash | ($34.4) | $157.1 | | Cash and cash equivalents, end of period | $613.6 | $477.1 | Condensed Notes to Unaudited Quarterly Consolidated Financial Statements Provides detailed explanations for financial statements, covering revenue recognition, EPS, DeRidder litigation, segment performance, and commitments across three segments - The company reports its business in three segments: Packaging, Paper, and Corporate and Other10 Revenue by Product Line (in millions) | Product Line | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Packaging | $1,908.3 | $3,706.5 | | Paper | $150.1 | $313.9 | | Corporate and Other | $16.9 | $34.4 | | Total revenue | $2,075.3 | $4,054.8 | - A jury awarded plaintiffs approximately $91.8 million in compensatory damages plus interest related to the DeRidder mill incident, with $125.7 million accrued for the verdict and interest, and a corresponding insurance recovery receivable66 - ODP Corporation is the largest customer in the Paper segment, accounting for approximately 59% of the segment's sales for the first six months of 202455 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q2 and H1 2024 financial results, highlighting strong Packaging volume growth, lower pricing, and an outlook for higher Q3 earnings driven by price improvements and demand Executive Summary Q2 2024 net sales increased to $2.08 billion, while net income slightly decreased to $199 million, driven by lower prices and higher costs, partially offset by higher volumes and record production - Q2 2024 net income was $199 million ($2.21/share), down from $203 million ($2.24/share) in Q2 202372 - Packaging segment corrugated products shipments per day increased 9.2% compared to Q2 2023, setting a new all-time containerboard production record of 1.3 million tons72 Results of Operations Q2 2024 net sales increased 6.3% to $2,075 million, driven by Packaging volume, though income from operations slightly decreased, with H1 income from operations falling 15.0% due to lower prices and higher costs Q2 2024 vs Q2 2023 Change in Packaging Segment Operating Income (in millions) | Factor | Impact on Operating Income | | :--- | :--- | | Higher sales and production volumes | +$114 | | Lower containerboard and corrugated products prices and mix | -$103 | | Higher operating costs | -$41 | | Lower annual outage expenses | +$10 | | Lower other converting costs | +$9 | | Lower freight expenses | +$8 | Six Months 2024 vs Six Months 2023 Change in Packaging Segment Operating Income (in millions) | Factor | Impact on Operating Income | | :--- | :--- | | Higher sales and production volumes | +$201 | | Lower containerboard and corrugated products prices and mix | -$261 | | Higher operating costs | -$30 | | Lower other converting costs | +$18 | | Lower freight expenses | +$11 | Liquidity and Capital Resources As of June 30, 2024, PCA held $614 million in cash and $323 million in unused borrowing capacity, with H1 operating cash flow at $539 million and full-year capital investments projected between $670 million and $690 million - At June 30, 2024, the company had $614 million of cash and cash equivalents and $323 million of unused borrowing capacity93 - Capital investments for 2024 are expected to be between $670 million and $690 million96 - Net cash provided by operating activities decreased by $101.6 million in the first six months of 2024 compared to 2023, primarily due to lower income from operations and unfavorable changes in working capital, including a DeRidder litigation insurance recovery receivable9495 Outlook PCA anticipates higher Q3 2024 earnings driven by expected price and mix improvements, continued strong shipment volumes, and slightly lower scheduled outage expenses - Expects Q3 earnings to be higher than Q2 earnings76 - Anticipates improved prices and mix in both Packaging and Paper segments76 - Expects shipments-per-day to continue strengthening, potentially setting a new Q3 record76 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from commodity and interest rate changes, with 100% of outstanding debt at fixed rates, mitigating interest rate risk - As of June 30, 2024, 100% of PCA's outstanding debt is at fixed interest rates105 Item 4. Controls and Procedures Management concluded disclosure controls and procedures were effective as of June 30, 2024, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2024114 - No material changes to internal control over financial reporting occurred during the quarter ended June 30, 2024115 PART II Item 1. Legal Proceedings Incorporates legal proceedings disclosures from Note 19 of the financial statements, primarily detailing the DeRidder Mill incident lawsuit - Information regarding legal proceedings is detailed in Note 19 of the financial statements117 Item 1A. Risk Factors No material changes to risk factors were reported since the 2023 Annual Report on Form 10-K - No material changes to risk factors were reported since the 2023 Annual Report118 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase shares in Q2 2024, withheld 8,324 shares for taxes, and has $436.0 million remaining for future repurchases - The company did not repurchase any shares under its public plan during Q2 2024119 - $436.0 million remains available for share repurchases under the current authorization119 Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities - None120 Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable121 Item 5. Other Information No directors or officers adopted or terminated Rule 10b5-1 trading plans or other arrangements during Q2 2024 - No directors or officers adopted or terminated Rule 10b5-1 trading plans in Q2 2024122 Item 6. Exhibits Lists exhibits filed with Form 10-Q, including CEO/CFO certifications and Inline XBRL documents - Lists filed exhibits, including CEO/CFO certifications and XBRL data files123