OAKLAND, July 25, 2014 (PPI Pulp & Paper Week) -Packaging Corp of America (PCA) reported a 60.6% jump in net income to a record $114 million on an 83.5% jump in sales to $1.47 million, and after $14 million in charges related to integration of its Boise acquisition and restructuring at its DeRidder, LA, mill.
"We had an outstanding quarter driven by strong corrugated products volume, higher prices, and lower costs," said CEO Mark Kowlzan. "We also successfully completed annual maintenance outages at three of our mills.
In packaging, EBITDA in the second quarter excluding special items was $259 million on sales of $1.145 million, translating into a 22.6% margin. The paper segment's EBITDA was $45 million on sales of $295 million.
Corrugated box shipments (excluding Boise) were up 5.5% in total and 3.8%/day compared with second quarter 2013 shipments. Including the recent purchase of Crockett Packaging in Southern California, per-day sales increased 4.3% vs. 1% growth in US industry box shipments.
PCA's containerboard mills churned out 846,000 tons in the second quarter, 25,000 tons more than a year ago. With strong internal demand and integration level of 91%, the company purchase 58,000 tons of containerboard in the open market and reduced open market sales by 8,000 tons in the quarter..
Higher stock/shipping delays.Containerboard inventories rose 24,000 tons from the first quarter, of which 7,500 tons came from shipments that "we could not get out at month-end due to rail and truck availability issues at our Counce, TN, and Valdosta, GA, mill," Kowlzan said.
He said a US rail car shortage is causing delays in shipments from the company's mills to its box plants, requiring higher cost than truck shipments. But he noted the trucking industry is also "facing service issues driven by limited availability of truck drivers and new regulations (on trucker's') hours of service."
"With the low cost of money, it is much more cost effective for us to maintain a slightly higher containerboard inventory at our box plants rather than increased transportation cost and run the risk of not having enough inventory on hand at our box plants to adequately serve customers," he said.
$175 million in synergies."Synergy realization of both our mills and box plants was ahead of our projections and we continued to implement a broad range of actions to improve productivity and reduce costs," Kowlzan said.
He said the company achieved annual run rate synergies of $85-90 million and is "well positioned" to achieve at least $175 million by the end of 2016.
He said a "key synergy" with the Boise acquisition was moving lightweight containerboard production from the Counce No. 1 linerboard machine and Valdosta linerboard mill to DeRidder.
"The production shift is complete and as a result, we set productivity records at both (the) Counce No. 1 machine and the Valdosta machine. Productivity on the DeRidder No. 1 machine has also improved even with a lighter weight grade mix," Kowlzan said
Nov. 1 DeRidder startup.Kowlzan said the $115 million D-3 newsprint machine conversion project to 355,000 tons/yr of lightweight linerboard and corrugating medium at DeRidder is "on schedule" and on budget with startup expected by Nov. 1.
He said "most of the tons" from the new machine will go to the company's own box plants, since PCA expects to make 200,000 tons/yr of open market containerboard purchases this year and projected 255,000 tons in 2015 without the machine conversion.
"With the box business growing at 4% rate, we will have a home for these tons in our system," Kowlzan said.
Third quarter outlook.PCA's Valdosta mill will be down for eight days for annual maintenance in the third quarter, reducing production by about 13,000 tons. The Wallula, WA, No. 2 medium machine, which had record output in the second quarter, will be down for seven days of maintenance, resulting in a loss of 3,000 tons.
With higher sales expected and lower costs, PCA said it expected third quarter earnings of $1.25/share compared with $1.16 in the second quarter, first quarter net income of $1.08/share, and fourth quarter earnings of $1.04. The second quarter result was "the seventh straight all-time record for any quarter," noted Vertical Research Partners analyst Chip Dillon.
PCAsaid it acquiredCrockett Packaging, which runs a corrugated box plant in the City of Industry and sheet plant in Southern California for $21 million. "The Crockett acquisition was important for us strategically, giving us a larger presence in the growing Los Angeles and Southern California markets," said exec VP Tom Hassfurther. He said Crockett was "in a market where we definitely had some capacity constraints." PCA runs a corrugated box plant in Vernon, and a corrugated box plant and sheet plant in Santa Fe Springs that was acquired with Boise.
Vanguard Packagingannounced the completion of design lab expansions in Kansas City, MO, and Bentonville, AR. According to CEO Mark Mathes, the new expanded center near Walmart would enable the company to remain the "technology leader in Bentonville," the firm said. Vanguard, which is in display packaging, has 140 employees at five facilities across the USA.
Port Townsend Papergained a permit that allows it to move ahead with a $5 million project to add two pulp refiners at its board mill, Washington'sPeninsula Daily Newsreported. The permit was granted by the state's Dept of Ecology after lengthy hearings and opposition from local residents over a 3% increase in air pollution. Port Townsend Paper plans to start installing the refiners late this year. The project is to take about six months.The refiners are to improve pulp strength at the mill, which makes 94,000 tons/yr of unbleached kraft market pulp on machine No. 1 and 220,000 tons/yr of linerboard, medium, and kraft paper on PM 2.