Q3 2021 Packaging Corp of America Earnings Call
[music].
Thank you for joining packaging Corporation of America's third quarter 2021 earnings results Conference call. Your host today will be Mark <unk>, Chairman and Chief Executive Officer of PCA. Upon conclusion of his narrative there will be a Q&A session I will now turn the.
Conference call over to Mr. Coles in and please proceed when you are ready.
Thank you Josh.
Good morning, everyone and again, thank you for participating in packaging Corporation of America's third quarter 2021 earnings release Conference call.
I am Mark KOL, Zhang Chairman and CEO of PCA and with me on the call. Today is Tom has further executive Vice President who runs the packaging business and Bob Monday, Our Chief Financial Officer.
I'll begin the call with an overview of the third quarter results and then I'll be turning the call over to Tom and Bob will provide more details.
After that I'll wrap things up and we'd be glad to take any questions.
Yesterday, we reported third quarter net income.
Of $251 million or $2 63 per share.
Excluding the special items third quarter 2021, net income was $257 million or $2 69 per share compared to third quarter 2020, net income of a $149 million.
Or $1 57 per share.
Third quarter net sales were $2 billion in 2021.
And $1.7 billion in 2020 totaled.
Total company EBITDA for the third quarter.
Excluding the special items was $464 million in 2021 and.
$323 million in 2020.
Third quarter net income included special items expenses of six cents per share primarily for certain costs at the Jackson, Alabama mill.
For paper to containerboard conversion related activities, while last year's third quarter. Net income included special items expenses of 11 cents per share.
That were related primarily to the impact of hurricane Laura on the Deridder, Louisiana Mill.
Details of all the special items for the third quarter of 2021 were included in the schedules that accompany the earnings press release.
Excluding special items. The dollar 12 per share increase in third quarter 2021 earnings compared to the third quarter of 2020.
It was driven primarily by higher prices and mix of $1.58 and volume 62 cents in our packaging segment.
Production volume of six cents and prices and mix of five cents in our paper segment and lower nonoperating pension expense three cents and lower interest expense <unk>.
The items were partially offset by operating costs, which were <unk> 84 per share higher primarily due to inflation related increases, particularly in the areas of labor and benefits expenses recycled fiber costs energy.
Repairs materials and supplies as well as several other indirect and fixed cost areas.
We also had inflation related increases in our converting costs, which were <unk> 10 per share higher.
For the last several quarters.
Freight and logistics costs have risen and were 23 per share higher compared to last year driven by significant increases in fuel costs.
Light truck supply.
Driver shortages and the higher mix of spot pricing to keep up with box demand.
And finally scheduled outage expenses were four cents per share higher than last year.
And sales volume in our paper segment was lower by <unk> <unk> per share.
Looking at the packaging business EBITDA, excluding special items in the third quarter of 2021 or $467 million with sales of 1.8 billion, resulting in a margin of 26% versus last year's EBITDA of $324 million with sales of one 5 billion.
And the 22% margin.
Packaging segment demand remains strong and the teams did a tremendous job of implementing their previously announced containerboard and corrugated products price increases.
The containerboard mills set an all time quarterly sales volume record in our box plants set new third quarter record for total corrugated product shipments as well as shipments per day.
By utilizing the capability of both machines at our Jackson, Alabama mill to produce containerboard, we're able to reach our desired inventory levels to better serve our customer demand.
Minimize the transportation challenges, we continue to experience and build some inventory ahead of the Deridder mills fourth quarter outage.
We manage very effectively the execution of numerous initiatives and capital projects to reduce costs through efficiency.
Productivity and optimization improvements across our manufacturing locations.
We continue to put tremendous effort into managing certain material equipment and labor availability issues to keep our customers supplied and their needs and their capital projects on track.
To our success going forward the.
The improvements in execution, our employees deliver constantly across many fronts is what allows us to continuously improve margins.
After successfully completing the planned maintenance outage at the Jackson mill during the third quarter.
The mill restarted with the number one machine, making corrugated medium rather than uncoated freesheet grades utilizing a mix of Virgin Kraft and D. L. K fiber based on the needs of our customers.
This was required to help meet continued strong demand from our box plant customers.
Meet our targeted inventory levels prior to year end.
And help supply the needs of our box plant acquisition that we anticipate acquiring later this quarter.
Similar to the number three machine at Jackson, the smaller number one machine is highly efficient.
It's a <unk>.
Perceval machine and with minimal capital required to repurpose.
<unk> plant to handle the okay.
Machine was very quickly able to produce high quality medium for the box plants.
Although still capable of producing uncoated freesheet products, we plan to continue producing medium on the machine over the next several months as our internal and external packaging demands.
Warrants.
This gives us the opportunity to further evaluate the machines capabilities into process.
And the process changes that might be required to potentially produce medium permanently in a cost effective manner.
We will also use the period to further refine our estimates and assumptions to fully understand the potential of the entire mill to produce containerboard on both machines.
Their optimal cost and quality.
This will also allow us to evaluate our strategic containerboard supply capabilities for providing the necessary runway to grow our integrated downstream box demand, we're committed to being fully integrated and we have a track record of ramping up our internal capacity according to our customers' demand requirements.
The previously announced conversion of the J three machine to linerboard remains on track with no changes to the schedule, we discussed on last quarter's call.
We will continue to serve our paper customers with both machines at our International Falls mill, which is capable of producing all of Jackson's paper grades as well as available inventory produced on the number one machine at Jackson.
I'll now turn it over to Tom who will provide further details on containerboard sales, our corrugated business and the box plant acquisition that I mentioned.
Thank you Mark.
We continue to get excellent realization from the implementation of our previously announced price increases across all product lines.
Domestic containerboard and corrugated products prices and mix together were $1 40 per share above the third quarter of 2020 and up 55 per share compared to the second quarter of 2021.
Export containerboard prices were up 18 per share compared to the third quarter of 2020 and up six cents per share compared to the second quarter of 2021 as.
As Mark mentioned, we achieved a new all time record for containerboard shipments with continued strong demand in our box plants as well as our domestic and export containerboard markets. We had record third quarter corrugated product shipments, which were up two 3% in total and per work day over last year's very strong third quarter through the first.
Three quarters of 2021, our box shipment volume is up six 7% on a per day basis versus the industry being up four 5%.
In addition to supplying the record internal needs of our box plants. Our outside sales volume of containerboard was 73000 tons above last year's third quarter, and 37000 tons higher than the second quarter of 2021.
Regarding our third quarter demand in our outlook I'd like to reemphasize some points I made on previous earning calls and what Marc alluded to earlier.
The same issues that impact our ability to get more volume out of our box plants like labor shortages truck availability driver shortages raw material availability issues and supply chain bottlenecks also persist with our customers, they're telling us they have higher demand and could ship more if not for these issues. There is no day.
Out we view demand is strong and we expect this to continue even with the economic obstacles most companies are facing.
And keep in mind, the fourth quarter, we'll have three less shipping days than the third and fourth quarter comparisons will be against last year's all time quarterly record for the industry.
Regarding the box plant acquisition, Mark mentioned last week, we entered into a definitive agreement to acquire substantially all of the assets of advance packaging Corporation and independent corrugated products producer in a cash free transaction.
Under the terms of the agreement PCA will acquire a modern full line 500000 square foot corrugated products facility located in Grand Rapids, Michigan. The transaction is structured as a purchase of assets, resulting in a full step up of the assets to fair market value.
This acquisition is consistent with one of the key strategic focus areas. We have discussed many times regarding increasing our vertical integration of containerboard through organic box volume growth and strategic box plant acquisitions. After completion of the acquisition. Our containerboard integration is expected to increase by almost 80000 tonnes.
This also will allow for further optimization and enhancement of our mill capacity and box plant operations as well as other benefits and synergies that we expect to begin realizing soon after closing.
Although we won't get into financial details at this point, we expect the acquisition to be accretive to earnings immediately with a bottom line purchase price multiple similar to the average of our last four acquisitions.
Closing subject to certain customary conditions and regulatory approval is expected later this quarter and we will finance the transaction with available cash on hand.
Advanced packaging is a well capitalized full service provider of corrugated packaging products, including high end graphics retail display sustainable shipping containers and protective packaging. They utilize started state of the art technology structural and graphic design and engineering capabilities and an I S. T. A certified test laboratory to provide customers a.
<unk> for nearly any packaging need with.
With a commitment to continuous improvement innovation and safety in their operations advanced packaging is a great strategic fit for PCA and our culture with an excellent management team highly skilled and dedicated employees and an outstanding reputation in the marketplace I'll now turn it back to Mark. Thanks.
Thanks, Tom.
Looking at the paper segment EBITDA, excluding special items in the third quarter was $18 million with sales of $150 million or 12% margin compared to third quarter 2020, EBITDA of $17 million.
And sales of $178 million or 9% margin.
Prices and mix were up 4% from last year's third quarter, and also moved 4% higher from the second into the third quarter of 2021, as we continued to implement our previously announced price increases.
As we mentioned last quarter, well with finished goods inventory now at optimal levels for the paper business sales volume, which was 19% below last year's level is fairly reflective of our production capability.
As I said earlier, while the Jackson number one machine is running medium will continue to service our paper customers needs.
From both of the International falls machines, which are capable of producing all of the Jackson paper grades.
While we've maintained our capability to produce uncoated freesheet on both machines at Jackson will continue to monitor market conditions and run our paper system Accordingly.
With that I'll turn it over to Bob.
Thanks Mark.
Cash provided by operations during the quarter totaled $284 million with free cash flow of $134 million.
The primary payments of cash during the quarter included capital expenditures of $150 million.
Common stock dividends totaled $95 million.
$68 million for federal and state income tax payments.
Pension and other post employment benefit contributions of $51 million and net interest payments of $7 million.
During the third quarter, we issued $700 million of 30 year, 3.05% notes and used the proceeds from these notes to redeem our four 5% $700 million 2023 notes in early October.
This transaction will lower our average annual cash interest rate from three 8% to three 4%.
Lower our annual interest expense by $11 million per year and extend our average debt maturity from eight and a half years to 16 three years.
Based on the timing of closing the new bonds in September.
And the redemption of the old bonds occurring in October.
Our quarter end cash on hand balance included a new bond proceeds.
Excluding this transaction our quarter end cash on hand balance was just over $1 billion or.
Our $1 2 billion, including marketable securities with liquidity at September 30 of $1 5 billion.
Our planned annual maintenance expense for the quarter is still expected to be about 41 per share or about six cents per share.
<unk>.
Primarily due to.
Two the Deruiter mill outage.
This will result in a negative impact of <unk> 25 per share moving from the third quarter to the fourth quarter and <unk> 18 per share higher than last year's fourth quarter.
Finally, as Mark mentioned previously we continue to put tremendous effort into managing certain material equipment and labor availability issues to keep our capital projects on track.
While we are managing to keep the key milestones of our more significant projects on schedule our capital spending across the entire company is now expected to come in below the range. We provided previously.
We currently expect to end the year with total capital spending around $550 million.
I'll now turn it back to Mark.
Thank you Bob.
Looking ahead as we move from the third into the fourth quarter. We will continue to implement our previously announced price increases for domestic containerboard corrugated packaging and paper and we will also expect average export containerboard prices to move higher.
Packaging segment volume will be lower due to three less shipping days as well as the schedule outage at our Deridder mill and paper segment volume will be lower as the Jackson mill is not expected to produce any paper grades.
With higher energy prices and anticipated colder weather energy costs will increase wood costs, especially in our southern mill system will be higher due to the previous wet weather.
Low inventory and high demand will also impact wood.
We also expect inflation to continue with most of the other operating and converting costs, along with higher freight and logistics expenses.
And lastly, as Bob mentioned, we expect scheduled outage costs to be approximately <unk> 25 per share higher than the third quarter.
Considering these items, we expect fourth quarter earnings of $2 four per share.
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. The statements were based on current estimates expectations and projections of the company.
And involve inherent risks and uncertainties, including the direction of the economy and those identified as risk factors in our annual report on Form 10-K, and subsequent quarterly reports on Form 10-Q filed with the SEC actual results could differ materially from those expressed in the forward looking statements.
And with that Josh I'd like to open up the call for questions. Please.
Thank you.
Under John <unk>.
And you will need to press star one on your telephone to withdraw your question press the pound key.
Please standby, we compile the Q&A roster.
Our first question comes from George Staphos with Bank of America. You May proceed with your question.
Hey, Good morning. This is actually John Babcock on the line for George The first question I just wanted to touch on.
Was wondering it looks like your price realizations in <unk> were a bit higher than we had expected.
Just wondering.
Given that given the timing of the last increase obviously primarily in August.
I was just wondering.
If you might be able to.
And I kind of comment on how much realization you had in the quarter from that August and Chris.
Tom Why don't you go ahead without yeah well.
Keep in mind, the third quarter included some some bleed in from the second increase plus the timing of the third increase nothing really has changed in our timing we typically roll. These in over a 90 day period, but in this particular case given the timing, yes, we probably did realize a little bit more in the third quarter for this.
For this particular increase.
Okay, Great and then could you provide some color on how the early foreseeable things look so far.
The bookings are coming in right now about flat to a year ago, but keep in mind a year ago, we were up 13%. So I think we're off to a very good start in the fourth quarter and maintaining.
Volume levels.
Were exorbitant Lehigh last fourth quarter.
Great and then my last question before I turn it over I was just wondering if you could talk about the impact that labor and supply chain shortages have had on your demand and inventory trends.
Well, it's it's hard to it's hard to exactly put it in exact numbers that you know as I said demand remains very good and very strong however.
A lot of our customers along with ourselves are suffering from what.
What really is an American commerce issue related to labor.
Transportation.
No supply chain issues et cetera, and.
It's a mixed bag I mean, we've got some segments of our customer base, who are who are more impacted by materials or chemicals or resins or whatever the case might be.
As long as as well as the labor issue.
We of course as I mentioned.
Our suffering from many of the same things and even some of our suppliers have indicated that there are there are concerned about their ability to keep up with with our demand.
No.
It's it's something that's going on across the across the entire American landscape as well as quite frankly, the global landscape.
Okay. Thank you.
Thank you next question please.
Thank you. Our next question comes from England Jefferies. You May proceed with your question.
Hi, This is John Dunigan on for Phil Hope, you're all doing well.
Was wondering.
With Seaport Research you May proceed with your question.
Thank you first just on the Jacksonville is there any more color or help you can give us as to where the mill is now from a kind of a total production versus what you've laid out and maybe we will keep the a J.
J three to this sorry to state that the smaller machines to decide right now how much incremental production. When you move forward on that they project you might get and also I know you had high costs. Initially where are you in terms of getting the costs relative to where they eventually can get any color there would be great.
Appreciate it.
Yes, I think we've talked all along J three machine in terms of supplying what we needed and trying to balance the input costs because they were higher.
On an annualized basis. The G. III machines has been producing useful 100000 tons is a good number if you want to.
Probably about 100000 tonnes, a quarter give or take and so that's probably a good number to use for your math.
If you want to add the annualized production of number one machine that would be 100000 tons. So so again on an annualized basis Jackson is producing 500000 tons of containerboard now.
At the mill.
Again, I'm not going to get into specific costs, we have we've reduced.
And a very appropriate manner.
Cost.
That we can control with the unit operations that we have to work with.
The big cost takeout will come next spring as we do that.
Really big Phase work on the machine conversion and get the productivity up significantly and win that.
Improvement is made you will see a.
Big step change in cost reduction and then the final step change will come.
And the final phase of the following year, when we finish up the work on <unk> III.
Again, as we look at J, one and we understand what that would imply.
It depends on how much medium you would need in the future.
And this goes back to what we said for the better part of the last decade, and a half you can convert anything to do anything, but theres a capital price for it and so on an incremental cost.
If we're producing 100000 tons today.
With appropriate capital.
Could supply significant amount of incremental.
Medium off of that machine in future years, if we chose to spend the capital.
And so I look at Jackson is a tremendous opportunity.
We've said this before when the work is done on June three the Jackson machine J three machine.
Appropriately we will be in the category of about a 700000 ton a year machine capable.
Asset.
In the next few years, and then that would leave the number one machine to balance out our growth opportunity in the box plant system.
And so if we're producing 100000 tons on an annual basis today and you assume you ramp that up.
Jackson Mill becomes a significant containerboard producer if we so choose to and we grow with our demand, but it has very good opportunity to be one of our low cost mills over the future years with the appropriate capital.
Great. That's very helpful. And then just shifting gears.
Just trying to understand the the bridging from the third quarter to the fourth quarter obviously.
Good third quarter relative to your initial expectations and everybody else's.
And the fourth quarter.
You basically are pointing to like a 65% reduction in earnings you called out the 25 from maintenance.
I think Bob you mentioned like 10 specific to energy and then there were a number of other costs.
<unk> freight et cetera.
Same time, I guess I would've thought you still would have been getting some more pricing.
The August containerboard flowing into boxes or was there any kind of additional help you can give us to understand why the why there'd be as much of a decline <unk> versus <unk> I assume it's mostly costs and then to the extent that it is.
Is there a way you can help us parse how much of that might be a seasonal impact, especially in these this unusual environment.
So that there is the likelihood of recovery.
As we get into more seasonally favorable periods versus what maybe more systemic changes that one's got to keep an eye on.
Yes, Mark. This is this is Bob as you know third quarter to fourth quarter is always.
A negative movement sequentially at just going back probably as far as you want to look at.
And a lot of that has to do with some of the seasonal things you see going on with with wood energy and some other items.
What's happening this quarter, yes, we are certainly getting additional.
Price improvement or we expect to.
From the previous previously announced price increases in the packaging segment.
But we also have a volume situation is is not us.
It's a little bit more unfavorable primarily on the mill side of things with the outage at Deridder.
And the fact that we actually expect our inventories to go down as opposed to build inventory. So you always have to consider that inventory change and how that impacts your costs and your cost absorption.
Certainly freight is a bit higher than it normally would be.
This time of year.
And then those operating costs like I mentioned, what's going on with energy.
With wood fiber and the things that Mark was speaking to with trying.
Trying to get inventories, where they need to be and competing with others.
Forest products producers that are trying to do the same thing in that part of the country.
Along with shortages, just trying to get drivers wood and bring it to the mill.
Those costs are up a similar amount to what.
What energy will be.
We expect to be very busy in the box plants again in the fourth quarter and with what were already struggling with relative to labor availability just like most other companies are paying additional over time doing what you have to do to to get the get the volume out of the door that's higher than normal.
And also just overall repairs and materials other fixed cost type things.
I've never seen it quite like this.
We talked about the maintenance outages being 25, a share negative and we have some things relative to this capital spending in our box plants that we hope to bring several projects onboard in the fourth quarter in that and that results in some non capital implementation expense, that's a little bit higher than normal, but it's for good.
Good reason, obviously, so when you net all of those things Mark.
You're right. It comes to <unk> 65, which for US is certainly not out of line. If you look at the second half of our results versus.
The consensus numbers.
We will end up the year the.
Second half.
25, better than anyone thought its just the timing of that between the quarters, maybe we had a lot more price appreciation in the third then people were realizing in and there was more of that in the fourth I'm not sure.
But but that's sort of how we see the sequential numbers moving.
Great I appreciate all the color.
Okay next question please.
Thank you. Our next question comes from Adam Josephson with Keybanc. You May proceed with your question.
Thanks, everyone.
Tom Bob Good morning.
Gratulation on another very good quarter.
Bob just one follow up on Mark's previous question about the <unk> and <unk>.
The beat versus your guidance 32 can you help us with how much of the third increase you realized and consequently, how much more you're expecting in the fourth quarter per your guidance.
No I don't think we will get into that.
That level of detail I think you just have to think about what Tom said and.
Certainly I think there was more than what people were assuming.
Together with <unk>.
We've always do a really good job of.
Executing and bringing that price to the bottomline as quickly as possible and I think it was just a great effort during the quarter.
Got it I appreciate that Bob on OCC.
Whoever wants to take this can you just talk about what you are I know youre not a big buyer of it compared to some peers, but what youre expecting in the fourth quarter I assume you are expecting some decline I'm just wondering if youre thinking that just seasonal or there is something more than that or what youre seeing in the OCC market at the moment.
Yes, I think.
On average Adam if you look at the average of <unk> versus <unk> <unk> will be higher.
I think because we're exiting the third quarter beginning the fourth at a higher cost.
Although as the quarter goes on I think.
Cost look like or the price looks like it will fairly stable may be slightly lower.
But like I said on average it's a headwind in <unk>.
Got it Bob and Tom just in terms of what happened in the third quarter the box demand.
You outgrew the market once again the market was obviously flat I think that came as a surprise to most people who follow the industry.
And I know you talked about the labor constraints that many of your customers are facing.
Do you have reason to think those constraints are going to go away anytime soon or is this just you think a feature of this economy now and we're going to be dealing with this for a considerable period ahead.
Well, Adam as I as I mentioned to you. It's an American problem in an international problem you name it I mean.
And.
If I could predict exactly when this was going to end.
I'd be I'd, probably be doing something different than what I'm doing right now.
Yes.
The fact that the matter is is that.
What's what makes it so hard to predict right now is the fact that.
Every company is dealing with this whether it's whether it's ours, whether it's our customers whether it's other industries whatever the case might be we're all competing.
And a labor market that's incredibly tight.
As I said before I mean, we're also competing with the government here, which makes it even much more difficult but.
Theres shortages everywhere and the demand remains very high.
So.
Is this going to be is this going to end in the short term it depends on what you to determine short term is I don't see it ending anytime soon it's going to continue well into next year.
<unk>.
Where it settles out I don't know the the one thing that's been very evident is that the consumer has.
Has changed a lot of their habits.
And.
That's that's been good for our business.
That's not going to change ever again, I don't think and quite frankly, we've also got customers that have been <unk>.
Asking for.
Alternative products to their plastics.
Which is which is still a great opportunity for the industry, but we've had we've had a difficulty being able to address that right now just based on all the other demand. So I think when you look at all the trends.
It's darn positive going forward.
Got it and.
Bob can you give us any specifics on the acquisition that you announced sales purchase price multiple et cetera.
No I think as Tom said, we're not getting into the financial details right now but.
So that's all we're going to talk about on the call today on that okay.
Thank you.
Alright next question please.
Thank you. Our next question comes from Anthony Pettinari with Citi. You May proceed with your question.
Good morning.
When you when.
When you finish the work at G. III and then maybe factoring in the acquisition is it possible to say, where your integration rate in containerboard can shake out at and sort of how you would think about that versus maybe an optimal.
Run rate integration rate for PCA.
The easiest way to do it is just assume that we're always going to.
Our goal is always to be fully integrated and how you define fully integrated.
For the last number of years, we've always move some tons to the.
Outside market.
Internationally and domestically and we will probably do that.
Going forward, Tom why don't you add some color, yes, Anthony I think the way to look at is this we're going to run to demand. We've always told you that.
So whatever our integration level is is going to remain essentially the same there's really.
We have we have additional demand in the export market, but as I've mentioned many times the domestic market has shrunk so dramatically that it's not just a matter of just going out and saying I can go sell a bunch of people in the domestic market. There is no domestic market to speak of.
No.
And those that supply it are going to stick with what they've got just like we are sticking with what we have.
We're not a big player in the export market.
We've been dealing with the same customers for decades, now and that's what we intend to do so.
We will grow into our capabilities and that's why as Mark mentioned, we will still have the capability to produce white at the mill.
As our paper demand might dictate we could we could swing back to that if we needed to so.
Our objective is as Mark said remains exactly the same we will be a fully integrated company.
Okay. That's very helpful. And then Tom you made an interesting comment on plastic substitution.
Obviously, it's probably not the biggest part of your business and you may not be able to even sort of meet that demand given some of the constraints you and customers are facing but can you just talk a little bit about.
What what plastic products customers are looking at substituting out of or what customer.
Customers or end markets.
These opportunities are cropping up and just any kind of general commentary would be helpful.
Yeah, I'll just give you an example real quickly.
A few if you receive apparel in a plastic bag.
Through the E Commerce network tip.
Typically those things arrive in there they are pretty nasty and.
People consumers have become alerted to what plastics does to the environment.
The lack of Recyclability and plastics, they're working on it but obviously its a very very low number.
Compared to corrugated which probably is the is the <unk>.
Best sustainability story in the world, perhaps and so theyre looking for conversions.
Conversion opportunities to get out of that stuff to satisfy really what or what or consumer demands.
Even more so than their own demands.
It's just that's just what that's just one small example of what's going on but all of the companies that sell to consumers.
Have been very alerted to the fact that consumers consumers want.
Recyclable package, a sustained a good sustainability story and they want to be good stewards of the environment and consequently.
There's going to be there's going to be more opportunities going forward for those kind of conversions.
Okay. That's very helpful I'll turn it over.
Okay. Thank you next question.
Thank you. Our next question comes from Cleve Rueckert with.
UBS you May proceed with your question.
Great. Good morning, everybody. Thanks for the question most of mine have been.
Asked and answered I just wanted to.
Quickly so there's been a higher level.
Costs, we calculated about a 2% sequential decline and packaging costs.
Next with DNA.
On a per ton basis did you get some relief in the quarter.
You talked about.
They are running more efficiently.
Okay.
Just wanted to sort of more broadly.
Yes. This is Bob I'm not sure how you calculate your costs I mean, our costs actually went up.
No.
So I really don't know how to answer that question and you've got to be careful when you look at cost youre, taking them at a high level and just.
If you'd like subtracting EBITDA from sales or whatever you may be doing you also have to take into consideration.
The inventory change tons that were going on between the two periods that you're comparing so you get your denominator right.
So again I don't know how to answer because our costs went up.
So cost sequentially.
Yes.
A quick follow up on them.
On containerboard inventories, yet sorry, if I missed it earlier did you say that.
At the end of the quarter in the quarter, you've got to target and then you expect to consume.
In the fourth quarter.
Yes.
Yes.
<unk>.
We got to what our average where we like to be from a weeks of supply basis sort of our average.
For the last five years, if you exclude that the.
At record low of September of last year, but that's just not a normal situation. So we.
With the help of the Jackson Mill, obviously, we got to.
Where we wanted to be from a weeks of supply basis, which.
But we have this big Deridder outage coming up in the fourth quarter demand is going to be very strong. So right now on paper, our inventories would actually decline by the time, we hit the end of the year right.
Alright, okay. Thanks for that color.
Thank you next question.
Thank you and as a reminder to ask a question you will need to press star one on your telephone.
And Mr. Jose and I see there are no more questions do you have any closing comments.
I'd like to thank everybody for joining us today on the call and I look forward to talking with everybody at the end of January for our full year and fourth quarter call.
Stay well stay safe and have a nice holiday season.
Thank you.
Today's conference call. Thank you for participating you may now disconnect.
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Yes.
Gpus.
Okay.
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