Q2 2020 Packaging Corp of America Earnings Call
[music].
Most today will be more coals, and chairman and Chief Executive Officer P. C.
Upon conclusion of his membership there won't be a Q1 day session I would now turn the conference call over to Mr. coals and I'm pleased proceed when you already.
Good morning, Thank you for participating in packaging Corporation of America's second quarter 2020 earnings release Conference call.
Hi, Mark Colds, and chairman and CEO P.C. and with me on the call today, It's Tom Hassfurther.
Executive Vice President of runs or packaging business, and Bob Mundy, our Chief Financial Officer.
I'll begin the call with an overview of our second quarter results and then I'll turn the call over to Tom and Bob will provide more details.
After which I'll wrap things up and then we'll be glad to take any questions.
Yesterday, we reported second quarter net income of $57 million were 59 cents per share.
Excluding the special items second quarter 2020, net income of $132 million were $1.38 cents per share compared to the second quarter 2019, net income of $194 million or $2.04 per share.
Second quarter net income.
Was 1.54 billion in 2020, and 1.76 billion in 2019.
Total company EBITDA for the second quarter, excluding special items was $299 million into 2020.
In $376 million in 2019.
Second quarter net income included special items expenses of 79 cents per share related primarily to the impairment of goodwill associated with our paper segment.
Bob will discuss that are more detailed in a few minutes.
Special items expenses also included the previously reported closure.
Of our corrugated products facility in San Lorenzo, California, and costs and expenses associated with the covert 19 pandemic.
Details of all special items for the second quarter 2020 were included in schedules that accompanies our earnings press release.
Excluding the special items.
That we mentioned the 66 cents per share decrease in second quarter 2020 earnings compared to the second quarter of 29 team was driven primarily by lower prices in mix in our packaging segment of 66 cents.
Paper segment five cents.
Lower volumes and our paper segment, 40 cents and higher depreciation expense four cents.
These items were partially offset by lower operating costs of 33 cents, primarily in the areas of labor infringes.
Repairs materials and supplies in several fixed cost areas.
We also have lower annual outage expenses of 10 cents lower converting costs three cents lower freight expenses two cents and other costs one cent.
Looking at our packaging business.
EBITDA, excluding special items in the second quarter of 2020 of 313 million.
Sales of $1.4 billion resulted in a margin of 22% versus last year's EBITDA of $349 million and sales of 1.5 billion or 23% margin.
We ran or containerboard mills to demand built some much needed inventory from the historically low levels at the end of the first quarter.
And maintained the industry, leading integration rate by supplying.
Oh.
Excuse me our box plants with the necessary containerboard to establish a new second quarter record for box shipments per day.
We ended the second quarter with inventory still at the relatively low levels, but inadequate position to meet our expected stronger third quarter demand.
Our efficiencies and cost control at the mills in corrugated products facilities throughout the quarter, we're truly remarkable and we continued to see improvements in freight and logistics expenses through the optimization of our trucking operations and geographic footprint of our containerboard supply.
I'll now turn it over to Tom Who'll provide more details on our containerboard sales and the corrugated business.
Thanks Mark.
Demand for our corrugated products was very good in the second quarter, especially during the month of June as Mark indicated our corrugated products plants achieved a new second quarter record for shipments per day, which were up 1.2% compared to last year's second quarter total shipments for the quarter were also up 1.2% over last year.
As a comparison for the second quarter the industry was down 1.4% in total and ought to work day basis through the first half of 2020, our box shipment volume is up 2.5% on a per day basis versus the industry being up 0.6%.
Outside sales volume of containerboard was about 10000 tons below last year's second quarter, and 23000 tons below the first quarter of 2020, as we ran our containerboard system to demand supplied the record needs of our box plants and positioned our inventory for even higher demand during unexpected stronger third quarter.
Domestic containerboard and corrugated products prices and mix together were 61 cents per share below the second quarter of 2019 and down 18 cents per share compared to the first quarter of 2020.
Export containerboard prices were down about five cents per share versus last year's second quarter and flat compared to the first quarter of 2020.
Finally, I'd like to point out that the benefits from our capital spending strategy in the box plants that we spoken about over the last couple of years are continuing to gain traction as we've said many times this strategy of improving the technology and equipment and various plants as well as the construction of new box plants is based upon our customers' needs and.
Demands and improving our capabilities to grow with them. We're seeing this in our volume growth with new and existing customers operating efficiencies and various operating and conversion cost areas.
Ill now turn it back to Mark.
Thanks, Tom looking at the paper segment EBITDA, excluding special items in the second quarter was $5 million.
With sales of $123 million or a 4% margin compared to second quarter 2019, EBITDA of $48 million in sales of 238 million for 20% margin.
Second quarter paper prices in Nics were about 5% below last year and less than 1% below the first quarter of 2020.
As expected our sales volume was about 45% below last year and as announced back in April we had our Jackson mill down for the month May and June to help manage our supply with our demand outlook.
Unfortunately, our view of demand as we approach the end of June did not improve to the point of allowing us to restart the mill, resulting in US recently announcing that Jackson will also be down for the month from July and August.
We'll continue to assess the market conditions for potential September restart of the mill.
Ill now turn it over to Bob.
Thanks Mark.
Cash provided by operations for the second quarter was $227 million with free cash flow of 146 million.
The primary uses of cash during the quarter included capital expenditures of $81 million common stock dividends of 75 million.
Net interest payments of 41 million and cash taxes of $39 million.
We ended the quarter with $853 million of cash on hand, or 977 million, including marketable securities.
Our liquidity at June Thirtyth was just over $1.3 billion.
During the second quarter, uncoated freesheet market conditions, and especially demand for our cut size office paper products continued to deteriorate rapidly arising from the covert 19 pandemic.
These conditions along with the estimated impact on our paper segment and its projected future results of operations.
Resulted in a triggering event, indicating possible impairment of goodwill and long lived assets within our paper segment.
Due to this triggering event in a more likely than not assessment that an impairment of goodwill occurred.
An interim quantitative impairment analysis as of May 30, Onest 2020 was performed.
Based on this evaluation, we determined that goodwill was fully impaired for the paper segment.
And recognize a noncash impairment charge totaling $55.2 million.
The impairment charges not tax deductible.
We also performed a recoverability test on the long lived assets within our paper segment.
Including long lived intangible assets as of May 30, Onest 2020.
The results of this test indicated that these assets were 100% recoverable.
Lastly, we are planning to take a or to make a change to the scheduled outages in our containerboard mills for the fourth quarter of this year versus what we discussed during last quarter's call.
Our current plans or pull forward some recovery boiler work at Deridder mill from next year.
To eliminate the risk of unscheduled downtime and during this period perform a high return capital project on a number one paper machine real section.
The fourth quarter estimate for a scheduled outages is now 59 cents per share in the full year and is now a dollar and five cents per share.
I'll now turn it back over to Mark.
Thank you Bob.
As in the first quarter of the employees at all of our manufacturing and office locations ran their operations safely in a very cost effective manner, while facing the unprecedented conditions brought on by the cobot 19 pandemic.
All facilities continue to operate in adherence to CDC guidelines and follow the strict protocol for workplace operations.
As well as notification of in response to potential issues.
Although we did experience some challenges during the second quarter, we have not experienced any material disruption in our operations or supply chain.
To the pandemic due to the pandemic the accomplishments by our employees. During this period with the help of our customers and suppliers were truly amazing.
Looking ahead to the third quarter, we will stay focused on preserving our financial and balance sheet strength. During these uncertain times.
We will remain well positioned to manage whatever lies ahead, while ensuring that we take care of the needs and expectations over employees customers suppliers and shareholders.
During the unprecedented times corrugated products demand has performed quite well so far this year and we expect the third quarter to be even stronger.
We began the third quarter with replenished, yet still relatively low containerboard inventories and our expectation is that we'll end the quarter at levels below where we started while managing scheduled outages at two of our mills.
We've already announced the actions being taken in the paper business and we'll continue to evaluate the demand for our paper products throughout third quarter.
However, shelter in place and lock down conditions continue to change constantly across the country and such events and actions could adversely impact those expectations and the operations of not only our facilities, but also the availability of services and products, we rely upon from our suppliers.
As a result, we're not able to appropriately quantify our guidance from third quarter.
With that we'd 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.
These statements were based on current estimates expectations and projections of the company and involve inherent risks and uncertainties, including the direction of the economy in those identified as risk factors.
And our annual report on form 10-K.
Which is on file with the FCC actual results could differ materially from those expressed in the forward looking statements.
And with that Shelby I'd like to open up the call for questions. Please.
At this time, if he would like to ask a question you may do so by pressing star the number one on your telephone keypad I guess.
Good question.
Your first question is from George Staphos of Bank of America.
Hi, guys good morning.
Thanks for the 20, Georgia.
I wanted to ask a couple of questions on paper.
Packaging and turn it over so shorter term and recognizing it.
On paper.
Sounds like the man really hasn't changed much from your commentary it looks like.
Right now John let me down about the similar amount as it was down.
This past quarter.
Barring any change in pricing, what you can comment to anyway.
Any reason why Q.
Terribly different from Twoq with that volume outlook.
Let me comment at all or Bob comment also again.
You know.
Sales have picked up somewhat for cut size.
The problem is they haven't picked up enough that you can justify starting the mill and running full and so it's not economical to do that so we're running out of inventory in running out of what the I falls in though can produce.
In the volume pickup we're seeing is what you'd expect with of the reopening of.
Various states and businesses.
Some of them back to school reordering some of the big box stores planning on some of their volume that would be moving out into a school activity and so everything hinges on what truly happens to the economy in terms of.
How stable is this reopening and how fast as it occur et cetera.
From the financials, Bob would you comment on what we'd expect to see if you have you had Georgia I would think that you probably you're thinking about things correctly.
You know based on.
The the assumptions we've made in that we've stated and if those hold true then I would think you're you're not you shouldnt be far off okay. Thanks.
Second question on paper and I realize it's tough to speak to this Mike.
Early into this.
Reduce trend, but you know how does.
[noise] goodwill impairment, how does the demand decline that we've seen.
Change if at all.
On the paper assets.
Both in terms of their current operating stands and how you might be able to use those assets.
Hi, there in your current form and the different form and then my last question I'll turn it over.
You mentioned that third quarter demand.
Looking good and if things continue obviously the no guarantees in life.
Inventories.
Lower what are your customers, telling you, though what concerns might they have about the phase out or lowering of that $600 conditional unemployment.
Payment that people have been getting.
And how it might relate to consumption if you have any.
Thank you guys. Good luck in the quarter.
Okay George on the first part of your question regarding the impairment impairment simply was the technical matter.
And so we went through the trigger analysis and a lot of who truly just SCC trigger.
Requirement.
You know noncash charge cleans up the balance sheet, but don't forget if you think about we've been operating that paper business for about eight years now and the paper business is probably generated about estimate $1.1 billion EBITDA. During the time, it's been a very good business for us.
If you take this pandemic out of the picture it still.
Is a good business and so.
Who knows.
Again, how fast the economy recovers and demand recovers, but nevertheless, we have a lot of optionality and how we utilize the paper business and the assets within the paper business.
Tom do you want to talk about demand.
Yeah, the as it as indicated Georgia currently we're starting out quite well in demand.
Typical question that gets asked is where are we at this point in time through 17 days were up.
Just under 1% and.
And that's against a very tough comp a year ago. I believe we were up about 3.9% on a per work day basis. So.
That's a that's a good start to the quarter.
You asked a question about our customers and our that what are their effects from the 600 dollar or the potential effects from the 600 dollar unemployment.
I think most said we've got some customers who are concerned about getting employees back because in some cases, they are making more money probably on unemployment than they would be working but.
You know there I think for the most part people want to work and they want to get back to work and so.
Our customers that are continue to grow.
They expect to they expect to continue to bring their employees back.
Okay. Thank you very much.
Okay next question please.
Your next question is from Mark will then of bank of Montreal.
Morning, Mark morning time morning, Bob.
Good morning, or Mark a I've got a couple of questions. The first one just kind of back on Jackson I'm, just curious whether there are any issues in serving kind of your primary customers I'm just a single mill and then whether the extended downtime there makes it difficult to retain skilled workers.
That site.
First part of the question you know Weve.
We've got complete flexibility between the Ifalls portfolio capability in Jackson capability, and so it's just a matter of.
What does the demand looked like and where is it appropriate to make.
So we're okay for the time being given your question regarding.
Employee retention and talent retention, obviously, that's always a concern.
And so it's really matter of how long this goes on.
And don't forget this is taking place throughout the paper industry and so.
Hi.
We had spent quite a bit of time during that period of.
They may and June.
Going through the mill from top to bottom really putting the assets in great condition and so the mill since they are ready to run of the employees know that and so.
Again, we're just going to evaluate market conditions and in at the right time that mill can run and we'll run when necessary.
And if I could just on on Jackson, one other thing Mark is there anything from just from an engineering standpoint that would.
Make it difficult to produce other products at Jackson.
It's a fairly new machine as I recall, it kind of off late 19 nineties vintage machine.
We have total flexibility.
And optionality with the Jackson assets and anybody that knows us would have to assume that we have studied all potential options and we have.
As we've done is an example that will move into Ritter.
We could take those assets if need be and.
You know applied into a containerboard if need be.
But in the meantime, we don't see that happening.
Again, there is always a capital cost and capital varies from famille asset the mill assets, but to your point the Big machine and Jackson is one of the biggest.
Cut size uncoated machines in North America. So it's it's a really good paper machine and the the mill.
In general is a very good mill assets so.
Again, it's the tremendous optionality for the future.
And.
But just keep in mind that.
If anybody's thinking that you just.
Converted tomorrow think about all the capital that it's we have employed over the years to bring on efficiencies at a mill like when will it doesn't happen overnight and there's a phased approach, but again you.
I am betting on the fact that.
Demand will pick up the paper business and the we'll see that come back.
Okay. All right. The other question I had markets this stuff.
In terms of of dry powder, I mean, you've got over $10 a share of dry powder I wondered if you can just give us some.
A sense of the parameters for what you might do on the acquisition side or what's your might not do I think in the past you said you weren't interested in going south from the from the U.S. It didn't sound like Europe was really an interest so just frame for us kind of if you could.
Where you'd be willing and where you wouldn't be willing to use that capital overtime.
I think the the best choice is that we continue to make the smaller bolt on acquisitions on the on the box plant side of the business.
Yes, highly accretive opportunities that would come along we would certainly be in a position to too.
Take those on and put them in the portfolio.
That's always the primary driver and then we'll always figure out where we're going to supply containerboard into that system.
If the high class problem, a roes that we we.
Add more demand than the the capability to produce we've got the optionality on how we go about that short term and long term short term. We can we can buy tons on the outside market long term, we figure out how to produce them internally and so.
I think it's still holds we have no desire to go offshore with any investment.
We will stay in the lower 48 states.
As as seen in our.
Volume year to date in our volume in the second quarter are.
Very diverse customer base pays off quite well for us in terms of what we can service across the United States and our customers recognize that so we will continue to invest in the existing asset base to enhance the capability.
And quite frankly, that's that's our highest return opportunity right now is to continue to allow Tom and the box plants to.
To reinvest in their capabilities, we've been doing over the last couple of years. When Weve you know we've seen tremendous results from less.
Well, it's worked well over time, that's it for me Mark I'll turn it over.
Okay next question please.
Your next question Mark Connelly of Stephens.
Thanks Mark.
Sounds like you're fine with your inventories now going on I'm curious, whether you didn't see any significant cost or inefficiency either because your inventories were lower because your customers' orders were.
Unpredictable and I'm worried I'm wondering whether that lack of predictability or logistics might be a bigger issue in Q3.
No I think again.
Everything we've been doing over the last couple of years too.
No.
Simplify our portfolio in terms of our containerboard.
In inventory this the the skews what Tom uses in terms of the basis weights and Weve gone primarily to high performance mix of containerboard that that we use.
We keep that internal.
With our nationwide logistics capability and regional supply we've been able to.
Minimize.
The inventory requirements there.
As far as customer and uncertainties again, we can pretty well produce what we need.
[music].
We're in not not in the.
Again, I don't see any problems in this third quarter that would be related to uncertainties. Tom you want to comment on where we are at night and I agree with you I mean lace and quite frankly, I mean, given our customer base and the way we operate.
You know, we're up where for any uncertainty that comes along.
That's good answer.
One question on freight rates were starting to see freight rates pick up again after a differ later this year and I can't remember when you we do your contracts, but do you have a view on on how a rising freight rates are going to affect you in the next year.
Well again, I mean, you know with based on demand as as the economy started opening up we definitely saw some tightening up on on both truck and rail.
And so in some ways, we'll deal with that that's it that's a healthy sign.
But again, the fact is that with the diversified.
Production portfolio nationwide, we can manage the.
The logistics costs better than we've ever been able to do and so but right, but we are seeing some upward pressure.
Well have a secure.
Do you have a significant part of your transportation on an annual contract with her you know a reset at this time here.
No.
Okay. Thank you.
Okay. Thanks next question.
Your next question is from Brian Maguire of Goldman Sachs.
[noise] [noise] picking my guess.
I want to Brian somebody's going to get a little bit more color on the third quarter volume outlook for corrugated I know you you'd spoken many times both in the press release ended the comments about expecting much better trend.
If I if that better than this sort of 2.5% year to date trend you were talking about and then you know recognizing it's a tough comp or you know the July.
Number being up a little bit less than 1%, maybe not quite hitting that a you know 2.5% bogey. If that is the bogey. So are you seeing are there some new customers that are coming in later in the quarter that you're expecting to kind of ramp up or are you getting the order book start to accelerate now into a late.
July and August that you expect a trends improved as the quarter progressive.
Brian This is Tom I'll take that question.
Of course, we were up we'd been up by the two and a half as we talked about we're building on that going into July I forecast will continue to build on that through the quarter and and have a and have a very good quarter, providing as mark indicated earlier, we don't have some shutdowns as Rick.
So to the pandemic or anything like that that occurs as long as the economy continues to open.
I think the trends will be will be quite good the comps do get a little easier as the as the quarter goes on.
As I indicated July was our largest increase last year. So.
Things are things are pretty positive and I'll also add as I discussed on the last quarter call you know the foodservice business.
Had really been hurt quite badly and the AG business that supplies. The food service side have been hurt quite badly in the quarter and that's beginning to come back now as restaurants opened up and schools opened up.
We'll see we'll see more of that activity, which is good and the durables business has started to come back end and as you saw the durables numbers were quite good.
So.
That's that those are good accelerators for us in the third quarter.
Mhm and end market, you did mentioned, but I'm going to assume that still doing great. It is E commerce and so my next question is just.
As the industry, sorry continues to shift towards E commerce and it seems like there's maybe that a step function change as a result of cove. It here.
You'd be that is a good thing or a bad thing for PCIA that you guys uniquely positioned within the industry to take advantage of that or or not or do you think.
There could be any positives or negatives, but just specific to the mix shift regardless of how how it kind of impact volume growth in general.
No ecommerce ecommerce is a good thing it's a good thing for PC and it's a good thing for the entire industry and also as you know we see it continuing to.
Continuing to grow and and I think there's eight I think theres, a big consumer shift that's already taken place and even as the economy opens.
I think people will continue to participate in ecommerce category quite heavily.
Okay, just less well that's one for me and that's not to give <unk> guidance and you're not able to give it doesnt the lockdowns, but if we just kind of froze things where they are didn't see any more roll back in the locked down.
Yeah, just been everything got it seems like third quarter eats yes, you would have been able to guide or something that would it would have been quite a bit better than where chunky was given the exit rate.
At all these trends and and sort of what I'm hearing about the volume outlook in packaging.
Well, Brian as you know when George asked a question earlier I think sort of gave an indication that there. There are some things that are positive certainly on the volume side, but there'll be some seasonal cost that you know that can go go the other way.
So all things being equal.
You know we would if based on our assumptions you know.
We should be we would've expected to be fairly similar.
There's also some mixed things I know, we talked about freight no just just from a mix perspective like freight as an example, it's not that.
There is a little bit of upward pressure, but there's also your some some mix related things that caused freight cost go up from two Q to Q3.
Some of that would be like for my falls in our paper business, we have to still get some paper down in the part of the country that we have the mill down so things like that and then some things going on containerboard side.
You know drive that up as well as certainly energy usage in the during this part of the this time of the year is is a lot higher and our outages.
Based on the numbers, we gave you on guidance you know outages.
Look at what we've said that's seven cents a share so right there so.
Got it okay. Thanks, very much guys silicon quarter.
Thank you next question.
Next question is from Mark Weintraub with Seaport Global.
Thank you I'm just a question on the pull forward of the Deridder recovery boiler.
Project. So in 2018, and 2019 maintenance expense had been order magnitude 61 cents.
And now this year given that pull forward, you're guiding to about a buck five for this year as we think about next year does.
It's a starting point does it make sense to be at the 60 cents level or is that there is is that their rid are pulling forward. So that next year, all things equal the it could be lower than the 61 cents.
You know markets it's hard.
Think about the reason we want to pull this outage up is to take advantage of the fact that.
We have to take deridder down for part of its annual outage anyways and we were doing the during a number one machine annual during that fourth quarter.
And.
In the work we're doing on D., one we recognized an opportunity to significantly upgrade the.
Winder capability and go to a four set real automatic conveyor of Reals until the winder back stand.
And really enhance the efficiencies as of the machine.
So we have a very high return capital project, which is taking a couple of weeks of downtime opportunity.
We also recognize that the recovery boiler was going to be requiring a super heater.
Replacement next year.
Which typically is in most cases about a three week outage type of job depending on the work three weeks three and half weeks of work.
And we looked at it and said well if we're going to take a longer outage on them pay big paper machine in the fall and we know that within.
Six months, you're going to add to take another longer outage that is the recovery boiler, which impacts cost.
And we we thought well there are some uncertainties about the economy not knowing what demand is doing and where where the world is going to be in the fourth quarter. We thought it was probably prudent to.
Go ahead and pull up the outage.
[noise] get the work done on the paper machine.
Get all this work done on the recovery boiler.
And put that behind us and so that without quantifying what that does to the annual shutdown costs next year obviously.
It eliminates that cost next year.
And so you not only eliminate that shutdown costs next year, but you'd be.
You see immediate results from the paper machine upgrade work and the reliability that you bring to bear with the boiler work that we're doing.
So I don't want to try to you know.
Try to quantify what that means for 2020 ones.
Maintenance outage expenses.
Fair enough and maybe even one help if he could would be the recovery boiler project would have not been a you know a once every seven year type thing, which is exceptional or is it would that be in kind of a normal course, no. It's probably once a decade type of opportunity.
The Super heaters quite frankly Super heaters, you change up probably every 25 years.
Yes, you typically you typically have various to work you're doing on a power boiler recovery boiler.
The most complex work you do would be work such a generator section tubes, and or Super heaters section tubes in this case.
We felt it was prudent to just go and move this up take advantage of this and there's no reason to wait but it costs us, but it's in avoided cost for next year.
Understood.
Okay is there any help you can provide at this stage for us as you have done the that the analysis on the options that Jackson.
Oh order of magnitude what type of capital to achieve what type of.
And result.
I would be would be entailed recognizing that it's still a a process under consideration as opposed to anything that's been determined.
Now you know as again, you you'd have to believe that we have in our files.
A various.
Listing of opportunities in the costs of those opportunities and what could be done in it over what period of time.
That being said if you look at our history over the last three decades whenever we've done big projects in Big conversions, we do it in phases I don't want to try to quantify what that cost would be it's it's not the proper to do that.
But it is a significant cost I'll leave it at that do have to do right to do it properly it would be significant cost, but if that were to play out that way that would mean that we have a significant opportunity.
Okay. Thank you.
Okay next question please.
Your next question is from Neel Kumar from Morgan Stanley.
Great. Thanks for taking my question.
Onboarding engage hey, good morning.
I think they basis corrugated shipments were up 1.2% risky industry, which is down 1.4 quarter.
What did allow you to outperform relative industry volume and where do you actually tax year end market or geographical mix or perhaps having more local versus national kind exposure.
[noise] Neil this is Tom.
I think our our performance is really just a you know we're aligned with thousands of customers.
We're still primarily local and regional although we have a decent national footprint as well.
And.
We I think we were fortunate to be able to grow with the with the customers that we have.
In addition, we we did pick up some new customers as well.
Just the where the opportunities presented themselves.
And.
No. It's it's kind of a continuation of what we do and what we do so well in the way, we execute and operate so efficiently and it's also obviously a result of the capital that we do we talked about the we invested in our businesses to be able to do that.
So we had in some cases, we had customers who were expanding and wanted to grow and wanted to grow with us and you know, we and we made the investments to be able to do that.
So that's that's been our strategy for a long time, and we'll continue to be our strategy.
Great. That's helpful and can you just also talk a little bit about what you're seeing and export markets.
Pricing as you know look like that come down in a board recently in Europe, and Central South America, and it seems to be through softness maybe in China as well I'm. Good generally speaking how I managed care to some of your key export reasons.
Versus domestic market over the last several months.
Well as we've talked about many times, we don't have a large export footprint, but the one we do have us with long long term customers, who have been in the business obviously.
And for a long time and or enter you know good players in their marketplace.
The the demand has been relatively flat the the pricing had come down it stayed flat for awhile and you know who knows what's going to happen down the road I'm not going to speculate on that but.
Our our demand.
On the export side has been has been steady and.
That's what that's we continue to expect and maybe even up a little depending on how things open up around the rest of the world.
Great. Thanks.
Next question. Please question.
From Debbie Jones of Deutsche Bank.
Hi, good morning, Thanks for taking my question.
I wanted to ask Steve can you are buying a material.
Board a outside your on system currently being in the past willing to provide that and I. If so it did and stay steady and you didn't you can't do this project in the fourth quarter.
Taking a lambert Eaton.
It's fine what tends to support your system.
Yes, w. on the first part of the question.
The only board would we buy on the outside right now currently a specialty type grades white top would be a good example, and then there is some specialty.
Products that we use that's essentially holding we've been buying for the last couple of years.
As far as fourth quarter as far as the fourth quarter with the outage.
Obviously, we got some flexibility as we go through the third quarter. When we look at what was the fourth quarter.
And.
It looks like.
We'll figure out how we.
We run the system, we've got create opportunities we could in in a worst high class situation you could go by some board on the outside market. If you had two but we're not anticipating that right now so.
And just requires us to manage our business well as we go into the month of October and November.
Okay. Thank you did touch on costs earlier and I was wondering if you could just talk a bit more about what fiber.
And how that trended for you in Q2 and into Q3.
Yeah.
Wood fiber costs in general we were saying flat I mean, there's nothing it's typically what you'd see with weather related phenomenon seasonal related phenomena with tied to weather events.
Nothing nothing unusual.
Thank you very much.
Thank you next question.
Your next question is from Anthony Pettinari at Citi.
Good morning, guys. This is actually Randy tole sitting in for Anthony.
Wondering you could cook. Good morning can you just quickly update us on the ODC plant build that will Lou I think originally it was expected to be completed by year end has the timeline changed at all due to that pandemic.
And then just bigger picture, how you're thinking about Bergen verse recycled fiber mix changed at all Oh, Okay. My microscope.
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Thank you regarding regarding the project, we're still on schedule to the end of the year and it hasn't changed our view and the entire premise on investing the money into new ULCC plant and we'll lose to provide complete optionality of fiber opportunities in that mill.
That mill, if you can imagine being in the Pacific Northwest is the highest would cost basket for paper Mills and in North America.
And so having the ability to utilize ULCC and various would fibers gives us the optionality we need there. So it's still something we would.
I believe is is a good thing to do an important thing to do to.
Fiber that mill up to the future so it hasn't changed our outlook on.
Where we are next question.
Your next question is from Adam Josephson Keybanc.
Thanks, Good morning, everyone.
Tom in terms of your box demand outlook for the balance of the quarter and this year has been somewhat of a roller coaster ride. Obviously, there is the panic buying surge in March and that.
The economy shut down some industry box demand, obviously went down in April and May and June and July has been much better I assume because of inventory restocking correct me. If you think otherwise so just given these big swings up and down what would you say your visibility and confidence level is for the balance of the quarter.
And for that matter in for Q1, and you've always said the box demand is tied to the economy and when you're talking about the paper business. You said look depends on the reopening et cetera does the same apply to your box business.
Yes, Adam.
The second part of your question.
Yes, some of that does depend on the box business that you know if if suddenly we had a big surge in the United States co bid.
And we had certain businesses close back down or big Big regions close down.
You know some of those segments, we talked about.
Like food service.
That would be that would be impacted.
However, the indicators are that that's not going to be the case and that we've got the potential to continue to open up the economy and if that if that takes place.
You know, we're we're quite bullish.
The.
The ups and downs I think are when you say inventory restocking.
I would say that most of our customers have kept their inventories at very low levels period.
And.
So the so the surge is more demand related than it is inventory stocking related and that requires because I can you can really feel it in the in the short turnaround.
Timeframe. So we've got to that we've got to produce the boxes and ER and this is what our customers are telling us likewise so.
There are sitting there with lower inventories.
Trying to manage their business, but also.
Wanting to take advantage of every opportunity they have as this economy continues to open up.
Got it thanks, Tom and just on three Q.
Bob I think you mentioned that in response to George's question that paper earnings could be expected to be relatively similar.
Sequentially and it sounds like you're pretty good confidence on box demand for the balance of the quarter. So it gets back to the guidance question why why don't you feel comfortable giving threeq guidance given that box demand will present would be good and given your it seems like the likelihood of paper earnings will be flattish sequentially.
Yes, and it's just for the same reasons you know that Mark mentioned, you know and Tom just touched on as well and not that dissimilar from a paper you put out not that long ago about you know this thinking term really quickly and if it does or our supply chain or our how our customers.
Are impacted then all bets are off but usually we have our crystal ball is not as cloudy.
So do the best we can but you know these things can change so rapidly and you know if we have a number out there and in that happens you know, it's just it's hard to recover from that because of the perception is what people happened read that day and other forget about you know that you tried to warn that things can change quickly. So it's just.
It's just better to to do it the way we're doing it right now.
I appreciate it just one last question Bob on a co that costs are you expecting a similar level of cobot costs in Threeq Hewitt and perhaps beyond or do you think those no onetime into Q.
No I do not.
Okay. Thank you.
Your next question please.
That's a follow up from Mark welding.
[noise], Yeah, just I had a few kind of quick ones for you the box shipment numbers.
That you gave a up 1.2% what was the impact of of Richland on those numbers and can you give us a sense of where richland is producing right now.
[noise] Mark the I mean, Richland, obviously had an impact you know and you see we've got some puts and takes here too I mean, we closed the San Lorenzo we've opened to we've opened a richland.
You know Richland has ramped up very nicely I don't go into details as to exactly what they're running but I will just say that that we're pleased with we're pleased with what rips once done and obviously you know they made they made some contribution to that increase.
Okay, and then the second one I'm, Tom or any impact that you've seen so far from the dollar starting to weaken.
Not at the moment Mark.
And if it continues to weaken would you expect some particularly around sort of export volumes or export pricing.
It could.
It could I mean, you know that's obviously you know currency as big as a big part of the export market.
So it can drive it up drive down drive drive prices, one where the other.
So yes, depending on depending on what happens I still think it's in a range right now where it's not where it's not quite as impactful, but if it does drop some more of that could that could definitely create a change and are you seeing any impact from the Brazilians being a little more aggressive I mean, they've got a very weak currency.
Extra capacity right now.
Not right now.
We're not we're not seeing that right now I can't I can't.
I mean that could that could change tomorrow, but I'm, just giving you the the snapshot as of right now yeah. That's all I'm looking for the last one I have is it possible to get any sense of sort of what the.
Economic slow back might have amounted to and in Q2 or how much extra fuel you have an attack potentially across the mill system.
We don't quantify the you know in terms of what we did as for wanting to demand.
It's obvious.
We did.
Using the term run to demand.
And what we saw happening if you'd think about as the second quarter was unfolding.
And they April you know.
Folded into May and we saw some big big businesses shutting down the protein side of the business going down we had to make some decisions in terms of what we believe we would end up with and so part of that decision making was too.
Literally slowed down some of our machines and run to demand not knowing where some of our our output was going to have to go but knowing that we could always rent that back up but there was some slowing down it took place in a few of our paper machines that.
That caused us not to run full load.
Rather just leave it at that.
Okay, and I guess just related to that market. It didn't sound to me like overtime molten director and Wallula.
You had some ability to kind of stretch those conversions in terms of capacity over time.
Possible to give a sense of kinda were.
Yeah, you know.
We'll move is been a really great success for us essentially we're running the mill full out right now.
For two machine, which is always been a medium machine is is running to its limits and then all the work that was done to support number three machine.
We've seen all of the success there.
Based on the grade mix, we're running as far as a high performance grade mix.
The mill has been through.
Through this year running to its capacity that being said with Yossi see plant and the opportunity with the some recycled fiber in the sheet.
With some future capital spending if we chose to again and we said this few years ago that there was probably you know depending on the grade mix you present, the mill it could be another 50000 tons opportunity coming out of that mill.
But again it would require capital analysis and.
Just some some decision making on whether or not that was the right thing to do but right now the mill is running.
At capacity and we're quite pleased with what it's doing okay. It's exactly what I was looking for thanks, Marc Good luck in the second half.
Thank you thanks any other questions.
As a reminder, if you'd like to ask a question you may do so by pressing star one that is star one to ask your telephone question.
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No further questions do you have any closing comment.
Yes, thanks, Shelby it everybody. Thank you so much for joining us today and a stay well we look forward to talking with you in October for the third quarter call have a nice day bye bye.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
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