PACKAGING CORP OF AMERICA

Previous wording

First quarter net sales were $2.0 billion in both 2024 and 2023. We reported $147 million of net income, or $1.63 per diluted share, during the first quarter of 2024, compared to $190 million, or $2.11 per diluted share, during the same period in 2023. Net income included $8 million of expense for special items in both the first quarter of 2024 and the first quarter of 2023 (discussed below). Excluding special items, net income was $155 million, or $1.72 per diluted share, during the first quarter of 2024, compared to $198 million, or $2.20 per diluted share, in the first quarter of 2023. The decrease in net income was driven primarily by lower prices and mix in the Packaging and Paper segments, higher scheduled mill outage expenses, higher depreciation, higher expenses related to corrugated plant capital projects, and other expenses. These items were partially offset by higher volume in the Packaging and Paper segments, lower operating and converting costs, lower freight and logistics expenses, lower interest expense, and a lower tax rate. For additional detail on special items included in reported GAAP results, as well as segment income (loss) excluding special items, earnings before non-operating pension income (expense), interest, income taxes, and depreciation, amortization, and depletion ("EBITDA"), and EBITDA excluding special items, see “Item 2. Reconciliations of Non-GAAP Financial Measures to Reported Amounts.”

Current wording

Second quarter net sales were $2.08 billion in 2024 and $1.95 billion in 2023. We reported $199 million of net income, or $2.21 per diluted share, during the second quarter of 2024, compared to $203 million, or $2.24 per diluted share, during the same period in 2023. Net income included an insignificant amount for special items in the second quarter of 2024, compared to $6 million of expense for special items in 2023 (discussed below). Excluding special items, net income was $199 million, or $2.20 per diluted share, during the second quarter of 2024, compared to $209 million, or $2.31 per diluted share, in the second quarter of 2023. The decrease in net income was driven primarily by lower prices and mix in the Packaging segment and Paper segment, higher operating costs, higher depreciation expense, and a higher tax rate. These items were partially offset by higher volume in the Packaging segment and Paper segment, lower other converting costs, lower freight and logistics expenses, and lower interest expense. For additional detail on special items included in reported GAAP results, as well as segment income (loss) excluding special items, earnings before non-operating pension income (expense), interest, income taxes, and depreciation, amortization, and depletion (“EBITDA”), and EBITDA excluding special items, see “Item 2. Reconciliations of Non-GAAP Financial Measures to Reported Amounts.”

Previous wording

Paper segment income from operations was $30 million in the first quarter of 2024, compared to $34 million in the first quarter of 2023. Paper segment EBITDA excluding special items was $41 million in the first quarter of 2024 and in the first quarter of 2023. Higher sales volumes, lower operating costs, and lower freight and logistics expense were offset by lower prices and mix. We experienced increased demand from both existing customers as well as incremental volume from some new customers acquired towards the end of 2023.

Current wording

Paper segment income from operations was $56 million in the first six months of 2024, compared to $63 million in the first six months of 2023. Paper segment EBITDA excluding special items was $71 million in the first six months of 2024, compared to $80 million in the same period in 2023. The decrease in EBITDA excluding special items was due to lower prices and mix and higher scheduled mill outage expenses, partially offset by higher sales and production volumes, lower operating costs, and lower freight and logistic expenses.

Previous wording

A reconciliation of reported earnings per diluted share to earnings per diluted share, excluding special items, for the three months ended March 31, 2024 and 2023 is as follows:

Current wording

A reconciliation of reported earnings per diluted share to earnings per diluted share, excluding special items, for the three and six months ended June 30, 2024 and 2023 is as follows:

Previous wording

For the three months ended March 31, 2024 and 2023, includes $10.4 million and $1.2 million, respectively, of charges related to the announced discontinuation of production of UFS paper grades on the No. 3 machine at the Jackson, Alabama mill associated with the permanent conversion of the machine to produce linerboard and other paper-to-containerboard conversion related activities.

Current wording

For the three and six months ended June 30, 2024, includes $0.6 million of income and $9.7 million of charges, respectively, related to the announced discontinuation of production of UFS paper grades on the No. 3 machine at the Jackson, Alabama mill associated with the permanent conversion of the machine to produce linerboard and other paper-to-containerboard conversion related activities. For the three and six months ended June 30, 2023, these amounts were $4.4 million and $5.7 million, respectively.

Previous wording

For 2024, includes income primarily related to a favorable lease buyout for a closed corrugated products facility, partially offset by closure costs related to corrugated products facilities and design centers. For 2023, includes charges consisting of closure costs related to the closure of corrugated products facilities and design centers.

Current wording

For the three months ended June 30, 2024, includes $0.1 million of charges consisting of closure costs related to corrugated products facilities. For the six months ended June 30, 2024, these charges were completely offset by $0.1 million of income primarily related to a favorable lease buyout for a closed corrugated products facility during the first quarter of 2024. For the three and six months ended June 30, 2023, includes $3.9 million and $13.6 million, respectively, of closure costs related to corrugated products facilities and design centers.

Previous wording

Trade publications reported North American industry-wide corrugated products shipments were down (1.1%) in total and up 0.5% per workday with one less shipping day during the first quarter of 2024 compared to the same quarter of 2023. Reported industry containerboard production increased 7.1% compared to the first quarter of 2023. Reported industry containerboard inventories at the end of the first quarter of 2024 were approximately 2.8 million tons, up 3.1% compared to the same period in 2023. Reported containerboard export shipments were up 38.7% compared to the first quarter of 2023. In February 2024, index prices increased $40 per ton for linerboard and $60 per ton for corrugating medium.

Current wording

Trade publications reported North American industry-wide corrugated products shipments were up 1.1% in total and down (0.5%) per workday with one additional shipping day during the second quarter of 2024 compared to the same quarter of 2023. Reported industry containerboard production increased 7.5% compared to the second quarter of 2023. Reported industry containerboard inventories at the end of the second quarter of 2024 were approximately 2.7 million tons, up 1.6% compared to the same period in 2023. Reported containerboard export shipments were up 39.5% compared to the second quarter of 2023. In February 2024, index prices increased $40 per ton for linerboard and $60 per ton for corrugating medium, followed by an additional increase in June 2024 of $40 per ton for linerboard and corrugating medium.

Previous wording

The market for communication papers competes heavily with electronic data transmission and document storage alternatives. Increasing shifts to these alternatives have reduced usage of traditional print media and communication papers. Trade publications reported North American UFS paper shipments were down (1.1%) in the first quarter of 2024 compared to the same quarter of 2023. Average prices reported by a trade publication for cut size office papers were lower by $90 per ton, or (6.0%) in the first quarter of 2024, compared to the first quarter of 2023. In January 2024, index prices declined $40 per ton for cut size office papers and $20 per ton for offset printing papers.

Current wording

The market for communication papers competes heavily with electronic data transmission and document storage alternatives. Increasing shifts to these alternatives have reduced usage of traditional print media and communication papers. Trade publications reported North American UFS paper shipments were down (2.7%) in the second quarter of 2024 compared to the same quarter of 2023. Average prices reported by a trade publication for cut size office papers were higher by $33 per ton, or 2.4% in the second quarter of 2024, compared to the first quarter of 2024, and lower by $40 per ton, or (2.7%), compared to the second quarter of 2023. In January 2024, index prices declined $40 per ton for cut size office papers and $20 per ton for offset printing papers, followed by $20 per ton price increases in April and May 2024 for both cut size office papers and offset printing papers.

Previous wording

Packaging. Net sales decreased $10 million, or (0.5%), to $1,799 million, compared to $1,809 million in the first quarter of 2023 due to lower containerboard and corrugated products prices and mix ($168 million), partially offset by higher volume ($158 million). In the first quarter of 2024, export and domestic containerboard outside shipments increased 22.1% compared to the first quarter of 2023. Our total corrugated products shipments were up 9.2% in total and up 11.0% per workday, with one less shipping day, compared to the same period in 2023. In the first quarter of 2024, our domestic containerboard prices were (1.7%) lower, while export prices were (25.6%) lower, than the same period in 2023.

Current wording

Packaging. Net sales increased $118 million, or 6.6%, to $1,908 million, compared to $1,790 million in the second quarter of 2023 due to higher volume ($199 million), partially offset by lower containerboard and corrugated products prices and mix ($81 million). In the second quarter of 2024, export and domestic containerboard outside shipments increased 19.9% compared to the second quarter of 2023. Our total corrugated products shipments were up 10.9% in total and up 9.2% per workday, with one additional shipping day compared to the same period in 2023. In the second quarter of 2024, our domestic containerboard prices were (0.1%) lower, while export prices were (6.0%) lower, than the same period in 2023.

Previous wording

Selling, general, and administrative expenses (“SG&A”) increased $4 million during the three months ended March 31, 2024, compared to the same period in 2023. The increase was primarily due to bad debt expense.

Current wording

Selling, general, and administrative expenses (“SG&A”) increased $4 million during the three months ended June 30, 2024, compared to the same period in 2023. The increase was primarily due to higher employee-related expenses.

Previous wording

Interest expense, net for the three months ended March 31, 2024 decreased $6 million when compared to the same period in 2023. The decrease in interest expense, net was primarily due to higher interest income in 2024 due to higher rates on invested cash balances, partially offset by higher interest expense in 2024 related to the Company's November 2023 debt refinancing.

Current wording

Interest expense, net for the three months ended June 30, 2024 decreased $4 million when compared to the same period in 2023. The decrease in interest expense, net was primarily due to higher interest income on invested cash in 2024 due to higher rates and higher cash balances.

Previous wording

Gross profit decreased $61 million during the three months ended March 31, 2024, compared to the same period in 2023. The decrease was driven primarily by lower prices and mix in the Packaging and Paper segments, higher scheduled mill outage expenses, higher depreciation, higher expenses related to corrugated plant capital projects, and other expenses, partially offset by higher volume in the Packaging and Paper segments, lower operating and converting costs, and lower freight and logistics expenses. In the three months ended March 31, 2024, gross profit included $2 million of special items related to Jackson mill conversion-related activities. In the three months ended March 31, 2023, gross profit included $6 million of special items primarily related to closure costs related to corrugated products facilities and Jackson mill conversion-related activities.

Current wording

Gross profit decreased $68 million during the six months ended June 30, 2024, compared to the same period in 2023. The decrease was driven primarily by lower prices and mix in the Packaging and Paper segments, higher operating costs, higher scheduled outage expenses, higher depreciation expense, and other costs, partially offset by higher volumes in the Packaging and Paper segments, lower other converting costs, and lower fright and logistic expenses. In the six months ended June 30, 2024, gross profit included $2 million of special items expense related to Jackson mill conversion-related activities. In the six months ended June 30, 2023, gross profit included $10 million of special items expense primarily related to closure costs related to corrugated products facilities and Jackson mill conversion-related activities.

Previous wording

Income from operations decreased $75 million, or (27.6%), during the three months ended March 31, 2024, compared to the same period in 2023. The first quarter of 2024 included $10 million of special items expense primarily related to Jackson mill conversion-related activities, compared to $11 million of special items expense primarily related to closure costs related to corrugated products facilities and Jackson mill conversion-related activities in the first quarter of 2023.

Current wording

Income from operations decreased $83 million, or (15.0%), during the six months ended June 30, 2024, compared to the same period in 2023. The first six months of 2024 included $10 million of special items expense primarily related to Jackson mill conversion-related costs, compared to $19 million of special items expense primarily related to corrugated facility closure costs and Jackson mill conversion-related costs in the same period in 2023.

Previous wording

Packaging. Packaging segment income from operations decreased $64 million to $204 million, compared to $268 million during the three months ended March 31, 2023. The decrease related primarily to lower containerboard and corrugated products prices and mix ($158 million), higher annual outage expenses ($12 million), higher expenses related to corrugated plant capital projects other costs ($6 million), and higher depreciation expense ($4 million), partially offset by higher sales and production volumes ($87 million), lower operating and converting costs ($20 million), and lower freight expenses ($3 million). Special items during the first quarter of 2024 included $4 million of expense primarily related to Jackson mill conversion-related activities, compared to $9 million of expense primarily related to closure costs related to corrugated products facilities in the first quarter of 2023.

Current wording

Packaging. Packaging segment income from operations decreased $70 million to $484 million during the first six months of 2024, compared to the same period last year. The decrease related primarily to lower containerboard and corrugated products prices and mix ($261 million), higher operating costs ($30 million), higher depreciation expense ($9 million), higher expenses related to corrugated plant capital projects and other costs ($8 million), and higher annual outage expenses ($2 million), partially offset by higher sales and production volumes ($201 million), lower other converting costs ($18 million), and lower freight expenses ($11 million). Special items during the first six months of 2024 included $4 million of expense related to Jackson mill conversion-related activities, compared to $13 million of expense related to corrugated facility closure costs in the same period in 2023.

Previous wording

Paper. Paper segment income from operations decreased $4 million to $30 million, compared to $34 million during the three months ended March 31, 2023. The decrease primarily related to lower prices and mix ($10 million), partially offset by higher sales and production volumes ($6 million), lower operating costs ($3 million) and lower freight expenses ($1 million). Special items during the first quarter of 2024 and 2023 included $6 million and $1 million, respectively, of expense for Jackson mill conversion-related activities.

Current wording

Paper. Paper segment income from operations decreased $7 million to $56 million, compared to the six months ended June 30, 2023. The decrease primarily related to lower prices and mix ($19 million), and higher annual outage expenses ($9 million), partially offset by higher sales and production volumes ($14 million), lower operating costs ($5 million), lower depreciation ($2 million), and lower freight expenses ($1 million). For both the six month periods ended June 30, 2024 and 2023, special items included $6 million of expense related to Jackson mill conversion-related activities.

Previous wording

During the three months ended March 31, 2024, we recorded $41 million of income tax expense, compared to $63 million of expense during the three months ended March 31, 2023. The effective tax rate for the three months ended March 31, 2024 and 2023 was 21.6% and 24.9%, respectively. The decrease in our effective tax rate for the three months ended March 31, 2024 compared to the same period in 2023 was primarily due to higher excess tax benefits associated with employee restricted stock and performance unit vests.

Current wording

During the six months ended June 30, 2024, we recorded $108 million of income tax expense, compared to $128 million of expense during the six months ended June 30, 2023. The effective tax rate for the six months ended June 30, 2024 and 2023 was 23.9% and 24.6%, respectively. The decrease in our effective tax rate for the six months ended June 30, 2024 compared to the same period in 2023 was primarily due to higher excess tax benefits associated with employee restricted stock and performance unit vests.

Previous wording

Our primary sources of liquidity are net cash provided by operating activities and available borrowing capacity under our revolving credit facility. At March 31, 2024, we had $692 million of cash and cash equivalents, $561 million of marketable debt securities, and $323 million of unused borrowing capacity under the revolving credit facility, net of letters of credit. Currently, our primary uses of cash are for operations, capital expenditures, acquisitions, debt service, common stock dividends, and repurchases of common stock. We believe that net cash generated from operating activities, cash on hand, available borrowings under our revolving credit facility, and available capital through access to capital markets will be adequate to meet our liquidity and capital requirements, including payments of any declared common stock dividends, for the foreseeable future. As our debt or credit facilities become due, we will need to repay, extend, or replace such facilities. Our ability to do so will be subject to future economic conditions and financial, business, and other factors, many of which are beyond our control.

Current wording

Our primary sources of liquidity are net cash provided by operating activities and available borrowing capacity under our revolving credit facility. At June 30, 2024, we had $614 million of cash and cash equivalents, $559 million of marketable debt securities, and $323 million of unused borrowing capacity under the revolving credit facility, net of letters of credit. Currently, our primary uses of cash are for operations, capital expenditures, acquisitions, debt service, common stock dividends, and repurchases of common stock. We believe that net cash generated from operating activities, cash on hand, available borrowings under our revolving credit facility, and available capital through access to capital markets will be adequate to meet our liquidity and capital requirements, including payments of any declared common stock dividends, for the foreseeable future. As our debt or credit facilities become due, we will need to repay, extend, or replace such facilities. Our ability to do so will be subject to future economic conditions and financial, business, and other factors, many of which are beyond our control.

Previous wording

During the three months ended March 31, 2024, net cash provided by operating activities was $260 million, compared to $280 million in the same period in 2023, a decrease of $20 million. Cash from operations excluding changes in cash used for operating assets and liabilities decreased $33 million primarily due to lower income from operations in 2024 as discussed above. Cash from operations increased by $13 million due to changes in operating assets and liabilities primarily due to the following:

Current wording

During the six months ended June 30, 2024, net cash provided by operating activities was $539 million, compared to $640 million in the same period in 2023, a decrease of $101 million. Cash from operations excluding changes in cash used for operating assets and liabilities decreased $36 million primarily due to lower income from operations in 2024 as discussed above. Cash from operations decreased by $65 million due to changes in operating assets and liabilities primarily due to the following:

Previous wording

a net unfavorable change in prepaid expenses and other current assets during the first three months of 2024 compared to the same period in 2023 primarily due to the accrued receivable for the insurance recovery related to the DeRidder litigation recorded in the first quarter of 2024;

Current wording

a net unfavorable change in prepaid expenses and other current assets during the first six months of 2024 compared to the same period in 2023 primarily due to the accrued receivable for the insurance recovery related to the DeRidder litigation;

Previous wording

a net unfavorable change in accounts receivable levels during the first three months of 2024 compared to the same period in 2023 primarily related to a larger increase in accounts receivable levels in the Paper segment in 2024 due to higher sales volumes and an increase in interest receivables in the Corporate and Other segment during the first quarter of 2024 related to accrued interest on the proceeds received from the November 2023 debt refinancing.

Current wording

a net unfavorable change in accounts receivable during the first six months of 2024 compared to the same period in 2023 primarily due to an increase in accounts receivable levels for the Packaging segment in 2024 due to higher prices and sales volumes and an increase in interest receivables in the Corporate and Other segment in 2024 related to accrued interest on the proceeds received from the November 2023 debt refinancing; and

Previous wording

a net unfavorable change in income taxes due to a larger decrease in income tax receivables in the first quarter of 2023 compared to the first quarter of 2024; and

Current wording

a net unfavorable change in income taxes due to a smaller decrease of income tax receivables during the first six months of 2024 compared to the same period in 2023.

Previous wording

These favorable changes were partially offset by the following:

Current wording

These unfavorable changes were partially offset by the following:

Previous wording

a net favorable change in accrued liabilities during the first three months of 2024 compared to the same period in 2023 primarily related to the accrued liability for the DeRidder trial compensatory damages and prejudgment interest recorded in the first quarter of 2024; and

Current wording

a net favorable change in accrued liabilities during the first six months of 2024 compared to the same period in 2023 primarily related to the accrued liability for the DeRidder trial compensatory damages and interest recorded during the first six months of 2024; and

Previous wording

We used $81 million for investing activities during the three months ended March 31, 2024 compared to $115 million during the same period in 2023. We spent $77 million for internal capital investments during the three months ended March 31, 2024, compared to $112 million during the same period in 2023.

Current wording

We used $324 million for investing activities during the six months ended June 30, 2024 compared to $242 million during the same period in 2023. We spent $322 million for internal capital investments during the six months ended June 30, 2024, compared to $239 million during the same period in 2023.

Previous wording

We expect capital investments in 2024 to be between $470 million and $490 million. These expenditures could increase or decrease as a result of a number of factors, including our financial results, strategic opportunities, future economic conditions, and our regulatory compliance requirements. We currently estimate capital expenditures to comply with environmental regulations will be about $15 million in 2024. Our estimated environmental expenditures could vary significantly depending upon the enactment of new environmental laws and regulations. For additional information, see “Environmental Matters” in “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2023 Annual Report on Form 10-K.

Current wording

We expect capital investments in 2024 to be between $670 million and $690 million. These expenditures could increase or decrease as a result of a number of factors, including our financial results, strategic opportunities, future economic conditions, and our regulatory compliance requirements. We currently estimate capital expenditures to comply with environmental regulations will be about $15 million in 2024. Our estimated environmental expenditures could vary significantly depending upon the enactment of new environmental laws and regulations. For additional information, see “Environmental Matters” in “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2023 Annual Report on Form 10-K.

Previous wording

During the three months ended March 31, 2024, net cash used for financing activities was $135 million, compared to $117 million of net cash used for financing activities during the same period in 2023. We paid $112 million of dividends during the first three months of both 2024 and 2023. In addition, we withheld shares to cover $23 million of employee restricted stock taxes during the first three months of 2024 compared to $5 million of employee restricted stock taxes withheld during the same period in 2023.

Current wording

During the six months ended June 30, 2024, net cash used for financing activities was $249 million, compared to $241 million of net cash used for financing activities during the same period in 2023. We paid $224 million of dividends during the first six months of 2024, compared to $225 million of dividends paid during the comparable period in 2023. In addition, we withheld shares to cover $24 million of employee restricted stock taxes during the first six months of 2024 compared to $16 million of employee restricted stock taxes withheld during the same period in 2023.

Previous wording

Income from operations excluding special items, net income excluding special items, EBITDA, and EBITDA excluding special items are non-GAAP financial measures. Management excludes special items, as it believes that these items are not necessarily reflective of the ongoing operations of our business. These measures are presented because they provide a means to evaluate the performance of our segments and our Company on an ongoing basis using the same measures that are used by our management, because these measures assist in providing a meaningful comparison between periods and because these measures are frequently used by investors and other interested parties in the evaluation of companies and the performance of their segments. Any analysis of non-GAAP financial measures should be done in conjunction with results presented in accordance with GAAP. The non-GAAP measures are not intended to be substitutes for GAAP financial measures and should not be used as such. Reconciliations of the non-GAAP measures to the most comparable measure reported in accordance with GAAP for the three months ended March 31, 2024 and 2023 follow (dollars in millions):

Current wording

Income from operations excluding special items, net income excluding special items, EBITDA, and EBITDA excluding special items are non-GAAP financial measures. Management excludes special items, as it believes that these items are not necessarily reflective of the ongoing operations of our business. These measures are presented because they provide a means to evaluate the performance of our segments and our Company on an ongoing basis using the same measures that are used by our management, because these measures assist in providing a meaningful comparison between periods and because these measures are frequently used by investors and other interested parties in the evaluation of companies and the performance of their segments. Any analysis of non-GAAP financial measures should be done in conjunction with results presented in accordance with GAAP. The non-GAAP measures are not intended to be substitutes for GAAP financial measures and should not be used as such. Reconciliations of the non-GAAP measures to the most comparable measure reported in accordance with GAAP for the three and six months ended June 30, 2024 and 2023 follow (dollars in millions):

Previous wording

Includes charges related to the announced discontinuation of production of UFS paper grades on the No. 3 machine at the Jackson, Alabama mill associated with the permanent conversion of the machine to produce linerboard and other paper-to-containerboard conversion related activities.

Current wording

Includes items related to the announced discontinuation of production of UFS paper grades on the No. 3 machine at the Jackson, Alabama mill associated with the permanent conversion of the machine to produce linerboard and other paper-to-containerboard conversion related activities.

Previous wording

For the three months ended March 31, 2024, includes $0.1 million of income primarily related to a favorable lease buyout for a closed corrugated products facility, partially offset by closure costs related to corrugated products facilities and design centers. For the three months ended March 31, 2023, includes $9.7 million of closure costs related to corrugated products facilities and design centers.

Current wording

For the three months ended June 30, 2024, includes charges consisting of closure costs related to corrugated products facilities. For the six months ended June 30, 2024, these charges were completely offset by income primarily related to a favorable lease buyout for a closed corrugated products facility during the first quarter of 2024. For 2023, includes charges consisting of closure costs related to corrugated products facilities and design centers.

Previous wording

PCA has included in its 2023 Annual Report on Form 10-K a discussion of its critical accounting policies and estimates which require management’s most difficult, subjective, or complex judgments used in the preparation of its consolidated financial statements. PCA has not had any changes to these critical accounting estimates during the first three months of 2024.

Current wording

PCA has included in its 2023 Annual Report on Form 10-K a discussion of its critical accounting policies and estimates which require management’s most difficult, subjective, or complex judgments used in the preparation of its consolidated financial statements. PCA has not had any changes to these critical accounting estimates during the first six months of 2024.