Q1 2021 Packaging Corp of America Earnings Call

Thank you for joining packaging Corporation of America first quarter 2021 earnings results Conference call. Your host today will be Mark Olson, Chairman and Chief Executive Officer of the P. C. A upon conclusion of his narrative there will be a Q&A session and we'll now turn the conference call over to Mr. Colson.

Proceed when you're ready.

Thank you good morning, and again appreciate everybody participating today and packaging Corporation of America's first quarter 2021 earnings release Conference call I'm, Mark Colds, and chairman and CEO of PCA and with me on the call. Today is Tom has further executive Vice President of who runs our packaging business.

And Bob Mundy, our Chief financial Officer of.

I'll begin the call with an overview of our first quarter results and then turn the call over to Tom and Bob Who'll provide additional details.

I'll, then wrap things up and then we'll be glad to take questions.

Okay.

Yesterday, we reported first quarter net income of $167 million or one dollar and 75 cents per share.

First quarter net income included special items expenses of <unk> <unk> per share related to closure costs for certain corrugated products facilities and.

And specific costs related to discontinuing paper operations associated with the previously announced conversion of the and number three machine and our Jackson, Alabama mill to of Linerboard.

Excluding the special items first quarter 2021, net income was $169 million or $1 and 77 per share compared to the first quarter 2020 net income.

Of $143 million or $1 50 per share.

First quarter net sales were $1.8 billion in 2020 one and.

And $1.7 billion and 2020.

Total company EBITDA for the first quarter, excluding special items was $342 million in 2020 one.

And $311 million and 2020.

Details of the special items for both the first quarter of 2021 and 'twenty 'twenty were included and the schedules that we're accompanying the earnings press release.

Excluding the special items, the 27 cents per share increase and first quarter 2021 and earnings compared to the first quarter of 2020 was driven primarily by higher volumes of 45 cents and prices and mix <unk> 31 in the packaging segment and lower annual outage.

<unk> expenses for 12.

The items were partially offset by lower volumes.

28 cents and.

And prices and mix of three cents in the paper segment.

Operating costs were 15 cents per share higher primarily due to inflation related increases, particularly in the areas of labor and benefits expenses.

And fiber costs and energy.

We also had inflation related increases and are converting costs, which were <unk> <unk> per share higher.

For the last three quarters of freight and logistics costs have risen and we're 12 cents per share higher in the first quarter compared to last year.

Significant increases in fuel costs tight truck supply and a higher mix of spot pricing to keep up with box demand of the primary drivers and and the first quarter. We had the issues brought on by the winter storms as well.

We also had other expenses of one cent per share.

Looking at the packaging business.

EBITDA, excluding special items and the first quarter of 2021 of $352 million with sales of 1.6 billion resulted in a margin of 22%.

Versus last year's EBITDA of $290 million and sales of $1.5 billion or a 20% margin.

Demand and the packaging segment remained very strong and sales volume and both our containerboard mills and our corrugated products plants set or matched all time quarterly records.

Although we were able to replenish some inventory during the quarter by utilizing the Jackson, Alabama mill for additional containerboard production. We again ended the period with inventory levels lower than planned and at record lows from a weeks of supply standpoint, due to stronger than expected demand.

Our mills and box plants displayed outstanding management of their operations to meet customer commitments in spite of several weather related events that impacted their operations.

Created raw material availability issues and presented both inbound and outbound freight and logistics challenges.

In addition, our facilities continued to deliver on numerous cost reduction initiatives.

Efficiency improvements and capital projects and bringing the benefits of those efforts to the bottom line.

We also recently completed two high return strategic projects that we've mentioned to you before.

The OCC project at our well Lula mill and the boiler project at our Filer mill and the tremendous effort of our employees put in to these initiatives and projects helps us minimize some of the cost inflation, we see every year and especially now with what we're seeing and the areas I mentioned previously.

I'll now turn it over to Tom Who'll provide more details on containerboard sales and our corrugated business.

Thank you Mark as Mark mentioned corrugated products and containerboard demand were very strong during the quarter total volume and our corrugated products plants was up 6.6% versus last year and equaled. The all time record for total box shipments that we just set in the fourth quarter of 2020.

Shipments per day were up 8.3% over last year, which set a new first quarter record for us strong domestic demand drove outside sales volume of containerboard, 13% above last year's first quarter.

Domestic containerboard and corrugated products prices and mix together were 26 cents per share above the first quarter of 2020 and up 52 cents per share compared to the fourth quarter of 2020 as we continued to implement our November 2020 announced price increases during the quarter and we began the implementation.

Taishan of our announced March increase export containerboard prices were up five cents per share versus last year's first quarter and up four cents per share compared to the fourth quarter of 2020.

I'll now turn it back to Mark.

Thanks, Tom looking at our paper segment EBITDA, excluding special items and the first quarter was $16 million with sales of $165 million or 10% margin compared to the first quarter of 2000, Twenty's EBITDA of $42 million and sales of 217.

Or a 19% margin.

As expected sales volume was about 22% below last year as we ran only one machine at the Jackson, Alabama mill of this quarter versus both machines running and the first quarter of 2020.

First quarter paper prices and mix were almost 3% below last year. However prices began to move higher and the latter part of the quarter, resulting from the announced paper price increases and averaged 1% higher than fourth quarter 2020 average prices.

Industry conditions, and the uncoated free sheet market continued to be challenged due to the nationwide responses to help control of the spread of the pandemic.

However, with the actions, we've taken and our paper segment to match supply with our customers' demand and moving production on the number of three machine at our Jackson, Alabama Mill from paper to linerboard, we of not only avoided the significant cost issues associated with extended paper market downtime.

But we've also enhanced our capabilities as well as the profitability and our packaging segment.

Going forward, we will continue to assess our outlook for paper demand and the optimal inventory levels and we'll run our paper system Accordingly.

I'll now turn it over to Bob.

Thanks Mark.

For the first quarter, we generated cash from operations of $192 million and free cash flow of $107 million.

The primary uses of cash during the quarter included capital expenditures of $85 million and common stock dividends of $95 million.

We ended the quarter with $983 million of cash on hand, or $1 1 billion, including marketable securities. Our liquidity at March 31 was $1.5 billion.

I want to update you on of our full year guidance for a couple of items that we provided on last quarter's call.

Current plans and scope of work for the scheduled maintenance outages at our containerboard Mills has changed and the new total company estimate of cost impact for the year is 97 cents per share.

The actual impact and the first quarter was 10 cents per share and the revised estimated impact by quarter for the remainder of the year is now 30 cents per share and the second quarter 16 cents and the third and 41 cents per share and the fourth quarter.

Also our capital spending estimate for the year has changed to a range of 650% of $675 million as we have now announced our plans for the conversion of the number of three paper machine at our Jackson mill to linerboard.

Now I'll turn it back over to Mark.

Thanks, Bob.

Regarding the conversion of the number three machine of Jackson, Alabama. Our current plans are to continue running the machine on linerboard as demand warrants and in a manner similar as to how we ran in the first quarter until the scheduled first phase outage is taken in the second quarter of 2022.

The converted machine is expected to operate at and initial production rate of approximately 75% of its new capacity.

The second phase outage work is planned for mid 2020 three with the machine, reaching its run rate capacity of 2000 tonnes per day by the end of 2020 three.

This phased conversion over the next few years will provide much needed internal linerboard supply.

This gives us a runway for maintaining an optimal integration level and enables us to further optimize and enhance our current mill capacity and box plant operations.

We're committed to being fully integrated and we have a track record of ramping up production from machine conversions. According to our customers' demand requirements.

We will continue to serve our paper customers with the number one paper machine of Jackson, Alabama, and both machines at our International Falls, Minnesota Mill, which is capable of producing all of Jackson's paper grades.

Looking ahead as we move from the first and into the second quarter.

And our packaging segment, we expect demand to remain strong and we will continue implementing our previously announced paper price increases.

We also expect export prices to move higher.

And in the paper segment, we expect volumes to be fairly flat with higher average prices and mix as we continued the rollout of our recently announced paper price increase.

The second quarter will be our busiest of the year for planned annual outages in the packaging segment with work scheduled at four of the mills.

Outage expenses are estimated to be approximately <unk> 20 per share higher compared to the first quarter.

We also anticipate continued inflation with freight and logistics expenses as well as most of our operating and conversion costs.

However, energy costs should improve as we move into seasonally milder weather.

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.

Constituted 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 of risk factors and our annual report on form 10-K on file with the S. E T actual results could differ materially.

From those expressed and these forward looking statements and.

And with that Regina and I'd like to open up the call for questions. Please.

At this time of you wish to ask a question press Star one on your telephone keypad. Your first question will come from the line of George Staphos with Bank of America.

Hi, everyone. Good morning, Thanks for the details and.

Congratulations on the progress guys.

I guess the first question that I had given.

Given that youre running really tight at least in terms of your prepared remarks in terms of managing your your customer request.

The freight and logistics issues domestically that we're seeing.

I realize you have customers internationally and near and long term relationships, but why the increase in export sales and the quarter why not try to keep some of those tons domestically. If in fact, that's where you need them and I had a couple of follow ons.

Hey, George This is Tom I'll, just answer that real quickly we had a number of export commitments that had to take put that were running over from the previous year that we had to take care of and the first quarter to maintain our relationships and.

And are you now at.

So we just had we just had to get that taken care of.

And we knew and we knew full well that we'd also be able to supplier of box plants, although with a very tight inventory.

Okay.

And I appreciate that second question I had if you can just give us the normal run down Tom perhaps that you would give us on bookings and billings early in the quarter and are you seeing any signs at all of customer is trying to conserve on corrugated given the market that you've seen or if anything given the growth that we've been saying are you.

And new applications beyond ecommerce for targeted so kind of a couple of part question there.

Okay. Good questions George first of all through 14 days, our bookings are up 16% versus a year ago. So obviously the you know the volume remains very robust and.

And you know we're we're we're obviously you know very pleased with those kind of numbers and the trend that is just continued right coming right out of the fourth quarter of last year and continued into this year.

You know, there's there's no way customers can and in essence, you know horde or order ahead or anything like that with the demand, we're having right now and a lot of our customers report business conditions as good as what we're talking about and they're just tried to keep their head above water and we are obviously and ours.

We are keeping them supplied with boxes.

Okay, I was really more getting at the point of our customers are trying to conserve but it sounds like right now, they're just living hand to mouth and they will worry about that or for that matter the growth outlook. Once they can kind of catch up.

My last question I know, it's something you might not want to talk too much live mic on but qualitatively. If we look at where our first quartile and a fourth quartile and machine might be and containerboard would it be.

And.

Unduly penalizing to estimate that maybe right now Jackson is costing you I don't know $10 million of quarter, just because of where it is on the cost curve right now relative to where it will be at some point, thanks, guys and good luck in the quarter.

Yeah, I think everyone could I understand that without the capital investment.

We are running probably and that that high third low fourth quartile cost portion of the curve the of the.

Beauty of it is though it's it's.

Very productive very efficient and providing us the critical puns, we need to run the box system.

We are also in the last four months, we've taken considerable cost out.

As we've learned more about the machine, but the machine has proven to be.

You know quite and extremely efficient machine.

But the.

Someone might think about the capital spending that we are undertaking as we speak that we'll go through next year and the year. After it's not only the incremental productivity that will capture with the capital spending, but it's the significant cost reduction that we will see over the next two years coming out of that facility. So we have an elegant.

And in place and right now even though the costs are higher as one would expect the tons of extremely valuable to our system.

Thank you very much Mark I'll turn it over.

Okay. Next question. Please your next question comes from the line of Mark <unk> with bank of Montreal.

Thanks, Good morning, Mark and congratulate Mark on a very good quarter Mark.

Mark Thanks.

Mill volume was just incredible here and the first quarter, you did about $1 2 million tonnes.

And Youre listed capacity and the K is for 0.3 a year so.

Factoring in Jackson and I wondered if you can just help reconcile at and.

Is this a pace that at all and sustainable over time.

You know no one asked us and January what we really produced and Jackson and the fourth quarter.

But if you think about what we are producing and what we produced and the fourth quarter and what we produced and the first quarter. The Jackson number three machine.

On a run rate and looking at its grade mixes producing a little over 100000 tons of quarter.

It's in that range and so on an annualized basis. It is providing an incremental 400 plus thousand tons a year.

Two of the run rate and and and part of the reason again, if you think about the filings we did not have the machine listed as a true linerboard machine and so it was still we still considered of paper machine, providing us with so much needed linerboard right now.

Fast forward to help you with your math, if you assume the for 3 million plus the 400000 tons you get.

Pretty close to your number the other factor there.

That will.

Give you a little understanding on us.

The project I mentioned on the call just a few minutes ago, the well Lula OCC project.

Not only was that going to be a fiber flexibility opportunity for the Lula mill, but anybody that understands fiber physics recycled fibers of any kind of drain and dry and much more easily and Virgin fiber and so by mixing now the OCC in with our Virgin Kraft fiber of the Lula mill.

So we're seeing as we expected much higher speeds on the machines and in particular the number three machine the drainage pressing drawing is far superior than it was before and so starting in February when we started the OCC plant up we've been averaging.

Close to 100 tons of day more production on that machine and so that's another piece of the incremental first quarter tons that was built in and that that you'll see for the rest of the year also.

So that definitely helped.

Go ahead, yeah. Yeah. That's that's good I was just going to say I think when you first and Burton well all of you were talking about 400000 tonnes, there, but the potential to get it to five or five visits where would that machine b right now.

Net account the OCC.

And <unk>.

The whole mill, because don't forget the number of two machine is sitting there making medium.

We had talked all along that that that mill had the opportunity to get close to that 600000 ton annualized run rate.

For both machines and where they are essentially right now.

Okay, Alright, that's helpful and just secondly, mark is there any way to.

Help us think about the impact of of this adverse weather and the first quarter I would've expected that would've caused issues, perhaps down and that rather and maybe kind of across your converting business.

Let me.

I'm going to say a few things and then Tom and Bob can add to that and we were very fortunate that we were not as.

Severely impacted as some competitors the Deridder mill was able to run through this.

We had transportation logistics problems trying to move raw materials, and and finished goods out of <unk>.

We had.

The bigger impact and the Texas region, and the Dallas Metroplex area with our box plants, we had some of the box plants, obviously downtime do you want to add a little color to for the say.

And say that two week period, when we had a lot of of severe weather yeah. Mark we are we.

We obviously lost a significant.

Production time, and those box plants, we made up for a lot of that and the subsequent month, but it was it was a very very difficult month.

The AG crop, obviously down and down the Rio Grande Valley was dramatically impacted which which also impacted our volumes and that area.

In addition, and.

As you may be aware of.

And the impact of the chemical plants that provide the chemicals that make up our are glues.

And adhesives.

It was bad definitely impacted and we've been suffering shortages of that product.

Crossed all the companies and you know we've had to take some extraordinary measures to make sure that we can continue to run at a much higher expense to do so.

Okay. All right that's really helpful. I'll turn it over guys. Thank you. Okay. Thanks, Mark next question. Please. Your next question comes from the line of Mark Connelly with Stephens.

More and Mark.

Hello.

Mark you may be on mute.

Our next question will come from the line of Mark Weintraub with Seaport Global.

Thank you.

And I believe you said that the impact from pricing and your domestic business was 52 cents from the fourth quarter for the first quarter was that right did I hear that right.

Yes, Mark.

So if I translate that into kind of millions of dollars. It sounds like not like 60 million, plus which if you're making $1 2 million tons of containerboard.

On an integrated basis seems like $50 per ton.

So is that and and if that's the case have you already gotten the lion share of that November increase or is part of that mix and there was still a decent amount to come.

Hey, Mark this is Tom we have we have gotten most of the increase from November in the first quarter. We do have some that trails into the second quarter and even into the beginning of the third quarter just based on contracts.

But the lion's share as you know has been accomplished and the first quarter.

Thank you.

Our next next question. Please for line of Adam Josephson with Keybanc. Please go ahead.

Thanks, Good morning, everyone and congrats on a really wondering editor.

Thanks, Good morning, Mark.

A couple of questions on guidance. So obviously pre pandemic you gave quarterly guidance you haven't resumed doing so sense, even though you put up really good numbers of this quarter and and the outlook seems pretty good.

Has your philosophy changed about providing quarterly guidance and or if not when do you when do you intend to resume giving guidance.

I think the way we would answer of that is that there's still so much uncertainty and the world.

Around us.

If you think about the number of that Tom just gave you for the volume.

A year ago somebody told you that volume is going to be up 16% year over year and on a given month no. One would believe you and so.

And told the pandemic war.

Lines down and we come back to some early sense of what we think the new world normal of Citi will be we believe it's in our best interest and the shareholders' best interest to not give guidance.

Yep.

Completely understand you stole my Thunder I was going to ask you I mean, and I think and 2019 year per day shipments were up about 1% and the first quarter. They were up 8.3, and Youre talking about bookings up 16, and so it's.

Is there any way for you to.

Separate.

The impact of the pandemic and all of the stimulus and talk about what you think normalized demand even is or is it just impossible to do.

Hey, Adam this is Tom.

It's virtually impossible to do let me tell you because our customer base across the board.

With the exception of a few are up dramatically and.

And so.

So it's not just <unk>.

E Commerce as an example, being the only segment that's really driving this it's it's a lot of segments that are going on and.

And I think obviously you know the stimulus just helps and you know has been a has been a plus for us but again as Mark said you know we've got to wait until things settle down to really be able to get our arms around what's what's really going on and the world.

And and and Tom of long why.

Any explanation for April may and it's just it's so outsize. It's it's it's just it's it's mind blowing it is there any logical explanation that you can come up with.

Well I think it's I think what we're seeing is we're seeing the exact same thing that we saw starting in the fourth quarter fourth quarter was up dramatically it rolled right into the FERC into the first quarter and now it's rolling right into the second quarter. So I'm.

<unk>.

To try to predict it would have been difficult to do and we expect that just like a lot of other people expected that the fourth quarter that things might slow down a little bit from the fourth quarter, but they just haven't so.

It remains incredibly robust and I think we've got a lot of customers that are way behind on their shipments as well. So I think it will continue going forward for a while.

No. Thanks summit and Mark one on uncoated freesheet. So just as part of your decision of convert number of three however, you're thinking about demand trends and that business. This year and longer term do you expect any rebound this year of thereafter and Relatedly and.

How did that affect your conversations with your large customers communicating this decision on your part and.

Did they expressed any concerns about supplies of consequence.

Regarding the first part of the question.

Until again, if you think about the biggest demand for cut size paper would be.

Office activity and schools.

Business activity.

Until again and at such time as businesses resume a more of a normal pattern of in office activity.

You'll you won't see cut size demand pick up dramatically.

And as schools come back and go back for a more normalized.

School day function.

More cut size use will take place and school so I would expect.

Starting and in the fall semester for the New school year.

The more demand will take place I can't.

Quantify that for you I would just say that it should move up positively.

We do think ultimately there the pandemic has created and a new.

Opportunity for people that they they'll work from home they'll deal work part days I mean.

People are in and the business World are obviously trying to understand how and how we will all run our businesses and the future and.

Whether we will have people in the office full time part time flex time, and so paper demand will go along with that.

We are anticipating that there will be some permanent demand destruction that comes out of the pandemic.

We also understand that.

Because of our demand for containerboard and the opportunity we had with Jackson that as we've always looked at the paper business and that it was the right decision to make.

For all of the reasons, we've talked about over the last six months to utilize the asset and exit some of this market and regarding our customers.

I'll answer that question by just saying we are running to the demand of our customers large and small and and I'll leave it at that.

Thanks, so much mark.

Next question please.

Next question comes from the line of Mark Connelly with Stephens.

Hopefully you can hear me this time.

Yeah. Good morning America range, Thanks, sorry about that.

So just.

And about maintenance and the changes you've made some competitors are telling us that it's gotten harder to estimate.

The cost of maintenance because of changes the way projects are being scheduled is that of factor or is this just a change in your in your plants.

The.

The increase and cost as is of related.

It goes back to we actually added the Deridder and number three machine to this second quarters outage plan that was not and the original plan and.

So it's not an escalation of inflationary matter, it's just that we absolutely added and.

And additional outage into this year's plan that did not exist in January and and the greater number three machine work came about.

During the pandemic year last year a lot of work.

We.

Avoided some work we pushed it off some work from work we thought we could get by by not having to do even this year, but as of January and February War on as an example of win of.

<unk> of some opportunity shall we say on the Deridder and number three machine that we felt needed to be addressed and we have the.

Resources and the materials available. So we went ahead and took the machine down for the better part of a week of.

Last week as a matter of fact and address the opportunities and the the requirements on that machine and put it in good shape and.

So that machine is.

Got it through its outage, but that would be the the.

Qualifying difference and the number that Bob's going to talk to you about.

And I had a little colored of the number okay.

And anything else.

That's super.

Just one question on the headwinds obviously last last quarter headwinds.

We're more of an.

And overall challenged and they were this quarter and yet you've got some headwinds. It got worse I was hoping you could put some of these headwinds in context for us and tell us which are still getting worse and worse.

And where you're getting some relief.

Yeah, Mark this is Bob.

And it's.

And sort of as I think we said and in our prepared remarks.

The headwinds continue pretty much as we.

We look from first quarter of the second quarter, we expect them to continue and almost all cost areas.

Except maybe energy as we said and that's really because of them improved usage not so much from price is getting going lower.

But and you know.

Recycled fiber.

Even neil certain chemicals.

And you know repairs materials.

Outside services some of you name it they all have converting costs. They all have and inflationary component that we see continuing into the second quarter.

You know that and of course freight and I'm afraid is another one that is just not that just for.

For all of the reasons that Mark had mentioned earlier there are several things driving it but that.

And that is not that is not going to slow down at all as we go to the from the first to the second.

So it's pretty much across the board.

That's very helpful. Unfortunately.

Next question. Please your next question comes from the line of Gabe <unk> with Wells Fargo Securities.

Mark Tom Bob and good morning.

Morning Day Bob.

You mentioned of heavy maintenance quarter. This period, and obviously ended the march quarter with pretty low inventories.

I appreciate it it's volume dependent but.

As it sits today assuming.

I guess some persistence on the demand side would you say and it probably wouldn't be until the end of the third quarter before you can kind of get your inventory position.

And sort of normalized and.

Somewhat asking them and the best analogy I can come up with us and sort of an accordion of cars going down the freeway and.

We haven't had stock outs and the grocery aisles.

But it sounds like somebody maybe some of your industrial customers are behind on their inventories last delivery. So I'm kind of curious just as you replenish inventories across the system and it could take even longer than what maybe some folks are anticipating.

You could look at it that way again, I would hope that we get our inventories and in the and and more comfortable position by the.

Say the end of the third quarter.

But don't forget we also had a big outage in the fourth quarter at Deridder.

Which we called out last year that is.

As the Deridder number one machine, which is a long outage and we've got a boiler work. We've got a lot of recovery boiler work, we're doing and then.

The machine itself and opportunity zone of machine and so that will take a significant amount of tons out in the fourth quarter and that's part of the.

The maintenance cost for the for the maintenance for the year, but also it impacts how we are and the year Tom.

Gabe we have a you know we have a very very intense and specific plan in place understanding that our inventories are going to be extremely tight all the way through the year given these outages that we have.

If if in fact, the volume doesn't drop off dramatically the volume drops off dramatically. We got a chance of you know of of catching up a little bit but you.

You know I think it's important to plan ahead and to plan for what you see is the realistic scenario where doing so we have to do these outages we have no choice.

You know as you know the not only ourselves, but some others and the industry of avoided some outages last year and.

And you know, we just have no choice, but to do them. This year, and we will manage through them and our customers understand our box plants understand and and we've got a great plan in place. So I'm very confident that we'll be able to manage through it but it's going to be a while before we can catch up on those inventories.

Alright, Thank you guys for the detail I.

And I guess, the second question and again I appreciate you guys don't dictate.

And what what the publication does but.

And so to the extent you can comment were you surprised at all in terms of the face sort of recognition.

And benchmark prices and then more importantly.

And I suspect that.

And kind of as you see it flow through your system.

Would be kind of similar to the November hike and that may be limited impact in Q2.

<unk> realized by Q3 of them and fully by Q4 is that a fair way to think about it or anything different that you would guide us towards.

We know Gabe we do we do we don't comment much on on our pricing other than to say we are of very disciplined approach to the to our price increase.

You know across the customer base, that's 15000, plus we have a variety of contracts agreements et cetera.

You know, which roll in and typically over about a 90 day period. So you can you know the.

What occurred for pulp and paper I mean, I I understand you know, where it's somewhat where they're coming from.

You know, it's it's now fully in place. So I think you can kind of take that and take what I told you about the 90 day period and kind of roll that out and that'll give you an indication of of when that gets when that price increase gets fully implemented.

Thank you.

Next question please.

Your next question comes from the line of Phil <unk> with Jefferies.

Hey, guys, congratulations and I wanted to build strong strong quarter.

Box demand was obviously really strong this year and it's been pretty impressive any color on the makeup of the end markets and if that profile and the growth side have changed much sense, perhaps the back half of last year versus how things are kind of shaping up this year.

I didn't hear the second half of the question Phil can you repeat that again.

And I'm, just trying to get a better feel for the end market profile of growth that youre seeing versus second half of 2020 versus now is it more of a broad base, where there any and markets that stood out this year versus let's say for the second half of 2020.

Well I think the I think the number one market that probably stands out more so than any of us E. Com, but you know its and e-commerce spread out of law, along all sorts of product lines today, and all sorts of different companies. So that's obviously one of the one of the trends we talked about it last time that it's it's become apparent that.

And the consumer preference for ecommerce has has accelerated.

We're seeing something that probably would've taken three to five years to take place. That's that's now compressed into six months or a year because of the pandemic.

That's one of the drivers, but I got to tell you that across the board.

You know with this broad customer base of 15000 plus customers.

With the exception of just a few small industries. It it's it's incredibly busy and and demand is very high so.

It's.

I'm very very very pleased with the trends, we're seeing and I think that's kind of an indicator of of the potential going forward as well.

But Tom are you starting to see like an uptick, let's say and Chinese manufacturing and markets that werent as obvious last year I'm, just trying to get a feel of the mix I know that he copies who's going to be strong is it a little more broad based and I mean I assume it has to be just given how strong demand is no. It is it's yes, you're absolutely right. It is broad based no question about it it's broad based and in fact, you know we've got customer.

And who could be even busier if they could get you know their if they could get supplied with some of their products.

They're they've got they've got very tight supplies on their part as well of.

Of either ingredients or or parts that go into their products and.

Otherwise they'd be even busier, so theres theres, even a good backlog building.

Got it and and you mentioned earlier that inventories going to be pretty tight throughout the year is that going to be a governor and chairs of your ability kind of supply boxes to your customer or you have it and a pretty good spot in terms of being able to kind of supply that of David no. When I when I when I talk about when I talk about inventories being tight.

You know.

And we won't have we won't have some of the comfort level that we might like to have but we will certainly have enough inventory to supply all of our customers with their needs. Okay. That's helpful and just one last quick one for me.

Appreciate and Jackson thought fully ramped up and the capitals dot and yet do you see do you see a from an operating cost standpoint, as you cannot continue to run this year does that come down a little bit of this year or is that going to be more of a 2020. Two you that once you have it fully.

Ah ramping for that second phase.

As of as I said earlier.

Just in the last six months, we've taken a significant amount of cost out and.

Opportunities that were discovered on a daily basis and that will continue through the year and.

Let's say we.

We've learned a lot of things about the machine, but machine right from the get go has been and extremely efficient productive machine for us and.

And we've made hundreds and hundreds of changes and the process from the pulp mill and the liquor cycle and and the wood yard and on and on and non that have helped us.

Take some cost out of the.

Of the finished product. So we were very pleased with where we are today and we expect to continue that effort.

And it gets us set up for the first major phase outage next year.

Okay Super Thank you guys.

Thank you next question. Your next question comes from the line of Neel Kumar with Morgan Stanley.

Hi, good morning, and thanks for taking my question good.

Good morning, I know you touched on increases in recycled fiber prices earlier, but I was just curious whether you're seeing any inflation in your Virgin fiber baskets are there any large differences in terms of any of those virgin fiber prices by region and across your network Mills.

That's been fairly flat you see you see the weather related phenomena that impacts.

Pulpwood, but in general it's it's it's up slightly but nothing significant like some of the other factors that we've talked about again and.

It's it's primarily weather related events not not demand absolutely demand related.

Great. That's helpful. And then in paper can you just cost what youre seeing in terms of demand trends.

And so far in April and has been generally thinking about the flow through the price increases for uncoated free sheet is there a lag somewhere to what we had seen corrugated of about a quarter or so.

No I think again, the what was reported and the index Friday night pretty well sums it up in terms of how.

How much of a price increase of been picked up and and and.

We would agree with what the index of saying with with where we are with our cut size pricing and and the uncoated free sheet pricing.

And then and as far as and again demand it's.

Gabe you are our absolute volume and where we are but.

But the prices moving up accordingly, and.

I think it's reflected well and what the indexes as reported.

Got you and my question on the Uncoated freesheet price he was actually more of when it flows through from the index.

For your customer pricing is there a lag similar to what you've seen corrugated.

Yeah, I mean, there's always that little bit of of lag that takes place from the from the time you announce it and then the time that the index actually calls it out and picks it up and and.

For your deliveries and Youre, invoicing and billing et cetera.

Great. Thank you, but it's you're talking about you're talking about of a.

A couple of months of lag type of activity.

Okay.

Next question. Please your next question comes from the line of Anthony Pettinari with Citi.

Good morning.

Operating regarding hey regarding the increase in Capex guidance for what you talked about and the previous quarter is that all due to Jackson or are you pulling forward or accelerating any other kind of high return projects or any other areas that you'd call out and.

And understanding you're not giving for guidance, but is there a way to think about what normalized capex for PCA would be when you get when you get finished at Jackson.

The first part of your question is yes Jackson is the primary mover, that's increasing the capex for the year.

The second part of your question as far as what's normal and the in the new World.

Can't answer that.

We're always mindful of what opportunities we have and we.

We're very fortunate that a few years back we undertook a heavy reinvestment and the box plants and and recapitalizing the opportunities and a lot of our plants.

And and taken care of the mills and the manner that we do so.

If you look at our.

Our capital effectiveness and the returns on our capital spending.

We're very pleased with with the returns that we see and so.

Capital is a matter of affordability and the opportunity and obviously I.

I don't ever see us not having opportunities and then it becomes a matter of affordability and so I think that's the way you have to look at it but we.

For the for the most part we always have a portfolio of opportunities identified in the box plants and the mills that we go after short term and long term and that's what's giving us this opportunity to be able to take care of the of the volume growth that you're seeing.

Okay. Okay, that's very helpful.

And then Tom earlier, you talked about raw material availability issues and I think you specifically called out adhesives and glue.

Understanding the cost headwinds are continuing into two Q in terms of outright shortages or just not being able to secure the raw materials has that gotten material materially better as some.

Some of these Gulf coast plants have come back online or is that still and.

AG issue and is it something that's impacted sales of our orders or any kind of.

And he kind of color you can give there.

Well Anthony I think we're fortunate we got ahead of this.

Early in the equation. We took we took some measures to make sure that we would not be cut caught assured has made perhaps some others. We're still hearing from supplier of summer, saying that you know things should should be back to a more normalized rate by the third quarters from others are saying no maybe not so much.

The plants the chemical plants are back up at some of these some of the chemicals that they make to go into the adhesives are what I'd say less important to those.

To those chemical plants than than other chemicals. So we're.

We're planning to to do what we need to do throughout the year to make sure that were taken care of and that you know we don't have any customers that don't have boxes because of adhesive we will be able to satisfy all of those needs.

But it's going to be it's it's more costly to do it there's no question about it and.

And I think and I think we'll continue to have that headwind probably through the year of at least that's what we're planning on but again, we've got contingency plans in place to take care of that.

Okay. That's very helpful I'll turn it over.

Thank you next question. Please your next question will come from the line of Kyle White with Deutsche Bank.

Hey, good morning, Thanks for taking question and I.

And I know you talked about recycled fiber costs and general increasing from from these current levels, but did you provide specific near term outlook and assumptions for OCC going forward.

Yes.

Certainly expect them to move up and the second quarter and.

For the full year, you know, we usually don't go out that far but.

They could be up.

And they could be up close to 50% over last year's average something something of that ballpark is what it seems like right now.

Got it.

And your containerboard price increase in November and now the recent one here in March and April I assume this is expected to fully offset the increase of inflation headwinds you are seeing or expect going forward and.

Do you think this new pricing level of flex for health type of the market is.

Thank you.

You know again it's.

<unk>.

The pricing is a reflection of the demand in the market for the product.

And.

And then.

Obviously, there are inflationary factors that weigh into of producers position and how they have to operate but but demand is the overall driver of of what's moving the of these two price increases.

And I and I'd also add that demand is up significantly worldwide not this isn't us just domestic this is around the world.

Got it I'll turn it over and go from here.

Thank you next question.

And once again for any questions. Please press star one. Your next question comes from of line of Cleve Rueckert with UBS.

Great. Thanks, very much for for taking the questions and just two quick ones for me I'm wondering if you can give maybe just a little clarity I know Q1 was pretty dynamic with the weather and everything but.

How did the volumes trend and corrugated shipments on a per day basis versus that.

Eight 3% that.

They grew for the quarter and I'm, just wondering how the quarter.

Developed from a demand perspective.

Ah well January was obviously up February slowed down a little bit and it was all weather related and then March it was incredibly high again, because we were catch and it would not only the demand in March but also we were catching up some of what we did get shipped in February.

Okay. So would you I mean would you say.

Demand was kind of.

Flat around that and low and February and catch up in March.

Now the man day bandwidth demand and obviously was up significantly during the quarter and it was pretty much steady January February March. It's just that as you know our numbers would've been significantly higher for March because of the weather related issues down in Texas. As an example, where we have of large footprint, we didn't get as well.

Didn't get all of the volume out the door and the month and at the track.

Tracked over into into March so I'm, just kind of giving you a little a little flavor January of very strong February would appear to be not quite as strong but it still was very strong. It just looked like it wasn't quite as strong because we didn't get the shipments and and March jumped up dramatically, but that was driven primarily by some of the shipments we didn't have in.

We didn't get done in February so.

Overall, when I look back I say the demand was as we said coming out of the fourth quarter with incredibly high demand. It remained essentially very close to that going out and going through the entire first quarter and now youre seeing same indication starting into the second quarter.

That's very clear thanks for that color and I know you touched on it a bit earlier, but I just I wanted to ask a little bit more directly you know given the tightness and the corrugated market and are you seeing any customers or maybe maybe box buyers more generally not specifically your customers switching away from paper based packaging because they simply can't get.

And enough.

No. It's it's a it's quite the opposite to tell you the truth.

Because because of our sustainability story that we have and our business because of the way. We operate this business. The 90 plus percent of the boxes to get recycled et cetera.

People want to be and paper. They don't want you know there they don't want to be and plastic anymore. So as an example, we've got some customers that had been shipping and plastic pouches are their ecommerce and plastic pouches and.

And they they want to move back the boxes.

So you know there and that's I mean, that's a huge segment, that's going out and and a plastic pouches and example, so I think there I think there are great opportunities going forward for paper based packaging.

That's it for me. Thank you very much for the questions I appreciate it.

Thank you next question.

Mr calls and I see that there are no further questions do you have any closing comments.

Yes, everyone and thank you for joining us and look forward to talking with you and July for the second quarter earnings call, everyone stay safe and be well.

Talk to you in July and good day Bye bye.

Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.

And.

[music].

Right.

[music].

And.

[music].

And.

Yeah.

Yeah.

Yeah.

[music].

Okay.

And.

[music].

And then.

[music].

And then.

[music].

And.

And.

[music].

And.

Yeah.

Yeah.

Sure.

Yeah.

[music].

Okay.

Okay.

Yes.

Yes.

And.

And.

Mark.

[music].