PCA anticipates healthy containerboard demand to start the year

Packaging Corp. of America (PCA), a packaging producer based in Lake Forest, Illinois, reports that its 2020 full-year earnings were almost on par with full-year earnings in 2019.

According to the company’s fourth-quarter 2020 earnings report, it achieved net income of $124 million, or $1.30 per share, and net income of $127 million, or $1.33 per share, excluding special items, for the quarter. Fourth-quarter net sales were $1.7 billion in both 2020 and 2019.

Full-year 2020 net income was $461 million, or $4.84 per share. When special items are excludes, the company's net income totaled $550 million, or $5.78 per share. Full-year net sales were $6.7 billion in 2020 compared with $7 billion in 2019.

PCA reports that its earnings in the fourth quarter included special items for facilities closure and restructuring costs, and its full-year 2020 earnings included special items primarily for costs associated with facility closures, expenses associated with the impact of Hurricane Laura at the company’s DeRidder, Louisiana, mill and goodwill impairment charges in its Paper segment, resulting from the exacerbated deterioration in uncoated freesheet market conditions arising from the COVID-19 pandemic.

In the Packaging segment, total corrugated products shipments with one less workday were up 9.9 percent, and shipments per day were up 11.7 percent over 2019’s fourth quarter. For the quarter, containerboard production was at 1.174 million tons, and containerboard inventory was down 13,000 tons compared with the fourth quarter of 2019 and up 40,000 tons compared with the third quarter of 2020.

In the Paper segment, PCA reports that sales volume was down 80,000 tons compared with the fourth quarter of 2019 and down 17,000 tons compared with the third quarter of 2020.

“Demand in our Packaging segment remained very strong as sales volumes in both our containerboard mills and our corrugated products plants set all-time records,” says Mark Kowlzan, chairman and CEO of PCA. “Even though we postponed a large discretionary outage during the quarter, as well as utilized our Jackson, Alabama, mill for additional containerboard production, we again ended the period with inventory levels lower than planned. Late in the quarter, we began to realize our previously announced Packaging segment price increases."

He continues, “Market conditions in our Paper segment continue to be challenged due to the nationwide responses to help control the spread of the pandemic. As expected, sales volume was below seasonally stronger third-quarter levels and over 30 percent below the fourth quarter of 2019. As mentioned previously, with the scheduled outage at our International Falls mill, the Jackson mill was restarted on white paper in October and produced both paper and containerboard during the quarter.”

Kowlzan adds that the company’s employees continued to demonstrate “tremendous resiliency to overcome adversity, in both their personal and work lives, to delivery significant accomplishments throughout the company” in response to the pandemic in the fourth quarter of 2020 and throughout the fiscal year. He says, “Our manufacturing and sales organizations continue to successfully adapt to the needs of our customers during this period of unprecedented demand in our packaging business and effectively manage the market challenges in our paper business brought on by the pandemic as well as worked through the impact of multiple hurricanes.”

Forecasting the first quarter of 2021

Looking to the first quarter of 2021, Kowlzan says he expects PCA’s Packaging segment demand to remain strong, with shipments exceeding those of 2020’s record first quarter.

He says, “This will require us to continue producing containerboard at our Jackson mill in addition to an appropriate amount of white paper to maintain optimal inventory levels for servicing our paper customers. We expect to realize the majority of our recently announced Packaging segment price increases during the first quarter, and we expect average export prices to move higher as well.”

PCA reports that freight costs are expected to continue to remain high in the first quarter of 2021. The company says labor costs also are expected to rise in response to higher annual wage inflation and timing-related increases to fringes and benefits at the start of a new year. Additionally, seasonally colder weather in the first quarter likely will lead to higher energy and wood costs.

PCA says it also anticipates recycled fiber costs for commodities such as old corrugated containers (OCC) to increase in the first quarter of 2021. During a conference call related to its earnings Jan. 28, Kowlzan said he also expects containerboard demand to stay high in the first quarter of the year.

However, Kowlzan says, with the ongoing pandemic and lockdown conditions “constantly changing across the country, and with a new federal administration in place, we expect that guidelines and requirements will continue to evolve. There continues to be numerous events and actions that could significantly impact our expectations and assumptions for the upcoming quarter in both our Packaging and Paper segments. … As a result, we are not able to appropriately quantify our guidance for the first quarter.”