PCA(US:PKG)2024-05-08 14:09PART I - Financial Information Item 1. Financial Statements Presents the unaudited consolidated financial statements for Q1 2024, detailing a year-over-year decrease in net income despite stable net sales Consolidated Statements of Income and Comprehensive Income Q1 2024 net sales remained flat year-over-year, while higher costs led to a decline in net income and earnings per share Q1 2024 vs. Q1 2023 Income Statement Highlights | Metric | Q1 2024 ($M) | Q1 2023 ($M) | Change (%) | | :--- | :--- | :--- | :--- | | Net sales | 1,979.5 | 1,976.3 | +0.2% | | Gross profit | 370.4 | 431.4 | -14.1% | | Income from operations | 196.0 | 270.7 | -27.6% | | Net income | 146.9 | 190.1 | -22.7% | | Diluted EPS ($) | 1.63 | 2.11 | -22.7% | Consolidated Balance Sheets Total assets increased slightly to $8.86 billion, supported by a rise in cash and cash equivalents Balance Sheet Summary | Metric | March 31, 2024 ($M) | Dec 31, 2023 ($M) | | :--- | :--- | :--- | | Cash and cash equivalents | 692.4 | 648.0 | | Total current assets | 3,445.1 | 3,254.4 | | Total assets | 8,857.0 | 8,681.1 | | Total current liabilities | 1,400.3 | 1,265.7 | | Total liabilities | 4,826.0 | 4,683.8 | | Total stockholders' equity | 4,031.0 | 3,997.3 | Consolidated Statements of Cash Flows Net cash from operating activities decreased to $260.4 million in Q1 2024 due to lower net income Q1 2024 vs. Q1 2023 Cash Flow Summary | Cash Flow Activity | Q1 2024 ($M) | Q1 2023 ($M) | | :--- | :--- | :--- | | Net cash from operating activities | 260.4 | 280.4 | | Net cash used for investing activities | (81.0) | (115.4) | | Net cash used for financing activities | (135.0) | (117.3) | | Net increase in cash | 44.4 | 47.7 | Notes to Financial Statements Provides key disclosures on revenue disaggregation, litigation accruals, segment performance, and major customers Revenue by Product Line (Q1 2024 vs Q1 2023) | Product Line | Q1 2024 Revenue ($M) | Q1 2023 Revenue ($M) | | :--- | :--- | :--- | | Packaging | 1,798.3 | 1,808.6 | | Paper | 163.8 | 150.9 | | Corporate and Other | 17.4 | 16.8 | | Total revenue | 1,979.5 | 1,976.3 | - A jury awarded plaintiffs approximately $91.8 million in damages related to the 2017 DeRidder mill incident, for which the company recorded a $123.7 million accrual and a corresponding insurance receivable8993 Segment Operating Income (Q1 2024 vs Q1 2023) | Segment | Q1 2024 Operating Income ($M) | Q1 2023 Operating Income ($M) | | :--- | :--- | :--- | | Packaging | 203.8 | 268.0 | | Paper | 29.7 | 34.1 | | Corporate and Other | (37.5) | (31.4) | - ODP Corporation is the largest customer in the Paper segment, accounting for approximately 58% of the segment's sales and 5% of total company sales in Q1 202480 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the Q1 net income decrease to lower prices and higher costs, despite stable sales and strong volumes Executive Summary Q1 2024 net income declined to $147 million, driven by lower prices and higher costs that were partially offset by stronger sales volumes Q1 Earnings Per Share (Reported vs. Excluding Special Items) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Earnings per diluted share, as reported | $1.63 | $2.11 | | Earnings per diluted share, excluding special items | $1.72 | $2.20 | - Packaging segment EBITDA (excluding special items) decreased to $326 million from $392 million YoY, due to lower prices and higher outage expenses, despite an 11.0% per workday increase in corrugated products shipments98 Results of Operations Flat net sales resulted from higher volumes in both segments being offset by pricing pressure in the Packaging segment - Packaging segment's corrugated products shipments increased 9.2% in total and 11.0% per workday compared to Q1 2023108 - Paper segment sales increased due to higher volume ($23 million), which was partially offset by lower prices and mix ($10 million)109 - The effective tax rate decreased to 21.6% in Q1 2024 from 24.9% in Q1 2023, primarily due to higher excess tax benefits from employee stock awards118 Liquidity and Capital Resources The company maintains a strong liquidity position with $692 million in cash and projects capital expenditures of $470-$490 million for 2024 - At quarter-end, the company had $692 million of cash and cash equivalents and $323 million of unused borrowing capacity under its revolving credit facility119 - Capital investments for 2024 are expected to be between $470 million and $490 million124 - During Q1 2024, the company paid $112.0 million in dividends to shareholders125 Outlook Management anticipates higher Q2 earnings driven by strong demand and improved pricing in the Packaging segment - Packaging segment: Expects continued strong demand, higher shipments, and higher prices and mix in Q2105 - Paper segment: Orders are expected to remain strong, but volume will be lower due to a scheduled maintenance outage105 - Overall, the company expects second-quarter earnings to be higher than the first quarter105 Item 3. Quantitative and Qualitative Disclosures About Market Risk Market risk exposure is primarily from commodity prices and interest rates, mitigated by 100% fixed-rate debt - As of March 31, 2024, 100% of PCA's outstanding debt is at fixed interest rates, minimizing exposure to interest rate fluctuations133 Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective with no material changes to internal controls - The CEO and CFO concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of March 31, 2024144 - No material changes occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting145 PART II - Other Information Item 1. Legal Proceedings Incorporates disclosures from Note 19 regarding the DeRidder Mill incident litigation - Information regarding legal proceedings is detailed in Note 19 of the financial statements, which discusses the DeRidder Mill incident litigation148 Item 1A. Risk Factors Reports no material changes to the risk factors previously disclosed in the 2023 Annual Report on Form 10-K - There have been no material changes to the risk factors disclosed in the company's 2023 Annual Report on Form 10-K149 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No shares were repurchased in Q1 2024, with $436.0 million remaining under the authorized buyback program - The company did not repurchase any shares of its common stock under its authorized plan during Q1 202478150 - A total of 126,367 shares were withheld from employees to cover income and payroll taxes on vested equity awards150 - As of March 31, 2024, $436.0 million remained available for future repurchases under the company's stock repurchase program78150