Q1 2020 Earnings Call
[music].
Thank you for joining packaging Corporation of America's first quarter 2020 earnings results Conference call.
Most today will be more calls and chairman and Chief Executive Officer of P.C.A.
Upon conclusion of hidden narrative, there will be a Q1 day session.
Now I'll turn the conference call every Mr. chemicals and please proceed when you already.
Thank you Shelby.
Good morning, everyone and thank you for participating and packaging Corporation of America first quarter 2020 earnings release Conference call.
Again, I'm more colds, and chairman and CEO P.C.A. and with me on the call today as Tom Hassfurther Executive Vice President of runs the packaging business.
And Bob Monday, our Chief Financial Officer before we begin her prepared remarks relative to the first quarter performance.
I want to check if you can't make a few comments about the pandemic crisis in P.C.A.
Without a doubt these me maybe the most unpredictable and unprecedented times that hopefully will ever encounter.
There is no reference manual for managing through a public health crisis with severe economic ramifications such as what has occurred with the covert 19 pandemic.
Our routines habits personal preferences work in social activity in many other aspects of our lives are shorter changed forever as a result.
Species operations qualifies in essential or critical element under the various state and local shelter in place orders.
Our leadership team is in constant communication disgusting safety state of our operations business continuity and other critical management topics.
It is our responsibility PCH to ensure that first and foremost we help provide for the well being over more than 15000 employees and their families. We must do everything in our power to assist our customers and suppliers as well.
We have implemented various procedures and safe guards at all our manufacturing converting an office locations across the country.
To help keep our employees safe and healthy as we provide the goods and services considered essential for assisting with our country's response to the pandemic.
We've also put measures in place to assist them with the economic ramifications that have resulted from the these response measures.
To date, we have not experiencing significant interruptions at our operations or in our supply chain due to the virus.
Network of mills, converting facilities and distribution operations strategically located throughout the United States gives P.A. asset flexibility to manufacture and ship products to multiple locations.
We will continue to closely monitor developments take proactive measures to protect our employees and provider customers with the products and services they require.
I could not be more proud the effort responsiveness and sacrifices displayed by all PC employees as well as our customers and suppliers.
It is truly been an inspiring.
Observation.
Well now begin with an overview of the first quarter results and then I'm going to turn the call over to Tom and Bob will provide more details.
I'll, then wrap things up and we'd be glad to take some questions.
Yesterday, we reported first quarter net income a $142 million or $1.49 cents per share.
First quarter net income included special items expenses of one cent per share related primarily to costs and expenses associated with the coal that 19 pandemic.
Excluding special items first quarter 2020, net income was $143 million were $1.50 cents per share compared to the first quarter 2019.
Net income of $187 million or $1.98 cents per share.
First quarter net sales were 1.7 billion in both 2020 and 2019.
Total company EBITDA for the first quarter, excluding special items was $311 million in 2020.
And $371 million and 2019th.
Details of the special items for both the first quarter 2020, and 2019 were included in the schedules that accompany the <unk> earnings press release.
Excluding special items, the 48 cents per share decrease in first quarter 2020 earnings compared to the first quarter of 2019 was driven primarily by lower prices in mix in our packaging segment of 64 cents and paper segment five cents.
Lower volumes at our paper segment of three cents.
Higher annual outage expenses four cents.
Higher depreciation expense four cents.
Other expenses, one cents and higher tax rate once it.
The items were partially offset by higher volumes in our packaging segment of 14 cents.
Lower operating costs of nine cents lower converting costs four cents.
Lower freight and logistics costs, one cent and lower interest expense for sense and non operating pension expense two cents.
The results were 30 cents above the first quarter guidance of $1.20 per share primarily due to higher volumes at our packaging segment of three cents and our paper segment of one cents higher prices in mix in the paper packaging segment of two cents and lower operating costs, a 15 cents, resulting from.
Excellent fiber and energy usage and lower input prices in our mills.
Freight and logistics costs were lower than expected by three cents as we're converting costs annual outage costs and other expenses each lower.
Each lower than expectations by two cents per share.
Looking at our packaging business EBITDA, excluding special items in the first quarter 2020 of $290 million what sales of 1.5 billion resulted in a margin of 20% versus last year's EBITDA of $334 million and sales of 1.5 billion or 23% Mark.
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Our containerboard mills established a new first quarter volume record, even while performing scheduled annual maintenance outage work at for the mills.
Our containerboard production allowed us to maintain our industry, leading integration rate of approximately 95% by supplying the necessary containerboard to our box plants. We achieved an all time record for total box shipments as well any new first quarter shipments per day records.
We were able to meet this greater than anticipated demand through proactive management change in the sequencing of our scheduled maintenance outages as well as outstanding execution of the work performed during these outages.
Our enhanced capabilities to optimize the mix freight and logistics costs inventory levels, and internal and external customer needs of the customer of the containerboard system provided to us by or a machine conversion that blue mill.
Were key component as well.
We ended the quarter with containerboard inventories at their lowest levels since the acquisition of boise's packaging business in 2013.
I'll now turn it over to Tom will provide more details on containerboard sales Im corrugating business.
Thank you Mark.
<unk> products and container board demand were very strong during the quarter as Mark indicated our corrugated products plants achieved a new all time record for total box shipments, which were up 5.6 over last year as well as a new first quarter record shipments per day, which were up 3.9% compared to last year.
As first quarter.
Outside sales volume of containerboard was 13% above last year's first quarter, primarily attributable to increased domestic demand with export demand slightly higher as well.
Domestic containerboard and corrugated products prices and mix together were 54 cents per share below the first quarter of 2019 and down six cents per share compared to the fourth quarter of 2019.
Export containerboard prices were down about 10 cents per share versus last year's first quarter and flat compared to the fourth quarter 2019, I'll now turn it back tomorrow.
Thank you Tom looking at our paper segment EBITDA, excluding special items in the first quarter of 42 million with sales of $217 million or 19% margin compared to the first quarter 2019, EBITDA 55 million and sales of 240 million or twice.
83% margin.
First quarter paper prices in mix were below last year as expected. However, they were flat compared to the fourth quarter 2019.
Our paper volume was also lower as expected primarily due to the scheduled maintenance outage at our Jackson, Alabama Mill. However, it was about 3% higher than we had assumed.
Although we ended the quarter with our inventory slightly lower than planned on April 1st we announced downtime at our Jackson, Alabama mill in the months of May and June to ensure we manage.
The supply according to our demand outlook for the second quarter.
Throughout the quarter. The mill did an outstanding job managing fiber in chemical usage and maintained tight control over indirect and fixed expenses I'll now turn it over to Bob.
Thanks Mark.
We had record first quarter cash generation with cash provided by operations of $237 million and record first quarter free cash flow of 166 million.
The primary uses of cash during the quarter included capital expenditures of $71 million and common stock dividends up 75 million.
We ended the quarter with $764 million, a cash on hand, or 913 million, including the cash cash we recently moved more marketable securities.
Our liquidity at March 31st.
Of over $1.2 billion is the highest ever for our company.
And with the refinancing we completed in the fourth quarter 2019, we have no debt maturities for the next three and a half years.
Regarding our announcement of taking or paper mill, and Jackson, Alabama down for the month of May and June.
Our estimate at second quarter financial impact of this decision is approximately $30 million or 24 cents per share.
I want to update you on our full year guidance for certain items that we provided on last quarter's call.
As Mark alluded to earlier, we managed through very strong first quarter demand in our packaging business.
Partly by altering the sequencing of the size of the scheduled maintenance outages at our containerboard mills as well as the containerboard machines impacted versus what we discussed during last quarter's call.
There are no changes to the scheduled outages at our white paper Mills.
Actual impact in the first quarter was 22 cents per share and the estimated impact by quarter for the remainder of the year.
Is now nine cents per share in the second quarter.
16 cents in the third.
And 34 cents per share in the fourth quarter.
The full year estimate remains at 81 cents per share as we've mentioned previously.
Also our full year interest expense is now expected to be $88 million versus 81.
And our net cash interest is now estimated to be $92 million versus 84 million, primarily due to lower expected interest income.
Our cash tax rate estimate is now slightly lower than our earlier estimate of 19%.
Partially due to the downtime, we announced at our Jackson Mill.
In our effective tax rate remains at approximately 25%.
After a thorough review of our capital spending plans, we're not changing the range of spending we provided previously which was between $400 million to $425 million.
Nor are we changing our full year outlook for pension contributions for depreciation.
I'll now turn it back over to Mark.
Thank you Bob.
I want to reiterate the comments I made in yesterday's earnings release.
As I mentioned earlier these maybe the most unpredictable and unprecedented times that hopefully we will ever encounter.
Not a day passes that we realized something new being impacted in a way, we'd never thought of where imagine of before.
Our consistent approach towards prudent capital allocation and sound financial governance has served us well for many many years and the certainly helpful in times like this.
VCA entered this a uncertain period of time brought on by the Cobot 19 crisis from a position of financial and balance sheet strength.
Our focus has been and will remain on preserving that strength to the actions and decisions, we make as a management team.
As Bob mentioned, our company's liquidity position has never been higher nor has our confidence in the future success with P.C.A.
We are well positioned to manage through what ever lies ahead, while ensuring we take care of the needs and expectations of our employees customers suppliers and shareholders.
However, the competence does not translate to the same degree a short term predictability or guidance specifics that we normally provide at this time.
Bob provided you end up eight on estimates for certain forward looking items, however, due to the uncertain scope and duration of the pandemic and the timing of the global recovery and economic normalization, we're not able to properly quantify or guidance for the second quarter.
We've already announced the actions being taken in our paper business and we believe these actions will position us properly for what we anticipate right now for the second half from 2020.
However, nothing has certain especially now and it may require further action to be taken.
We know that we experienced the demand surge in our packaging business in the first quarter and the second quarter has also begun quite strong as well our containerboard inventory is at the lowest levels. Both in total in the weeks the supply since our acquisition of the packaging business from Boise.
And well recycled fiber prices began moving significantly higher during the first quarter.
Our position as a primarily Virgin fiber producer minimizes its impact compared to other producers. However, it only makes logical sense that demand in certain end markets will return to more normal growth trends at some point, although we've been successful at securing new business in end markets with a stronger demand.
Look versus markets was demand may be impacted more negatively.
Also it is impossible to predict what additional health related measures will be or must be taken or dictated to us by the various state and local governments, where we operate.
Such events and actions could adversely impact the operation I'm not only our facilities, but also the availability of services and products, we rely upon from our suppliers.
That being said it is also affect the products are company provides are essential to the response efforts the recovery and the well being of our country.
The needs for our cost effective sustainable and renewable products will continue.
Well no one knows the severe your longevity of the virus is impact on global economy is my belief that this need will be even more in demand as the world recovers from this crisis.
With that would be happy to entertain any questions, but I must remind you that some of the statements. We've made on the call constitute forward looking statements. The statements were based on current estimates expectations and projections of the company.
And involve inherent risks and uncertainties, including the direction of the economy and those identified as risk factors in our annual report on form 10-K on file with the FCC.
Actual results could differ materially from those expressed in forward looking statements.
And with that Shelby I'd like to go ahead and open up the call for questions. Please.
Of course.
Reminder, if he would like to ask a question you may do so by pressing star and the number one on your telephone keypad.
Your first question comes from George Staphos of Bank of America.
Hi, everyone. Good morning.
Morning.
Thanks for all you're doing on covert and congratulations.
Quarter.
I guess, if you could give a little bit more color on what was particularly positive on the operating side.
Relative to your guidance going into the quarter. You mentioned I think you mentioned fiber and fuel, but if he could to the extent possible comment a bit further there that would be great had a couple of follow ons.
Yes George.
When we started the.
First quarter in January we were looking at.
Taking for the mills down for their annual outages and.
Obviously, there's a lot of unknowns there.
After the work was done.
Starting up the mills.
All the mill started up remarkably well.
Ahead of schedule.
And our running flawlessly sense.
So that was the big Big positive force and also in doing so.
There is the utilization of energy and other raw materials.
Flows through.
We've been you know you would understand that with energy costs coming down we were able to take advantage of lower energy pricing.
And then again just good efficient utilization of fiber.
And conversion.
In the mills, but again, just very well executed annual outages and utilization of the assets and the same thing were seen in the box plants out of the business really converting side.
No you want.
Yeah, George I'll, just I'll just add it you know sort of what mark was referring to and what we've commented on earlier was you know on fiber in you know, even though you see prices rising throughout the quarter, you know us being primarily Virgin and with the Woodyard project that we completed last summer that counts.
We saw significant you know a usage and and pricing.
Benefit from that project as well as no other parts of the of the country, but counts was a big part of that that that that project we talked about.
Around this late summer last year, I mean do emphasize that George.
You know, we're running counts counts has essentially a thousand ton a day recycling capability with those you see India, Okay and for all intents and purposes. We're not we're not we have not been using.
Recycled fiber at kind of solve urgent pine.
Understood.
Thank you for that additional color.
Yes, I had two additional questions and then for federal turned over one can you comment on what you're seeing.
No. The first portion of the second quarter, what are your customers, saying about the degree to which they think this volume.
Pick up will be sustained into the second quarter recognize mineral guarantees with any of this so we totally appreciate that.
And then on the inventory side are you.
Comfortable with the level of inventories are there are recognizing the lowest they've been since the Boise acquisition or it's great that they've gotten the slow, but your uncomfortable with that and you need to rebuild inventory. If in fact demand would allow you to do that in the first place. Thanks, guys I'll turn it over.
Tom Let me start off with the inventory question, then I'll, let you take the first part.
As far as inventories go obviously, Oh I wish we had some extra cushion, but it is what it is.
It's also a high class problem when when you have to run is efficient in hard is we are doing I found over the decades that are milled run better when when the.
Our under duress shall I say and there is a challenge but no.
It's it's quite impressive that we are running extremely lean in the inventories, but as you could expect.
Our 95 box plants nationwide had supported one another there were times during the last couple of months that we've shifted some inventory from one box plant to another to support the needs of of their their sister box plants.
And again, having the full capability of the will Lula mill operating over the last year, that's given us tremendous flexibility in this whole logistics capabilities to support the nationwide footprint.
So.
More than ever having the mill system that we have allows us to run.
Very efficiently even at the new low inventory levels.
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And Tom why don't you go and answer the first part of that question on on where we are in the marketplace yeah. Okay.
I'd just add mark on the inventory side you know one thing has really helped US also as the availability of transportation so that.
As this economy really begins to open up and and if that becomes under a little more dress that may that may impact some of our decisions inventory wise, but.
As Mark said, it's it's amazing we're able to run at this at this inventory write up let me just comment a little bit on on your first question George relative to the customers kind of what's going on I'm, just going to give you a quick synopsis of a little bit of what took place as we saw the first quarter and what we see going into the second quarter, obviously the first.
Quarter was was incredibly busy high demand driven primarily by E Commerce and of course, you know food and beverage on the retail side of the business.
We alluded to the fact that we expect in the second quarter to return to more normalized growth rates, which is what we're saying right now so there has been.
You know a a more normalization of the pattern. If you will have the man.
However, you know going into the quarter as.
As some of the food service sector begins to open up.
We expect to see some return of demand than that in that particular arena. So.
I would just I would just comment that going forward as as we alluded to in our comments. We're we're much more on track for that normalized growth pattern, which isn't that wanted to ask 2%.
Alright, Thank you very much.
Thank you next question please.
Of course. Your next question is from Mark Wilde of Bank of Montreal.
Good morning, Mark morning, Bob Tom.
Hey, Mark.
Mark I Wonder you mentioned this integration rate in containerboard up to 95% now I'm just curious about what's your options are for adding more mill capacity on the existing base I think you've had some maybe some opportunities at well I don't know where you stand with those maybe opportunities that other mills.
Yeah.
Mark as we talked about in the January call.
At this essentially full integration.
We were at that 95% back.
Two years ago to three years ago.
We consider that full integration, we're still selling a little bit out in the open markets and you know very small amount going offshore to export. So we do have the ability to pull some of that in overtime if that.
Dictate.
We do have some room to continue to stretch will allow it as time goes on.
With some capital investment.
And so that hasn't changed but I think the bigger story will be as it was back a few years ago that.
We'll now have to look out and.
In a much much broader sense of how we prepare the business for the next you know.
Three to five years in terms of our containerboard supply shorter shorter period of time, we can do what we did a few years ago and and.
By tons on the open market as we prepare for this future.
But we do have some opportunities.
We talked about that in the past.
And so oh.
Ill just leave it at that nothing's changed but we feel we're in really really good position right now and.
We're very comfortable with that okay, and just a couple of quick follow ons for Tom Hassfurther time I wondered.
If you can just comment on whether you felt any impact in the quarter from some of the mill outages that have taken place elsewhere in containerboard and then I wondered if you could also just talk about sort of.
Growth runway for PC, a in the converting business you've always been a little more niche focus your becoming a bigger bigger part of the industry. What does the what does the forward runway look like.
Mark.
The mill outage impact I mean, we managed to rounded, let's just put it that way.
You know they're proud there were some trades that were in place that were impacted that we had to take care of either through our mill system or through other trade partners.
So we didn't we did incur some additional transportation expenses, but for the most part again it's.
Kind of goes back to the commentary around inventories, it's remarkable how well we did given the circumstances and given the demand that we had the first quarter and the very short lead times, we had to me. So overall I mean, it's just that it was just a great team performance the as the growth runway.
You know Weve is you see in our capital investments and what we've talked about whether it's building a new planners are rich lender a marshfield.
We'll continue to.
He guided by our customer demand in those regions of the country at will and we'll continue to.
Provides those opportunities for growth as we see.
I've said all along I. So you know we're not a buildup hope they will come.
We secure the business and then go out and invested capital so.
We will continue to do that so I see our ice your growth runway as being very positive and and.
And it will be dictated by.
Our customers as much as anything else.
Okay very good good luck in the rest of the year. Thank you.
Thanks, Mark next question please.
Your next question comes from Mark Connelly of Steven.
Thanks, Mark your inventory performance last quarter was pretty stunning and now they're down again.
How much of that is sustainable and how much is just sort of you know.
Dealing with the surge at this deal with.
Well again.
Look at our plans for the first quarter, we knew we were going to be pushing the envelope on on that lower lower end of the inventory because of the annual outages.
Go through that every year to one degree or another but obviously.
With demand strong through the fourth quarter, and then demand stronger than we anticipated in the first quarter, we really had to execute well through that period of shut down time now the shutdowns are behind us.
The mills are all running well so we're able to continue to to place tons into our system, where we need to.
Obviously, we don't have a lot of extra capacity.
And I'll use the term we don't have lot of margin for error. The mills have to continue to run well now we have our next planned outage in September at the Tomahawk Mill, and then Filer Filer City has no outage. This year, we'll have a number one machine down counts later in the fall, but that will be yet so we have the the remainder of.
May through the summer months into the September period, due to run well and build up some extra tons, where we need to place them within the system.
Okay, and then just one more question when I look at your revenue per ton performance I didn't see any of the negative impact that I was or much of the negative impact. It I was expecting from January price cut is that consistent with your view or or did you do you feel like you saw what you're supposed to see.
Are we going to see a catch up in Q2.
Yeah, Marty spot, but I'd say, we saw what we were where we're expecting or certainly some mix component to some of that but it was about what we were expecting.
Okay. So it so I'm looking at next very good. Thank you.
Okay. Thank you next question please.
Your next question from Brian Maguire of Goldman Sachs.
Hey, good morning, everyone.
Right. So just a question on I think in it in the release you talked about sources of upside to the dollar 20 guidance. One was was better mix and price just wondered if you could kind of comment a little bit on that I think Tom was alluding to it but.
Under about next and then just within that sort of the volume trends by market I think you've talked about E commerce in supermarkets being a little bit better, but I wonder if there's any other end markets that you started to see some weakness as the quarter dragged on there just kind of mix in general for both pricing and volume there.
Tom Once you go ahead and handle it yeah.
Now, let's let's talk about the volume trends first and then we'll then we'll get back to the mix side of it but on the volume trends as I as I said, the E commerce and the food and beverage on the retail side in the first quarter, obviously with some of the panic buying in some of the other things in it and of course consumers quickly changing.
Probably going to restaurants regularly to now.
Being at home and to not being traveling or any of those other sorts of things. So you know that side of the business. I mean really really was very very robust the food service side of the business on the other which would be restaurants hotels airlines.
Conventions, all the other stadiums all those other areas of food service that was down that was down dramatically.
And stayed down throughout the quarter.
I think they're seeing some science.
Hope of rebound, obviously going into the second quarter as the economy begins to open up some.
On the AG side the business of course, it's a mixed bag also you had the those AG industries that support the retail side did very well those AG egg industries that support foodservice.
In some cases reply produce and but under the fields.
The auto sector.
Now has been has obviously been under some duress I'm talking about aftermarket primarily and then of course, you know at the towards the end of the quarter. We had some my we began to see some weakness on the on them on the protein side meat Cork specifically.
That's that's coded related lot of things going on the plants two week shutdowns things like that that have gone on in some of those processing plants, so and we expect that to begin to come back.
You know into in terms of better mix and price I mean, you know on the mix side yeah. The Brown volume has been very good you know again, driven by that E com and that food and beverage side, but on the other had.
The display side business. The point of purchase displays has been relatively weak can we expect that the remain somewhat weak throughout the throughout the remainder of the.
Okay that makes sense, thanks for all that color.
And then just especially that the paper side of the business demand there seems like it.
Maybe rebounded a little bit in March for whatever reason, but we're all expecting a pretty big drop in in April with all the offices in schools should I don't know if you can comment on trends, you're seeing there and I think in early she said that the Jackson outage, you think will be enough to take care of what you're expecting for for volumes, but yes things do continue to come.
Then weaker does that just extend duration of that outage into into Threeq you if needed.
I think everything we're seeing is what the.
What has been reported in the public.
The percentage of fall off of demand is.
Pretty close to what.
You know the indexes have been indicating a if you would imagine that starting in March all school systems.
North America started to shut down at from the University level down to the kindergarten level.
Businesses were sending everybody home to work you know from home in shelter in place. So there was that big immediate falloff in demand for paper.
What we saw a little bit happening through.
March into somewhat into early part of April was that there were some channels and some outlets that were still stocking.
People buying habits changed people that when home businesses that were now operating on a different manner.
We're we're sourcing their cut size reprographic papers an example.
From different supplies, but we definitely seeing the fall off now here is the end of April and and again I will just refer you to what.
The.
Publications are saying with demand now that being said.
With talk about reopening various sectors of the economy and and I'm in the United States.
You could imagine if school systems.
Come back up and running into the fall schools will be reordering.
Businesses that come back up we'll be continuing to reorder paper as time goes on so we think where we are we put ourselves in a good position to manage the inventory.
We can manage that up and down.
We have that flexibility and so.
I'm very comfortable with the.
With how and what we're doing in the paper side of the business in managing to the demand.
Okay. The plant at the moment, though is to restart Jackson correct.
Correct, yeah, Okay. Thanks, very much I'll turn it over okay. Thank you next question.
Your next question is from Anthony Pettinari of Citi.
Good morning, guys, Lexi, Randy Tole sitting in for Anthony.
Morning over the good morning over the past couple of quarters built a sizeable or trust in anticipation of potential economic uncertainty and nearly 1 billion cash on hand them and uncertainty mouth here.
How are you thinking about capital allocation and has the tone of conversation within your M&A pipeline changed at all if any color there would be helpful.
You know I remember a year ago in January I was asked the question when I think we probably had 300 and some odd million dollars the cash them and there were some individuals that thought that was a high number.
And then we went into the second third quarter. The year cash was building up and I remember the July call last year, when we're somewhere in that $500 million level and someone asked me didn't I think that was was too high and and I said no I'd, let them know when I thought it was too high will we are approaching $1 billion in and I'll still use.
Is that and say you never have enough cash, especially I would like.
Referred to it last year as we live in very uncertain times well. This is about as uncertain because it gets so I'm very comfortable with the cash we have we also generating.
You know healthy cash as we go through this the capital plans that we have in place are very.
Business growth, driven and efficiency driven and so we feel very comfortable with continuing on with the capital allocation in that manner and also.
As we go forward.
With this fortress quality balance sheet. It does give us an incredible opportunity to look at acquisition opportunities.
That come along and then they could be highly accretive in the future. So so we can do just about anything that makes sense in the future and go forward in a very comfortable manner.
Understood Okay.
And then could you just briefly talk about what you're seeing in April demand for both containerboard and paper maybe versus March.
Tom you want to talk about containerboard I'll talk about paper.
The the demand is still as I alluded to earlier I mean, we're returning to more of our normalized growth throughout so demand right now is running one and half the 2%.
In that category, both both on paper and on boxes. So.
That's that's about talking about linerboard medium here not the not the paper side of business, but.
So that's about where we're running right now I'd say, it's a much more normalized growth pattern as we talked about but I do see some some positives as we open up this economy.
You know there's there's some there's some opportunities I think two to approve that as the quarter goes on.
And then with regard to paper, primarily cut size again, I'm just going to refer you to to what the publications are referring to and what they're anticipating for the.
For the second quarter right now it seems to be holding up with what they are predictions of the downturn in demand.
Okay understood. Thank you I'll turn it over.
Next question please.
Your next question is from Mark Weintraub with Seaport Global.
Thank you, Chris just clarifying that one and half a 2% that three year over year right for containerboard and box demand as opposed to April the March yes, Yep Yep.
The other just kind of following up a little bit on some of the comments about securing new business and well positioned end markets et cetera.
Maybe if you could provide a little bit more color and is that additive business, where you trading up and maybe more generally.
If you could provide some thoughts as to the mix of your business how positions you in it.
Environment overall, and one question being historically youve had more local account exposure than than some of the other larger players which are more nationally driven how does that play out do you think.
Or are you seeing it play out in this type of environment.
Hi, Mark this time I'll just answer that real quick.
We havent changed our stripes at all in terms of the type of business. We go after or the or the mix of business that we currently have it served us very very well and I think served us incredibly well during the first quarter.
I gave you that I gave you an example.
The way we operate.
You know we at various times I mean, youre going to win some business you got loosen business, you've got to do some other things and we happen to coming into this year lost a lost a very sizeable national account.
That's been replaced with about.
I don't know 50 to 100 accounts.
So you know, which is our niche and more about how we do it and that's an example of the hard to do and of course that positions us for a lot less risk going forward when that business is spread over a much larger customer base. It also allowed us growth opportunities within the all those accounts that we.
Just picked up and that's that's you know I think thats the best description of the way we continue to operate AD.
That makes us somewhat unique I think in terms of the larger players.
Great. So I'm in the are you I completely understand your long term strategy and it's been incredibly successful for you and I am I expect it will be going for I'm, just trying to get a sense. So in the current environment are you seeing a difference are these the local accounts.
Performing differently at all the larger national the holding them better they or is it more difficult for them or what if theres any differentiation you can see that great I would say mark that is that it's more of a mixed bag.
Obviously, if your big on the E com side, you're going to have you're going to have very big and large growth, all right, which weve, which weve participated in some of the smaller players there they've they've done well some of them haven't done as well.
Some of the business I'm talking about that perhaps was may be negatively impacted in the first quarter through co bid things like that the chose to close we'll be reopening.
You know coming into the second quarter. So I think theres. Some I think there's some opportunity there, but again, it's I think on a macro basis. It's there's there's a lot of give and take that got it.
And also order of magnitude.
How much of your business would you say is.
Directly or indirectly going into food service, which obviously was hit hard, but but maybe is starting to see some recovery now.
We don't we don't really breakout you know our actual segments and how much of those sales are but we do have a sizable amount that does go into food service and that was very negatively impacted obviously add we expected to come back, but it's going to come back slowly.
I just don't think there's going to be any return to what we what we used to consider normal.
In the short it's going to take a little while the good.
Okay. Thank you.
Thank you next question please.
Your next question comes from gave high STI of Wells Fargo Securities.
Good morning, Thank you gentlemen for Corning question.
Mark I was curious you mentioned in your prepared remarks as well as in the press release and talking about demand coming back.
Maybe even a little bit better than it was before the crisis and I'm curious if you can elaborate on that on that comment.
Well again and using that you have to qualify the time that it takes to get there.
And I would expect.
That.
For PC in particular were in American based company. We do you know again, a small amount of containerboard sales offshore, but we don't have operations.
Produced and sold into the United States with our corrugated products and our paper primarily here again in the United States, a little bit into Canada, but but nevertheless, we do believe that.
We will come back.
Strong as a country and it's still the best place to be in the world and so.
The caveat is it's just there's there's some time, it's going to take to get there, but I still feel.
Very good that that where we're in the right place in the world and the right products and and we got the platform to take advantage of that.
Okay.
And then maybe I.
I guess, we try to come out in a couple of different ways on the.
And marketing they serve in the core get business, but is there.
Away that you can give us to think about core get intensity.
For the food beverage that goes through retail versus foodservice.
Intuition would tell me that it's more intensive to go through the retail channel but.
Something that you guys have observed through time, and and a way to think about it.
Tom Somebody gave let me see if I take a crack this I'm not sure exactly what what's your after but.
On the on the food and beverage retail side.
You know there's there are two distinct markets really per se. Okay. There's the theres that retail side and then there's that food service side, and what Weve well, what I've learned even through this process from some of our customers is how unique and different they are.
It's called almost like tissue, you know I mean tissue on the read theres tissue and retail side and then there's tissue on the institutional side and there are two completely different businesses and really different products. So you can't just swing from one to the other and the same as very true even in the food business and I, especially related to the AG eggs.
That is the food business, where you've got agricultural accounts that primarily serve the food and beverage retail side and then you've got AG accounts that serve the food service side and they don't swing from wants to the up there just they have they have completely different product lines and.
Supply lives. So that's one of the big distinctions that we've seen here is that we obviously in Q1, we had tremendous demand on that retail side just to keep store shelf stock.
Now as we get into the second quarter third quarter and go on in the economy begins to open up.
We the food service side, we'll begin to pick back up.
That will end at the retail side will come down a little bit but overall the net effect that will be an increase probably a slight increase in demand not a decrease in the Matt.
Okay.
Thank you.
Okay.
Yes.
Thank you next question please.
Your next question is from Adam Josephson of Keybanc.
Good morning, everyone I Hope you and your families are well.
Good morning, Thank you same deal.
Thanks.
Tom just one on is back to the box demand trends for a moment, so april's back to kind of a normal trend I guess my question is.
Why not provide guidance in that case is it something you're thinking may happen in May and June that you haven't seen yet or is it something perhaps in your backlog for may that you're saying I'm just because obviously you normally provide current quarter guidance and in this case, you've opted not to do so and you've expressed the plan for paper and taken.
Tracks and mill it taken a Jacksonville down for two months. So I'm just trying to understand what kind of drove the decision not to provide guidance. If in fact your box demand trends seem to be holding up pretty well at the moment.
Adam there's there's zero upside in us providing any guidance because of the uncertainty that we still live with day to day.
Anybody that turns on the TV or watching the news or checks your internet messaging.
What's coming out of Washington, what's coming out of the state and local levels is anybody's guess from day to day, an hour the paper business. The demands. So it's not even worth trying to put a number on that until we finally get some time.
Behind us in terms of normalizing the economy.
And so that's about as simple as it gets they still tremendous uncertainty day to day.
Just with Adam Adam as well, but you know with suppliers and services and whatnot. We have we have no control over what may be going on there. So we can't be is.
Confident in that we feel good where we are now but the supply chain.
Things can happen and it puts a lot of uncertainty out there sure not understood and Mark just on the freesheet business longer term, obviously, you're managing supply now to to match the man and hopefully things get better on the other side of this with respect to freesheet demand but.
Longer term how are you viewing that business do you view it as really a cash cow and youve manage it quite successfully since you got a from Boise and you'll continue to do that or is it something that you may actually look to get bigger and if the price than an opportunity is right.
Well, we've said for seven years that the business has provided us.
Really good cash flow, we never had to invest an inordinate amount of capital.
It's turned out to be a very good business in that regard.
We've made no.
It is what it is it is a declining business overtime the decline had flattened out somewhat.
We would expect that declined to continue over time in a normalized manner.
And that such point in time that.
It called for we do have numerous opportunities to take advantage of these remaining assets.
That's right Yep no neighborhood understood. Thanks, so much more.
Okay next question please.
As a reminder, if anyone would like to ask a question you may do so by pressing Star then the number one on your telephone keypad again that is star one if he would like to ask your question.
George Staphos has returned to the key.
Hi, everyone. Thanks for taking the follow on.
Mark Tom you know given what you've seen over the last you know four to six weeks maybe longer in terms of Covidien what did it change in terms of consumer demand ordering patterns and alike.
Are there any directions investments and converting.
Investments generally that you could sort of outline for us that maybe now more important.
Higher priority again, given what you've seen over the last quarter were too thanks, guys and good luck in the quarter.
Tom Why don't you go ahead.
[laughter].
Well I for one as number one is.
I'm going to reiterate this over and over again no matter what color on and that is that our investments our customer driven so we tend not to talk too much about that.
When we.
When the demand gets to a certain point add we need more capacity, we take care that capacity, whether it's at a box flat or at a mill and.
We these there's no question the patterns have changed dramatically as a result to co bid.
Thank the patterns will be it's going to be a long time before the patterns get back to what I call. The normal that we used to understand.
And we're going to have to adapt accordingly.
One of the things that it does causes it does we could have we can have tremendous demand in one region of the country or even a single plant and far less demand in some other flat and therefore, we have to utilize our resources in a different way, which we do and sometimes we incur additional cost as a result to doing that.
But we take care of our customers. So I, we're just prepared to continue to do that.
And work at we're prepared to look at.
The market through a very realistic lands.
And adapt to whatever changes take place.
The best I can summarize for you there George.
Understood, Yes, I was getting really more process than than capacity, but I understand if that's something I don't want to get too deeply into I mean, maybe as a follow on and recognizing and wouldn't be extended about set your somewhat biased here do you think that the world we've been living through in last quarter too.
As.
All right.
Ultimately long term assisted improve the growth outlook for corrugated because rami shopping from onto Florida degree et cetera, where you think this is more about a one off and the longer term secular will be what it was prior to covert thanks, guys and again good luck in quarter.
Well I, it's George it's hard for me to speculate on that but I would say that.
Most of the trends are positive for corrugated okay. Now on the other side of the equation. It's been a negative for RCC collection. Obviously, we haven't spent a lot of time talking about RCC, but it's certainly has impacted.
You see collection.
Getting it from the consumer as a lot more difficult and getting it from.
The the food service sector or the retail sector.
And I think that I think thats going to be a trend that we're going to be dealing with for quite some time.
Thank you Tom.
Yeah.
Thank you and Shelby I do believe there no more questions.
No. There are no more questions do you have any closing remarks mr. call them.
Yes.
Thank you for joining us today, and everybody stay well be safe and look forward to talking with you in July for our second quarter call.
Thank you have good day.
This concludes today's conference call. Thank you for your participation and you may now disconnect.
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