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Packaging Corporation of America's (PKG) CEO Mark Kowlzan on Q1 2016 Results - Earnings Call Transcript

Q1 2016 Earnings Conference Call

April 21, 2016, 10:00 AM ET

Executives

Mark Kowlzan - Chairman and Chief Executive Officer

Thomas Hassfurther - Executive Vice President, Corrugated Products

Robert Mundy - Senior Vice President and Chief Financial Officer

Analysts

Mark Weintraub - Buckingham Research

Chip Dillon - Vertical Research Partners

Mark Wilde - Bank of Montreal

Scott Lehman - CLSA

Scott Gaffner - Barclays

George Staphos - Bank of America Securities

Debbie Jones - Deutsche Bank

Anthony Pettinari - Citigroup.

Philip Ng - Jefferies & Company

Chris Manuel - Wells Fargo

Steve Chercover - D.A. Davidson

Operator

Thank you for joining Packaging Corporation of America's first quarter 2016 earnings results conference call. Your host today will be Mark Kowlzan, Chief Executive Officer of PCA. Upon conclusion of his narrative, there will be a question-and-answer session.

I will now turn the conference over to Mr. Kowlzan, and please proceed when you're ready.

Mark Kowlzan

Thank you, and good morning and thanks for participating in Packaging Corporation of America's first quarter 2016 earnings release conference call. I'm Mark Kowlzan, Chairman and CEO of PCA; and with me on the call today is Tom Hassfurther, Executive Vice President, who runs our Packaging business; and Bob Mundy, our Chief Financial Officer.

During our prepared comments, we will be referring to slides that are posted on the website. I'll begin the call with an overview of our first quarter results, and then I'll turn the call over to Tom and Bob, who will provide further details regarding the first quarter. I'll wrap things up, and then we'll be glad to take questions.

Yesterday, we reported record first quarter net income of $104 million or $1.09 per share. First quarter net income included special charges for facilities closure cost of $1.9 million. Excluding these special items, first quarter 2016 net income was $106 million or a record $1.11 per share compared to the first quarter 2015 net income of $100 million or $1.01 per share.

First quarter net sales were $1.4 billion in both 2016 and 2015. Total company EBITDA, excluding special items, was $272 million for the quarter compared to $255 million in last year's first quarter. Details of special items for the quarter were included in the schedule that accompanied our earnings press release.

Turning to Slide 3. First quarter 2016 earnings per share, excluding special items, were $0.10 per share above the first quarter of 2015, driven primarily by higher containerboard and corrugated products volume of $0.03, lower annual mill outage costs $0.08, lower cost for fiber $0.06, energy $0.6, and freight $0.04 as well as a lower share count of $0.04 that resulted from the share repurchases.

These items were partially offset by lower white paper prices and mix of $0.04, lower containerboard export prices $0.03, lower domestic containerboard and corrugated prices and mix $0.03, lower pulp volume $0.02, higher labor cost $0.01, higher depreciation $0.03, higher interest expense $0.02, and the state incentive that was received in 2015 related to the investment shift at DeRidder mill of $0.02.

Our earnings were $0.11 per share above our first quarter guidance of $1 per share. This was primarily the result of three things. First, we have, what I term, best-ever operational performance aided somewhat by milder than expected winter weather, which in total contributed $0.07 per share. Secondly, we had synergy related benefits from the optimization of freight logistics costs of $0.02. And third, we have lower share count, which contributed $0.02 per share.

Looking at our packaging business, EBITDA excluding special items and margins, were up over last year's levels with EBITDA of $235 million and sales of $1.1 billion or 21.4% margin compared to the first quarter 2015 packaging EBITDA of $222 million on sales of $1.1 billion or 20.2% margin.