Q4 2021 Packaging Corp of America Earnings Call

January 27, 2022

[music].

Thank you for joining packaging Corporation of America's fourth quarter, and full year 2021 earnings results Conference call.

Your host today will be Mark <unk>, Chairman and Chief Executive Officer of BCE.

Upon conclusion of his narrative there will be a Q&A session.

I'll now turn the conference over to Mr. Colson and please proceed when you are ready.

Okay.

Thank you Myra.

Good morning, and thank all for participating in packaging Corporation of America's fourth quarter and full year 2021 earnings release Conference call.

I'm, Mark Cola, 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 Mundy, Our Chief Financial Officer.

I'll begin the call with an overview of our fourth quarter and full year results and then I'll be turning the call over to Tom and Bob Who'll provide further details.

And then wrap things up and then after that we'll be glad to take questions.

Yesterday, we reported fourth quarter 2021, net income of $217 million.

Or $2 28 per share.

Excluding the special items fourth quarter 2021, net income was $262 million.

Or $2 76 per share compared to fourth quarter 2020 net income.

A $127 million or $1 33 per share.

Fourth quarter net sales were $2 billion in 2021, and $1 7 billion in 2020.

Total company EBITDA for the fourth quarter, excluding special items was $463 million in 2021.

And $293 million in 2020.

Fourth quarter and full year 2021, net income included special items, primarily for costs associated with the company's debt refinancing.

It was completed in October of 2021 and for certain costs at the Jackson, Alabama mill for paper to containerboard conversion related activities.

We also reported full year 2021 earnings excluding special items of $894 million or $9 39 per share compared to 2020 earnings excluding special items.

$550 million or $5 78 per share.

Net sales were $7 $7 billion in 2021, and $6 7 billion in 2020.

Excluding special items total company EBITDA in 2021 was $1 7 billion compared to $1 2 billion in 2020.

Details of all special items for the years 2021, and 2020 were included in the schedules that accompanied the earnings press release.

Excluding the special items, the $1 43 per share increase in fourth quarter 2021 earnings compared to the fourth quarter of 2020 was driven primarily by higher prices and mix of $2 17.

And volume 35 in our packaging segment.

Higher prices and mix in our paper segment for <unk>.

A lower tax rate for <unk>.

Lower non operating pension expense for <unk>.

Lower interest expense <unk> and other items too.

These items were partially offset by higher operating costs of 68.

Per share primarily due to inflation related increases, particularly in the areas of labor and benefits expenses.

Wood and recycled fiber costs energy.

Repairs materials and supplies as well as several other indirect and fixed cost areas.

We had higher freight and logistics expenses of 24 per share as diesel prices and fuel surcharges continued to increase along with continuing truck and driver shortages and very low box car availability.

Scheduled maintenance outage expenses were <unk> 14 per share above last year and volumes in our paper segment were lower by <unk> 11 per share as both our machines at the Jackson mill produced containerboard the entire quarter versus only a portion of last year's fourth quarter.

Finally inflation on pallets and other materials drove converting costs higher by <unk> <unk> per share.

And depreciation expense was higher by <unk> <unk> per share.

Looking at the packaging business EBITDA, excluding special items in the fourth quarter, 2021, or $461 million with sales of $1 9 billion.

Resulted in a margin of 24, 5% versus last year's EBITDA of $303 million and sales of $1 5 billion or 19, 7% margin.

For the full year 2021 packaging segment EBITDA, excluding special items was $1 $7 billion with sales of $7 1 billion or a 23, 9% margin compared to full year 2020, EBITDA of $1 $2 billion with sales of <unk>.

$5 9 billion or a 28% margin.

Demand in our packaging segment remained very strong with record setting shipments from our corrugated products plants.

In order to meet the needs of our plants. The mills ran full out producing a record fourth quarter volume of containerboard.

The high efficiency of our mill operations, along with a very successful scheduled outage at our Deridder, Louisiana mill and favorable seasonal weather patterns relative to temperatures and precipitation.

To minimize higher inflation driven operating costs during the quarter.

Although we completed the scheduled outage at our Deridder mill earlier than we planned and we produce containerboard on both machines at the Jackson mill for the entire quarter. We ended the year with inventory, including the additional containerboard from our December acquisition of advanced packaging below third quarter levels and auto.

A weeks of supply basis, we are once again below our targeted and historical levels.

Considering the anticipated strong demand and to mitigate potential project risk to supply chain bottlenecks for material and critical equipment deliveries we.

We've decided.

To postpone the first phase of the Jackson, Alabama number three machine conversion from the spring and into the fall of this year.

In order to enhance the capabilities for reaching our target inventory levels and with four other mill.

<unk> already scheduled for the first half of 2022 outages. We felt this was a very prudent decision to ensure our customers are supplied with their needs and the quality of our conversion work at the mill meets PCA standards.

We plan to continue producing containerboard on both Jackson machines for the foreseeable future.

And we will continue to refine our estimates and assumptions to fully understand the potential of the entire mill to produce containerboard on both machines at their optimal cost and quality.

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

Thanks Mark.

As Mark alluded to in the fourth quarter, our corrugated products plants have established a new fourth quarter total shipments record and set a new all time quarterly record for shipments per day, both up 1% over the fourth quarter of 2020, which was an all time record quarter for us and the industry on a <unk>.

Sequential basis, we exceeded third quarter 2021 ship total shipments, even though we had three less shipping days in the fourth quarter for.

For the full year annual corrugated shipment records were set as well both in total up four 5% and shipments per day up 5% with one less shipping day compared to 2020.

In addition to supplying the record internal needs of our box plants, our outside sales volume of containerboard was 36000 tons higher than the third quarter of 2021, and 91000 tons above last year's fourth quarter.

In addition to the strong domestic market as we typically do during the second half of the year, we needed to catch up on commitments to our key export customers.

As you know we are not large players in the export market, but we've developed long term relationships with certain customers over many years and you can't just turn these relationships on and off based on the relative dynamics in the domestic and global markets.

Domestic containerboard and corrugated products prices and mix together.

We're a $1 87 per share higher than the fourth quarter of 2020 and up 37 per share versus the third quarter of 2021, as we have substantially completed our rollout of last year's price increase announcements export containerboard prices were <unk> 30 per share above the fourth quarter of 2020.

And <unk> <unk> per share higher than the third quarter of 2021.

Regarding our fourth quarter demand in our current outlook for 2022 as I've mentioned before the same issues that continue to impact our ability to get more volume out of our box plants also persist with our customers and suppliers.

Labor shortages, which had already been an issue for some time have been even more challenging with the impact of the omicron variant.

Truck and driver availability, the lack of available box cars to move containerboard from our mills to our box plants and many other supply chain bottlenecks.

We will continue to be challenges for quite some time cut.

Customers continue to tell us they have higher demand and could ship more if not for these or similar issues.

There is no doubt we view demand is strong and we expect this to continue even with the numerous obstacles most companies are facing.

Finally, I would like to add that our acquisition of advanced packaging that we spoke about during our last call was successfully completed last month. This acquisition gives us the ability to integrate over 80000 tons per year and provide several other benefit and synergy opportunities that we will deliver on very quickly.

Although there was no meaningful contribution to our fourth quarter results as the transaction closed late in the quarter. We have already made tremendous progress integrating advance into our operations and we're off to a great start towards achieving our goals and objectives. This could not have been accomplished without the outstanding effort and dedication of the employees of PCA inquiry.

<unk>, our newest employees from advanced packaging.

I'll now turn it back to Mark.

Thanks.

Yes.

With sales of $143 million.

Okay.

4% margin.

Compared to fourth quarter, 2020, EBITDA of $10 million and sales of $156 million or six 1% margin.

For the full year 2021 paper segment EBITDA, excluding special items was $72 million with sales of $600 million or a 12% margin compared to full year 2020, EBITDA of $73 million with sales of $675 million for.

And 10, 8% margin.

As expected sales volume was below last year and third quarter of 2021 levels as we did not produce anything for volume at the Jackson mill during the quarter.

Average paper prices and mix were 9% above fourth quarter for 2020 and over 3% higher than the third quarter of 2021 as we continued the implementation of our previously announced price increases.

While we are currently maintained our capability to produce uncoated free sheet on both machines at Jackson, we will continue to monitor market conditions and run our paper system. Accordingly, as we begin the call we.

In the year, we anticipate that volume from our paper segment will be fairly representative of the over 500000 ton per year.

<unk> at the International Falls mill, the commercial team and the employees at International Falls have done a tremendous job optimizing our inventory.

Product mix and cost structure and for 2022, we expect solid EBITDA margins of 15% to 20% from the paper segment.

Finally, I'll mention that last week, we notified customers of an $80 per ton price increase effective with shipments beginning February 14th for all office papers printing papers and converting papers.

I'll now turn it over to Bob.

Thanks Mark.

Lower tax rate benefit in the fourth quarter was the result of favorable state income tax return versus provision adjustments made annually.

We expect our tax rate for the first quarter of 2022 represent a more typical rate of approximately 25%.

Cash provided by operations during the quarter totaled $391 million with free cash flow of $152 million.

Capital expenditures were $239 million, which was a bit higher than the guidance. We gave you on our last.

Call It last quarter as we were able to get more work completed on projects at several corrugated plants as well as items related to the Jackson number three machine conversion than we had anticipated.

For the year, our total capital spending of $605 million was still below our original guidance range due to the same material equipment and labor availability issues, we spoke about last quarter.

Other cash payments during the fourth quarter included $189 million for the purchase price of the advanced packaging acquisition dividend payments of $95 million cash tax payments of $42 million and net interest payments of $38 million.

As we mentioned on our last call 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 lowered our overall interest rate from three 9% to three 5%.

Lowered our annual interest expense by $11 million per year.

<unk> extended our average debt maturity from five years to 16 three years.

Our gross debt remained unchanged at $2 5 billion.

Based on the timing of closing the new bonds in September our cash balance at the end of the third quarter included the new bond proceeds.

However, since the redemption of the old bonds occurred in October .

There was a cash outflow in the fourth quarter totaling $756 million.

Which included a redemption premium for the retired bonds.

The final significant cash payment in the fourth quarter was $193 million for repurchasing over one 4 million shares of our common stock at an average price of $133 79 per share.

This provided an earnings per share benefit of approximately <unk> <unk> in the fourth quarter compared to last year.

And we expect an additional sequential benefit of approximately <unk> <unk> per share in the first quarter of 2022.

These repurchases of our outstanding stock together with $380 million of annual dividend payments represent over 52% of cash from operations or <unk>, 64% of net income that was returned to shareholders in 2021.

We ended the year with $765 million of cash including marketable securities.

And our liquidity at December 31 was just under $1 1 billion.

For the full year 2021 cash from operations was $1 1 billion and free cash flow was $489 million.

Our recurring effective tax rate for 2021 was 24%.

And our final reported cash tax rate was 19%.

Regarding full year estimates for 2022 of certain key items for the.

As we move forward.

We expect total capital expenditures to be approximately $800 million.

And DD&A is expected to be approximately $455 million.

With the recent fourth quarter 2021 share repurchases, we expect dividend payments of approximately $375 million in cash pension and post retirement benefit.

Planned contributions of $52 million.

Our full year interest expense in 2022 is expected to be approximately $86 million and net cash interest payments should be about.

$85 million.

The estimate for our 2022 combined federal and state cash tax rate is approximately 20%.

In our book effective tax rate approximately 25%.

Currently planned annual maintenance outages at our mills in 2022 will result in approximately 35000 more tons of loss containerboard production compared to 2021.

Which includes the tons lost during the first phase of the Jackson number three machine conversion in the fourth quarter.

The annual earnings impact of these outages, including lost volume direct costs and amortized repair costs.

As expected to be $1 13 per share compared to 91 per share in 2021.

Current estimated impact by quarter in 2022 is 15 cents per share in the first quarter.

<unk> 33 in the second quarter.

24 in the third and 41 per share in the fourth quarter.

I'll now turn it back over to Mark.

Thanks, Bob for almost two years now our employees have displayed tremendous adaptability and NRG to overcome any obstacles in both the personal and work life to deliver significant accomplishments throughout the company.

We achieved new records for both containerboard shipments in corrugated product shipments, we successfully completed or substantially completed significant cost reduction and process improvement projects at our mills, including a new boiler at our filer mill for utilizing self generated biogenic sources for energy.

Fiber flexibility projects that will Lula and Jackson, Alabama.

Wood yard Headbox and shoe press improvements it will little mill.

At box and wet and upgrades at the Valdosta mill.

Real upgrades pulp mill refining and shoe press improvements at Deridder, Louisiana and many others.

Along with our recent acquisition of advanced packaging, we completed numerous high return projects in our corrugated products plants that will allow us to continue to better optimize the entire packaging business for the future and deliver profitable growth and mix enhancement opportunities for our customers and shareholders.

All the capital improvement projects that I referenced in the mills and corrugated plants have required the complete involvement of PCA personnel.

From project conception, preliminary and detailed engineering, all the way through to project implementation and startup.

Although it required significant capital investments in order to achieve these important initiatives, we did so while improving our industry, leading return on invested capital to over 19%.

We optimize the platform and financial results of our paper business, while utilizing the versatility of the Jackson, Alabama mill to produce containerboard with minimal capital spending and delivering over $100 million of profit to our packaging business in 2021.

Over 64% of our net income was returned to shareholders from dividend payments and stock repurchases.

In addition, with our recent debt refinancing we lowered the overall interest rate from three 9% to three 5%.

Lowered our annual interest expense by $11 million per year and extended the average debt maturity from eight five years to 16 three years.

And finally, we ended the year with almost $1 1 billion.

Liquidity and a strong balance sheet, which maintains the financial flexibility to react quickly to most situations or opportunities in the future.

These accomplishments along with the recently approved $1 billion share repurchase authorization clearly illustrate our continued commitment to a balanced approach towards capital allocation in order to profitably grow our company and return and maximize the returns to our shareholders, while still adhering to.

Our conservative balance sheet approach.

As we've done for many years.

I'm very proud of the accomplishments and the strong partnerships that we've built with our customers and suppliers over many years.

Looking ahead as we move from the fourth and into the first quarter in our packaging segment, we expect to benefit from higher corrugated product shipments with three additional shipping days and we expect shipments per day to be higher than last year's first quarter as demand remains very strong along with slightly higher domestic.

And export prices and mix.

Additionally, in our paper segment, we expect higher prices and mix from our previously announced price increase that was implemented beginning last November .

There should also be a small benefit in the first quarter from our most recent uncoated freesheet price increase that was announced last week.

Scheduled outage expenses will be lower and we expect a small benefit from our recent share repurchases.

However continued higher inflation across most all operating and converting costs as well as freight and logistics expenses more than offset these benefits we.

We estimate this to be the largest inflation driven sequential cost increase in our history.

In addition to the inflation related impact labor and benefits costs will also be higher due to timing related increases as we start a new year and seasonally colder weather should increase energy and wood costs. Considering these items, we expect first quarter earnings of $2 50 per share.

This does not include any potential benefit from a $70 per ton price increase across all liner and medium grades that we communicated to our customers within the last few days.

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. 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 and those identified as risk factors in our annual report.

On Form 10-K , and subsequent quarterly reports on Form 10-Q .

They are filed with the SEC and actual results could differ materially from those expressed in these forward looking statements.

And with that Mira I'd like to open the call to questions. Please.

Thank you we have our first question comes from the line of George Staphos from Bank of America. Your line is open. Please go ahead. Thanks.

Thanks, Hi, everyone. Good morning, Thanks for the details and congratulations on the year.

I guess my first question to start can you talk a bit.

And a little bit more detail on where your shipments and bookings are early in the quarter and did the tightness in the market and all of the supply constraints that we've seen and heard about in the sector. Overall give you any opportunity to optimize your mix in corrugated.

Could you provide some color there and a couple of follow ons.

We'll let Tom get into that Hey, George This is Tom.

Tom Yes, let me just give you a little bit of flavor for where we're starting out the year. If you and there is a little confusion in the numbers, perhaps so.

The FBA consider January 3rd to be a a full workday, whereas for the most part PCA that was a holiday. So if you left the FBA number in.

<unk> were up about 2% for the month. If you took that number out and you just went with the PCA days were up 9%. So maybe blended somewhere in there, we're probably up about 555%, but as the quarter rolls on that will that will kind of smooth out and even out.

Regarding the supply constraints and optimizing mix, we're constantly looking at those sorts of things and.

Yes, Theres no question that at times.

We'll have to rationalize the business will have to do some other things, but for the most part I'd just remind you I mean, we've got 16000 plus customers.

We've we've partnered with these customers over a long long period of time, we're very selective to the type of people, we do business with and we want to align ourselves with people who have long term growth potential where we can where we can enjoy both growth together so that hopefully that answers your question.

This morning.

Thanks for that Bob and to some degree even you said, though in your release that price mix.

It was a positive contributor to results.

Relative to your guidance in the quarter. So I don't know if theres anything else you'd want to call out there my other two ones and I'll turn it over.

Was there or could you quantify to some degree the benefit that the packaging segment got from Jackson.

Producing.

Purely containerboard coming up the curve.

Recognizing that not all of the work is done there and similarly in <unk>.

Paper, what benefit you got from not having some of those costs trapped sensor now allocated to packaging.

Was there any kind of benefit from.

No open market pulp purchasing for Jackson for the paper business and then.

Last Mark just on the.

The share repurchase authorization.

Obviously, you completed the last one.

The company generates a lot of cash flow, what if anything should we draw from the $1 billion authorization relative to your need for capital since you've done so many products and they seem to be generating a high return based on the result relative to capital allocation for the future. Thank you guys. Good luck in the quarter.

Thanks, Tom.

I'll handle both the first part of the question but.

The thing about Jackson.

For the full year, we produced probably 400, almost 450000 tons of board at the mill.

We had a home for all of that through our system.

If you look at it another way if we hadn't had Jackson, we wouldn't have been able to grow with the customers in the manner that we had and to.

Generate the results I called out on my portion of the script Jackson contributed $100 million.

The segment for the year.

And again, Tom if you think about Jackson, what it allowed us to do.

Yes, certainly certainly mark.

George if you think about it.

With the volume that we had.

And that we were able to grow with our with our existing customer base.

Had we not had Jackson.

None of that would have materialized for the most part and so the big jump in improvement really as a result of being able to get that board out of Jackson and if you recall I believe we forecast.

To be to take about 25% downtime in Jackson in the fourth quarter, which we didn't do it all.

Due to the fact that we had significant demand and that demand is carrying right into the first quarter.

And then Bob you want to add to that yes in Georgia regarding to your question around.

The shift of cost from paper segment to packaging relative to Jackson in the quarter.

Well year over year, it was probably around $13 million that moved from paper to packaging cost.

And then sequentially. It was probably six maybe about $7 million that that moved from paper to packaging.

And then regarding the share buyback as far as.

The.

Remaining authorization that was utilized.

Okay.

The decision was made it was the right time to use that authorization was the right time to buy.

Send that signal.

And then as far as the new authorization for $1 billion again, we just feel thats the appropriate number to that have available as we go forward and it continues to send the right message to the <unk>.

Investors shareholders.

We're going to continue.

Delivering.

Our return in many different ways dividends share repurchases capital investments and growing the company growing the earnings that support all of that so.

Prove onto the next question. Please thank you.

Our next question comes from the line of Bill now from Jefferies. Your line is open. Please go ahead.

Hey, guys congrats on another strong quarter.

It's great to see box shipments track really strong out of the gates and you do have a little tougher comps would be helpful. Tom maybe give us some perspective, how you are thinking about the cadence and the growth profile for this year.

Given some of the challenges you are seeing supply chain should we expect more of a normal PCA growth year again.

Yes, I would.

I am very bullish.

We're starting out very strong we've got very good backlogs going into the year. It would be it would certainly be nice to get a little more onto the downside of this omicron strain.

Because if there's any one thing that's impacting right now it's the fact that not only not only do we have labor shortages as a result of it but so do our customers. So it's a little bit choppy and our ability to be able to supply our customers on a consistent basis, because things are changing almost daily.

And every single box plant across the United States.

But all of our customers virtually across the board tell us that they could have shipped significantly more if not for the labor shortages truck issues and other and other supply chain issues that we mentioned.

Got it that's helpful and then from a Capex standpoint, the 800 million Capex, it's a big number appreciating.

There is a lot of capital for Jackson, but any other bigger projects you want to call out that's going to be a nice needle move or whether it's a box plant or any cost takeout.

Take out industrial projects you have in place for this year.

Let me just.

Describe it in this manner in 2021 were working on.

<unk> thousand 60 projects.

The mills and box plants.

Just in the in the box plants alone.

On what we'd call a significant sized projects.

We had over 100 projects that were were.

Taken care of and involved 53 of the plants and we're continuing that effort and it involves everything from from.

Equipment replacement equipment upgrades corrugator rebuilds new corrugator.

Just a continuing effort that we've been.

Executing for the last four five years now.

We're doing it in a bigger way the mills continue to enhance.

Enhance that opportunity too.

Work on cost and efficiency.

As we speak.

Just two days ago. We just finished the rebuild of the Wuling number two paper machine, we rebuilt the wet end new Headbox, new stock approach, all new electric drives new Dcs or lot of supporting equipment on a machine a lot of that work was done primarily by our own PCA.

Personnel and.

It was again just another example of what we do.

Also as we speak.

Completing the first larger phase of the 50, some odd million dollars.

Wood yard project that will Lulu.

That's been started up over the last week. So these are the types of projects that will continue to enhance our ability and so these projects.

We'll just continue.

We have a whole portfolio that we worked on every year, but these are the type of projects that will continue to see.

Just get numerous enhancements throughout the system. So.

That's great color Mark and just one last one I appreciate youre seeing a lot of inflation across the board, but did you mentioned that it's the biggest sequential improvement.

Hit I guess in terms of operating costs.

Are there any big buckets, you want to call it out because I mean at least on OCC Nat gas prices. It seems to at least be stabilizing a little bit so be helpful kind of buckets and the biggest buckets, where you're seeing.

A step up sequentially.

Yes, Phil.

This is Bob.

You sort of look as we said theres inflation like we've never seen in addition to what we the normal timing.

Timing and seasonal type things.

Moving sequentially all in.

<unk> 55 to <unk> 60 per share and I would say, maybe 10, a little over 10 cents of that.

It's just the seasonal timing type things. So the balance of that is this inflation, we are referring to and.

Yes, you are right I think.

OCC seems to.

Stabilized a bit although extremely high compared to last year still.

But the other buckets, whether it would be.

The majority of the change in wood fiber.

Pretty much every chemical that we use is <unk>.

Going up.

Energy will be higher.

And then the big one is labor and benefits.

Over and above the the timing.

Timing type items that I mentioned, so it's really across the board.

Repairs and materials and other things.

And of course freight freight is another another big items. So there is they are all fairly significant relative to what we've seen historically.

Got it thanks, a lot guys really appreciate it.

Thank you next question please.

Our next question comes from Mark <unk> from Bank of Montreal. Your line is open. Please go ahead.

Thanks, Good morning, Mark Tom.

Mark I wondered if you could just help us with.

A little more in the way of kind of cadence and details around sort of the steps as we go forward to Jackson in terms of generally what youre doing at each phase and what the step up in capacity will be.

And then what you expect kind of the ultimate capacity at Jackson might look like.

The phase that we talked about moving from the spring time that would be the first really big phase of machine work that will now be done in the fall.

That will enhance the capability of the machine itself to significantly produce at a higher speed.

We'll be doing some work in the pulp.

In the back end of the mill to support some of that.

Fully be able to take advantage of that work until the spring of 2023.

So as we come out of this fall shutdown, we will have more capability to produce.

On a tons per day basis incremental capacity.

We will have the OCC plant completed this summer that will allow.

The utilization of some of that fiber over the machine. After the work is done in the fall, but the bigger the bigger benefit will come in the spring of 2023 when the final additional dryers are added to the machine.

<unk>.

There is some press work that will be done at that time, we will allow the full benefit of the work to be completed and then youll see the the machine.

<unk> ability at the 700000 tons.

Production rate per year in terms of the final phase so.

Any sense markup, yes that does help but any sense of that second machine and what you might ultimately be able to produce on that machine.

Yeah.

We've studied that obviously, we're not going to talk a lot about that in public.

As a very good quality machine, it's obviously not as big a number one Jackson machines is not as big a machine is the number three but it is a very good quality machine.

It's a very good trim.

So as we're doing the analysis that we currently have underway and we look at market. We look at growth. We look at what our internal needs are that machine offers a tremendous amount of opportunity.

And then it depends on how much capital we would choose to do.

Apply to that opportunity.

And I'll give you an example, the machine.

With minimal capital could produce 500 tonnes, a day or at an appropriate capital spending you could produce 1000 tonnes a day so it all depends on.

What we determined is the right.

Situation in terms of demand.

Where we want to get tons for them, but a lot of opportunity and a great asset base.

Okay. The other question I had is really more for Tom has further and Tom I wondered if you could just give us some sense of sort of inflationary pressures at the.

The box plant level.

And also.

Related to that just sort of what it means for the industry as we move to these bigger and wider corrugator is and how that sort of ripples back into the to the mill system because it seems like most of the new coordinators that are going in are anywhere from 98 to 130 inches.

Yeah, Mark I'll take the last one first regarding the corrugator.

For a long time as an industry.

We've been moving to wider coordinators and.

And the mills have just my opinion.

Some of that is good for mills and some of that is not so good for milk.

And as Mark just talked about when you've got a wider machine. Obviously, we've got we've got more flexibility in terms of the trim pool for those wider machines.

For the wider corrugator.

So.

Quite frankly, what you need to do to efficiently get volume out of our box plant today, youre going to need a wider corrugator.

Just to be able to.

Ron a run a profitable business getting the proper amount of footage out the door.

And a lot of these narrow corrugator.

Are finding their way.

Into combining into two narrows into one larger corrugator in those sorts of things. So theres a lot of moving parts going on and that's been going on for quite some time.

And.

If you take our mill system as an example.

They just they know who their customers are and they just adapt to what the customer needs are and we figure out a way to do it and we figure out a way to do it very efficiently.

The inflationary pressures that the box plants.

You've got.

You've got the labor, obviously is a big big issue for us.

And the inefficiencies built in with all the absenteeism and everything else around the Covid that we've been dealing with for a number of years transportation is an enormous issue.

And all indicators are that thats still rising dramatically and energy costs as well so.

Those are those are are those are our key drivers I want to comment. If you went back to 2019 period 2018, 2019 and you compare.

<unk> hundreds and hundreds of projects that we've executed over the last couple of years all of these.

From new equipment equipment upgrades, new box plants.

We improved productivity per unit or approximately 20% across the packaging system.

And so our growth and the results would not be what they are if we had not been able to achieve.

Capital upgrade and improve all of the asset base and the corrugated packaging side of the business.

That's helpful Mark Tom just to be clear on the freight.

In the box business will you carry the cost of freight between box plan in the customer does customer pick that up.

Well that's built.

I mean, theres a lot of different things.

A lot of different pricing mechanisms that we use but ultimately obviously, we're just not we're not prepared to.

These are enormous freight increases and stuff and thats whats driving some of the some of the price improvements that we've that we've just realized.

Yes, Okay, I'll turn it over thanks guys.

Thank you next question please.

Our next question comes from the line of Mark Weintraub from Seaquake Research. Your line is open. Please go ahead.

Thank you.

The nominal quarter quite year.

What I was trying to get a better sense of your guys' very thoughtful whenever you go to the market raising prices to customers.

You just announced on containerboard.

No.

Youre performing superbly internally people have been looking at industry data and they have been questioning whether or not this is a good time to be raising prices. Again, you guys are very thoughtful I am sure you have a perspective and would love to.

Youre willing to hear you share that.

No.

Mark This is Tom we don't.

You know we never talk about.

Forward looking pricing or what our thoughts are around that or anything else. So it's.

That's all right that's all I can say about that.

Okay well.

Let me.

Okay.

Just a follow up on it a little bit.

And as much as.

I would.

One of the questions I guess people are asking about is.

Inventory seem to be going higher you guys have probably have a better view of what's really going on in the drivers and the dynamics that place, which I am sure Youre factoring in.

The way you are thinking about how your business plays out and how the market is there anything on that specific that you could share for instance.

Did notice you talked about box cars being an issue.

Would that potentially have led to.

For you guys or the industry for an increase in mill inventories, where it's not necessarily occurring so much at the Fox Plaza any color like that that maybe you could share that would help us understand in these very unusual times.

Some of the dynamics going on in the business.

Not be so apparent to outsiders.

Mark when the data came out recently.

There was a lot of confusion, you're looking at mill data and if you think about the way the holidays fell and you think about.

The mills were running.

Turning to get a truck or a box car.

At the mill.

Even if you could get a boxcar.

At the mill switched.

The likelihood of getting it taken away from the mill was unlikely.

Hoping that trucks would show up again it was a hope so it was the most difficult period in the history of PCA trying to move containerboard during the holidays and we saw the.

The largest increase of our mill inventory.

Since I've been here for almost 2006 years in terms of the holiday build at the mill on the other hand, we saw the opposite at the box plants, we saw the inventory drop.

To that low level as the mills built to the high level and so not being able to speak for the industry, though I believe we are probably.

All in a similar situation.

Sure a lot of the same railroads, we share a lot of the same trucking industry.

So it'll be interesting when FBA comes out with their data Tom do you want to add a little color to that.

Totally agree with you Mark.

It's.

I think a lot of people jumped to conclusions quickly just based on mill inventory.

As Mark just alluded to if you look at our box plants. Our box plants are very skinny on inventory right now and we need every ton that we can get out of those mills.

Nothing has changed in the demand curve as I talked about.

So and of course, we trade paper as well and we see the same we see the same problems coming out of other mills that we do out of our own. So I think I think we've taken I think taken a small snapshot of inventory at the mill level, which is low which is which is a low number to begin with.

And seeing those numbers go up has led to lead to a little bit of a misnomer in my opinion as to where inventories really sit right now in the industry you know Mark if you go back before the.

The pandemic and you.

Think about a normal holiday.

Could count on a rail switch.

One switch a day even through the holidays you.

You would have trucks still showing up.

Gould.

Now, we've just experienced the holiday, where we didn't see trains for days to.

To come and bring empty cars in and take your loaded cars away and because of omicron in particular and what it was doing to the availability of drivers and rail cruise.

We had to deal with it we were close to in a few cases.

Running out of room to put containerboard on the floor at mills and so it was an extremely challenging holiday period. So again.

That's our take on it.

I really appreciate all that additional color.

Are you seeing any easing on those issues yet or are they still as difficult as they were a few weeks back.

It's improved significantly, but it's improved but where we were before the holidays, which was not very good to begin with.

It's really the pandemic related impacts of Av.

Labor availability for for everybody out there, whether it's trucking industry railroads and so we have our inventories now headed back at the mill level into a more normal balance.

Getting containerboard out to the box plants and our outside customers, but again every day is still a challenge when you look at the winter weather and how that now impacts storm to storm.

Again, its improved but we still have.

All eyes on on whats happening 24 hours a day trying to make sure we don't fall behind.

Thank you good luck on the quarter Alright. Thank you your next question.

Our next question comes from the line of Gabe Poggi.

Wells Fargo. Your line is open you may now ask your question.

Good morning, Mark Tom Bob Good morning.

Okay.

Hoping.

Maybe to get a little bit of insight.

In terms of kind of your mill system, we can obviously look at it and understand its predominantly Virgin based but as some of your customers I guess become increasingly focused on environmental initiatives and want to incorporate more recycled content.

Could this cause you to rethink or at least.

Sidor having.

Having a little bit more recycled containerboard exposure in your mill system over time.

So I wanted to go ahead Gabe.

Listen our customer base, and primarily I mean, I think the industry has done a very good job of educating.

Our customer base consumers et cetera, with the with the fact that we have a sustainable product and.

<unk>.

You can't have a recycled product without starting with the Virgin broad product so.

I think I think that.

Most people know.

And certainly our customers and we've done a good job of educating our customers to the fact that.

Virgin fiber it performs very well it gives us a lot of flexibility in terms of the amount of fiber we have and the sheet. We constantly are working on those sorts of things and.

And that creates the recycled stream down the road so they get the closed loop system, they get the soles sustainability story around.

Containerboard grades and.

We'll continue to do what we see as the best things to do for our company and for our mills and for our cost structures going forward.

We really believe in fiber flexibility and and I think that's proven to be very good for us in the long term.

Okay. Thank you and then if you can give us a little bit of sense quantitatively kind of an integration rate exiting 2021, and then is there I don't want to say a formal target.

Bandwidth that you think is comfortable for PCA to operate within and once you get to the low end or the high end.

Making outside purchases.

When you might want to think about more mill capacity.

I'll answer that and I'm sure Bob we're going to weigh in on this.

<unk> integration, we look at ourselves as fully integrated we continue to move a minimum amount of product to some outside customers.

That balance is going to stay normalized Tom mentioned earlier in his part of the script.

Export sales in particular.

We had that customer base for many decades, but we rather than calling out an exact number whether it's 92% or 94% or 95% or 98%. We are in a situation, where we say we're fully integrated with the business.

We run through.

And looked at last year, the year before and into 2022.

Bob you want to add to that.

I've got very little to add to that I mean that is that is the way we look at our business and.

Even the even the small outside customer base and I've mentioned before many times that that.

Outside independent customers have become smaller and smaller and smaller as they've begun.

We've acquired them or other people in the industry have gone through the acquisition and of course.

The one we just did it in advance that was another very large one.

It.

Now, we will now be fully integrated but even those even those outside customers that we have we have such long term relationships with them and long term contracts with them that.

Even to some extent.

That few percentage of those customers, we consider to be.

And treat them like they're like.

Like they're fully integrated.

And I think also part of your question regarding.

Going to the outside market for containerboard.

We don't see that need we're looking out into the future years.

<unk>.

As the packaging side.

Gross and we need to supply that demand, we have levers to pull internally on how we would do that and were very comfortable looking out over the next three to five years on how we would achieve.

The type of growth we would expect.

Thank you guys congrats and good luck.

Thank you. Thank you question.

Our next question comes from the line of Adam.

Joseph <unk> from Keybanc. Your line is open. Please go ahead.

Thanks, Good morning, Mark Bob and Tom Congratulations on a really fine quarter.

Marty.

Yes, Mark I think George asked you about this earlier, but just back to the buyback you mentioned that you felt like now is a good time and I'm just wondering why now as opposed to any time over the previous year. So I mean, the stock has been pretty range bound over the past several months.

See you didn't buyback any stock in 2020, So I guess why do you think now was the appropriate time as opposed to over the past preceding year or two and and.

And what what signal where are you trying to send to investors.

The only good way to answer that is that we do.

Just believed it was the right time.

We wanted to go ahead and.

Just re affirm our ability to.

Continue to take care of the investors and return value to the investors in numerous ways.

<unk> been doing that with the dividend.

Continued to generate extremely high returns with our capital spending that ultimately generates higher profitability, which continues to feed into the value for the shareholders, but we felt again with the cash that we have available and the fact that the stock was trading in the range. It had been we felt it was.

A fair price to buy it and it was the right time to buy it.

It's as simple as that.

Sure No I appreciate that and just one on guidance I mean, you you refrain from giving guidance at.

At the outset of the pandemic for several quarters and then you reinstated it.

A few quarters ago, and obviously you beat your guidance by 72 or 35% in the fourth quarter, which is outstanding but it just makes me wonder how much visibility.

You still have on your business given these.

Significant deviations versus your guidance. So how would you characterize your visibility into what's coming over the next several weeks or this quarter for that matter.

Compared to what it's been over the past several quarters and pre pandemic for that matter.

Hey, Adam this is Bob.

I'll say that.

You were one of the ones that were wanting us to quantify again once we did stop but.

There are more uncertainties now probably than when we stopped giving the guidance right there.

Pandemic began back in 2020.

Because so many things whether it be.

People, leaving the workforce the.

<unk> co.

Covid variance that have just made that situation worse.

Supply chain has become even more more complex and difficult in many more obstacles.

So things that had been embedded that started after the pandemic began I've just becoming just sort of continue to get worse. So theres more uncertainty now for us than there was when we stopped the guidance frankly and and our results have shown we've been conservative obviously in our guidance and which is one of the reasons I think we.

Ended up beating it but as Tom alluded to these same things that we struggle with our customers struggle with.

They see the orders they or they put in orders for containers and boxes, but you have to aim at the other and they don't have the labor to to get their orders out the door. So they have to change.

They are doing and that changes at all backs up to our forecasting and so forth and it's not like we we all of a sudden.

Got them relative to how do we do this we've always been fairly accurate, but that's just.

Wait.

A lot more unknowns now frankly than there was when we started this back in the early part of 2020.

Yes, no understood. Thanks, a lot Bob best of luck.

Okay. Thank you next question please.

Our next question comes from the line of Mike Matson from Trust Securities. Your line is open. Please go ahead.

Thanks, very much hi, Mark Bob Tom Thanks for taking the questions and congrats on a solid quarter and year.

Yeah.

Most of my questions have been asked just one quick question I wanted to ask you about is it.

Inventory.

And how can you help us frame, how you're thinking about inventory management on a go forward basis, given the supply chain logistics, which we constantly stress on the call. How do you think about inventory levels level excuse me coming out of the other side do you think.

There'll be 5% higher 10% higher.

There's been last couple of decades has been a big focus on just in time does that continue or do you try to modify that to account for any type of issues similar to the ones that you're experiencing now.

Let me answer it in this way when we came out of 2020 into 2021, we desperately needed to build inventory and we did that and we got ourselves in a good place through the summer and into the.

Third quarter.

But as we've also mentioned the inventories now have dropped to a much lower point than we really need to be we're getting ready for where actually into our annual shutdown scheduled right. Now. So we will go through the winter and spring and ended up at a very low point and so.

I'm not going to give you a number for target I'm just going to tell you that this year as it has been for the last few years, we will continue to be a challenge to make sure that the mills are producing in <unk>.

Adequately supplying the box plant and so.

In that regard, it's a high class problem to have but.

Again for PCA.

The situation is.

Where we had been was a good level to be at but again we.

We slipped and lost ground.

With the logistics transportation issues. So Tom do you want to add well I'd, just say that one thing Thats one thing to keep in mind is as we've continued to grow our business.

The inventory has to be somewhat commensurate with that with that growth and we just have not been able to totally catch up with that we got and as Mark said, we get into a decent position last spring and summer but.

Here, we are starting out this year, we've got a we got a pretty gigantic backlog.

Demand has moved up again.

And we.

<unk> got a mill outage is coming so.

There's all hands on deck to not only get everything produce what we can produce at the mill level, but to get it shipped to.

The box plants and to add to some of our other customers now the other good news is at least that.

Our export business as heavy in the second half of the year and primarily into the fourth quarter. So that that will get a little relief there, but we've got a lot of work to do to get the to get the inventory levels back up.

I appreciate the color.

Things normalize we get past Covid, how do you think about inventories and we will keep let's say relative to what's been the historical trend.

Will you look to have a larger amount of inventory.

Just in case conditions like any supply chain issues reoccur.

That's going to be a little more cautious with inventory management I guess on a go forward basis.

That really depends Mike what we'd really like to do is if we could get back to if we could get back to some normality here.

We like that we like to operate with lean inventories. If we can providing we've got the whole transportation system and supply chain in place to be able to do that.

Unfortunately, right now, we're still a long way away from that but.

If and when that time returns.

We will operate will operate incredibly efficient efficiently because that's a that's a cost area that wed like to like to avoid if we could.

Thanks, very much good luck in the quarter.

Next question please.

Our next question comes from the line of Anthony Pettinari from Citigroup. Your line is open. Please go ahead.

Hi, good morning.

Good morning.

Mark or Tom you talked about postponing Jackson's.

<unk> face from spring to the fall.

Very strong demand that youre seeing and I am just is it possible to quantify how many tons that sort of by issue. This year, if I'm thinking about that the right way.

And this is Bob I'll, just say that.

Relative to when it was originally scheduled in the spring.

Frankly, the volume we were expecting out of Jackson. This year is really about will be about the same because.

When we originally started that machine up we're actually getting more more production out of it more efficiency out of it than we had originally thought so although we won't be on that higher ramp as early in the year. This year. This year, because if we push it from the spring to the fall those that additional efficiency, we've been getting out of the machine.

Net net basis, we'll get about exactly what we thought we would get.

Before we push that that outage.

Okay. Okay. That's helpful.

And then on the containerboard price increase not asking for any forward looking view, but historically can you kind of remind us with previous price hikes, how many quarters or months those sort of typically taken to be.

Right.

To be reflected or flow through to the bottom line.

Yes, we typically from the top from a from the time a formal announcement.

Two.

To completion, we typically we will roll that out over about a 90 day period.

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

Thank you next question please.

Our next question comes from the line of Kyle White.

Your line is open. Please go ahead.

Hey, good morning, Thanks for taking the question I just wanted to go back to the labor challenges that you're experiencing in the industry is experiencing is there any way to give us a sort of order of magnitude in terms of how many workers at the box plants, particularly out per week back in December and what that level kind of looks like here today.

I wish it was as predictable as that question might make it appear.

We could have.

A high percentage of our workforce not out.

And in one place and then have.

A pretty good percentage out at another place. So it's just moving across the country and if you track what's happened with this omicron variant as an example.

We track very closely with what's gone on nationally.

However.

It's incredibly disruptive at one point in time, where you just have a you might have a whole crew.

On a particular machine center, a couple of machine centers not available on a particular shift when in essence, we've got we certainly have the demand for that so but I think in addition, I think what really complicates. This labor issues, what I mentioned earlier and then Bob just mentioned again, our customers are dealing with the same exact thing and so.

There's a lot of disruption as a result of that.

Tried to tried to deal with us.

Okay.

Got it that makes sense, it's definitely unprecedented times the difficult to quantify on the buyback.

Given your healthy balance sheet is there a timeline that you expect to fully use that authorization that you didn't know.

No as we've done in the past years, we have it available and we'll just.

Leave it at that.

Sounds good I'll turn it over and good luck in the year.

Thank you.

With that Meyer I believe we're out of time and the questions.

Yes, Mr. Erik Olsson, we have no more question do you have any closing comments.

I'd like to thank everybody for taking the time to join US today, and we look forward to talking to you in April .

The first quarter earnings results.

Take care have a good day.

This concludes today's conference call. Thank you all for participating you may now disconnect have a great day.

Okay.

[music].

Alright.

Great.

[music].

Thank you for joining packaging Corporation of America's fourth quarter, and full year 2021 earnings results Conference call.

Your host today will be Mark Olson, Chairman and Chief Executive Officer of P. C.

Upon conclusion of his narrative there will be a Q&A session.

I'll now turn the conference over to Mr. Colson and please proceed when you are ready.

Thank you Myra good morning, and thanks, all for participating in packaging Corporation of America's fourth quarter and full year 2021 earnings release Conference call.

I'm, Mark Cola, 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 our fourth quarter and full year results and then I'll be turning the call over to Tom and Bob Who'll provide further details.

Then wrap things up and then after that we'll be glad to take questions.

Yesterday, we reported fourth quarter 2021, net income of $217 million or $2 28 per share.

Excluding these special items fourth quarter 2021, net income was $262 million or $2 76 per share compared to fourth quarter 2020 net income.

A $127 million or $1 33 per share.

Fourth quarter net sales were $2 billion in 2021 and $1 $7 billion in 2020.

Total company EBITDA for the fourth quarter, excluding special items was $463 million in 2021.

And $293 million in 2020.

Fourth quarter and full year 2021, net income included special items, primarily for costs associated with the company's debt refinancing that.

That was completed in October of 2021 and for certain costs at the Jackson, Alabama mill for paper to containerboard conversion related activities.

We also reported full year 2021 earnings excluding special items of $894 million.

Or $9 39 per share compared to 2020 earnings excluding special items of <unk>.

$550 million or $5 78 per share.

Net sales were $7 7 billion in 2021, and $6 7 billion in 2020.

Excluding special items total company EBITDA in 2021 was $1 7 billion.

Compared to $1 2 billion in 2020.

Details of all special items for the year is 2021 and 2020 were included in the schedules that accompanied the earnings press release.

Excluding the special items, the $1 43 per share increase in fourth quarter 2021 earnings compared to the fourth quarter of 2020 was driven primarily by higher prices and mix of $2 17.

And volume 35 in our packaging segment.

Higher prices and mix in our paper segment for <unk>.

A lower tax rate for <unk>.

Lower nonoperating pension expense <unk>.

Lower interest expense <unk> and other items too.

These items were partially offset by higher operating costs of 68.

Per share primarily due to inflation related increases, particularly in the areas of labor and benefits expenses would in recycled fiber costs energy.

Repairs materials and supplies as well as several other indirect and fixed cost areas.

We had higher freight and logistics expenses of 24 per share as diesel prices and fuel surcharges continue to increase along with continuing truck and driver shortages and very low box car availability.

Finally inflation on pallets and other materials drove converting costs higher by <unk> <unk> per share.

And depreciation expense was higher by <unk> <unk> per share.

Looking at the packaging business EBITDA, excluding special items in the fourth quarter 2021, or $461 million with sales of $1 9 billion resulted in a margin of 24, 5% versus last year's EBITDA of 303.

And sales of one 5 billion or 19, 7% margin.

For the full year 2021 packaging segment EBITDA, excluding special items was $1 7 billion with sales of $7 1 billion or a 23, 9% margin compared to full year 2020, EBITDA of $1 $2 billion with sales of five.

$9 billion.

Or a 28% margin.

Demand in our packaging segment remained very strong with record setting shipments from our corrugated products plants.

In order to meet the needs of our plants. The mills ran full out producing a record fourth quarter volume of containerboard.

Although we completed the scheduled outage at our <unk> mill earlier than we planned and we produce containerboard on both machines at the Jackson mill for the entire quarter. We ended the year with inventory, including the additional containerboard from our December acquisition of advanced packaging below third quarter levels.

And on a weeks of supply basis, we are once again below our targeted and historical levels.

Considering the anticipated strong demand and to mitigate potential project risk to supply chain bottlenecks for material and critical equipment deliveries.

We've decided.

To postpone the first phase of the Jackson, Alabama number three machine conversion from the spring and into the fall of this year.

In order to enhance the capabilities for reaching our target inventory levels and with four other mill.

In already scheduled for the first half of 2022 outages. We felt this was a very prudent decision to ensure our customers are supplied with their needs and the quality of our conversion work at the mill meets PCA standards.

We plan to continue producing containerboard on both Jackson machines for the foreseeable future.

And we will continue to refine our estimates and assumptions to fully understand the potential of the entire mill to produce containerboard on both machines at their optimal cost and quality.

I will now turn it over to Tom who will provide more details on containerboard sales and the corrugated business specifically.

Thanks Mark.

As Mark alluded to in the fourth quarter, our corrugated products plants and established a new fourth quarter total shipments record and set a new all time quarterly record for shipments per day, both up 1% over the fourth quarter of 2020, which was an all time record quarter for us and the industry on a.

<unk> basis, we exceeded third quarter 2021 ship total shipments, even though we had three less shipping days in the fourth quarter.

For the full year annual corrugated shipment records were set as well both in total up four 5% and shipments per day up 5% with one less shipping day compared to 2020.

In addition to the strong domestic market as we typically do during the second half of the year, we needed to catch up on commitments to our key export customers.

Domestic containerboard and corrugated products prices and mix together.

And <unk> <unk> per share higher than the third quarter of 2021.

Labor shortages, which had already been an issue for some time have been even more challenging with the impact of the omicron variant.

Truck and driver availability, the lack of available box cars to move containerboard from our mills to our box plants and many other supply chain bottlenecks.

We will continue to be challenges for quite some time.

Customers continue to tell us they have higher demand and could ship more if not for these or similar issues.

There is no doubt we view demand is strong and we expect this to continue even with the numerous obstacles most companies are facing.

Finally, I would like to add that our acquisition of advanced packaging that we spoke about during our last call was successfully completed last month. This acquisition gives us the ability to integrate over 80000 tons per year and provides several other benefit and synergy opportunities that we will deliver on very quickly.

<unk>, our newest employees from advanced packaging.

Now I'll turn it back to Mark.

Thanks.

Yes.

With sales of $143 million.

Or.

4% margin.

Compared to fourth quarter of 2020, EBITDA of $10 million and sales of $156 million or six 1% margin.

For the full year 2021 paper segment EBITDA.

Excluding special items was $72 million with sales of $600 million.

Or a 12% margin compared to full year 2020, EBITDA of $73 million with sales of $675 million for April .

8% margin.

As expected sales volume was below last year and third quarter of 2021 levels as we did not produce anything for volume at the Jackson mill during the quarter.

Average paper prices and mix were 9% above fourth quarter for 2020 and over 3% higher than the third quarter of 2021 as we continued the implementation of our previously announced price increases.

Begin the year, we anticipate that volume from our paper segment will be fairly representative of the over 500000 ton per year capacity.

Capacity at the International Falls Mill.

The commercial team and the employees at International Falls have done a tremendous job optimizing our inventory.

Mix and cost structure and for 2022, we expect solid EBITDA margins of 15% to 20% from the paper segment.

Finally, I'll mention that last week, we notified customers of an $80 per ton price increase effective with shipments beginning February 14th for all office papers.

<unk> papers and converting papers ill now turn it over to Bob.

Thanks, Mark the lower tax rate benefit in the fourth quarter was the result of favorable state income tax return versus provision adjustments made annually.

We expect our tax rate for the first quarter of 2022 represent a more typical rate of approximately 25%.

Cash provided by operations during the quarter totaled $391 million with free cash flow of $152 million.

Capital expenditures were $239 million, which was a bit higher than the guidance. We gave you on our last call.

Last quarter as we were able to get more work completed on projects at several corrugated plants as well as items related to the Jackson number three machine conversion than we had anticipated.

For the year, our total capital spending of $605 million was still below our original guidance range due to the same material equipment and labor availability issues, we spoke about last quarter.

As we mentioned on our last call.

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 two.

2023 notes.

In early October this transaction lowered our overall interest rate from three 9% to three 5%.

Lowered our annual interest expense by $11 million per year.

<unk> extended our average debt maturity from five years to 16 three years.

Our gross debt remained unchanged at $2 5 billion.

Based on the timing of closing the new bonds in September our cash balance at the end of the third quarter included the new bond proceeds.

However, since the redemption of the old bonds occurred in October .

There was a cash outflow in the fourth quarter totaling $756 million.

Which included a redemption premium for the retired bonds.

The final significant cash payment in the fourth quarter was $193 million for repurchasing over one 4 million shares of our common stock at an average price of $133 79 per share.

This provided an earnings per share benefit of approximately <unk> <unk> in the fourth quarter compared to last year.

And we expect an additional sequential benefit of approximately <unk> <unk> per share in the first quarter of 2022.

We ended the year with $765 million of cash including marketable securities.

And our liquidity at December 31 was just under $1 1 billion.

For the full year 2021 cash from operations was $1 1 billion and free cash flow was $489 million.

Our recurring effective tax rate for 2021 was 24%.

And our final reported cash tax rate was 19%.

Regarding full year estimates for 2022 of certain key items for the.

As we move forward.

We expect total capital expenditures to be approximately $800 million.

And DD&A is expected to be approximately $455 million.

With the recent fourth quarter 2021 share repurchases, we expect dividend payments of approximately $375 million in cash pension and post retirement benefit.

Planned contributions of $52 million.

Our full year interest expense in 2022 is expected to be approximately $86 million and net cash interest payments should be about.

$85 million.

The estimate for our 2022 combined federal and state cash tax rate is approximately 20%.

In our book effective tax rate approximately 25%.

Currently planned annual maintenance outages at our mills in 2022 will result in approximately 35000 more tons of loss containerboard production compared to 2021.

Which includes the tons lost during the first phase of the Jackson number three machine conversion in the fourth quarter.

The annual earnings impact of these outages, including lost volume direct costs and amortized repair costs.

As expected to be $1 13 per share compared to 91 per share in 2021.

The current estimated impact by quarter in 2022 is 15 cents per share in the first quarter.

<unk> 33 in the second quarter.

24 in the third and 41 per share in the fourth quarter.

I'll now turn it back over to Mark.

Thanks, Bob for almost two years now our employees have displayed tremendous adaptability and energy to overcome any obstacles in both the personal and work life to deliver significant accomplishments throughout the company.

We achieved new records for both containerboard shipments in corrugated product shipments, we've successfully completed or substantially completed significant cost reduction and process improvement projects at our mills, including a new boiler at our filer mill for utilizing self generated biogenic sources for energy.

Fiber flexibility projects that will Lula and Jackson, Alabama.

Would you ARD Headbox and shoe press improvements at the mill.

Headbox and wet and upgrades at the Valdosta mill.

Real upgrades pulp mill refining and shoe press improvements at Deridder, Louisiana and many others.

All the capital improvement projects that I referenced in the mills and corrugated plants have required the complete involvement of PCA personnel.

From projects conception.

Preliminary and detailed engineering, all the way through to project implementation and startup.

Although it required significant capital investments in order to achieve these important initiatives, we did so while improving our industry, leading return on invested capital to over 19%.

Over 64% of our net income was returned to shareholders from dividend payments and stock repurchases.

In addition, with our recent debt refinancing we lowered the overall interest rate from three 9% to three 5%.

Lowered our annual interest expense by $11 million per year and extended the average debt maturity from eight five years to 16 three years.

And finally, we ended the year with almost $1 1 billion.

Liquidity and a strong balance sheet, which maintains the financial flexibility to react quickly to most situations or opportunities in the future.

Our conservative balance sheet approach.

We've done for many years.

I am very proud of the accomplishments and the strong partnerships that we've built with our customers and suppliers over many years.

Stick in export prices and mix.

Additionally, in our paper segment, we expect higher prices and mix from our previously announced price increase that was implemented beginning last November .

There should also be a small benefit in the first quarter from our most recent uncoated freesheet price increase that was announced last week.

Scheduled outage expenses will be lower and we expect a small benefit from our recent share repurchases.

However continued higher inflation across most all operating and converting costs as well as freight and logistics expenses more than offset these benefits.

We estimate this to be the largest inflation driven sequential cost increase in our history and.

This does not include any potential benefit from a $70 per ton price increase across all liner and medium grades that we communicated to our customers within the last few days.

And on Form 10-K , and subsequent quarterly reports on Form 10-Q .

They are filed with the SEC actual results could differ materially from those expressed in these forward looking statements and with that Myra.

To open the call to questions. Please.

Thank you we have our first question comes from the line of George Staphos from Bank of America. Your line is open. Please go ahead.

Thanks, Hi, everyone. Good morning, Thanks for the details and congratulations on the year.

I guess my first question to start can you talk a bit.

Could you provide some color there and a couple of follow ons.

We'll let Tom get into that a Georgia, Tom Tom Yeah. Let me just give you a little bit of flavor for where we're starting out the year, if you and there's a little confusion in the numbers, perhaps so.

The FBA consider January 3rd to be a a full workday, whereas for the most part PCA that was a holiday. So if you left the FBA number in.

Regarding the supply constraints and optimizing mix, we're constantly looking at those sorts of things and.

Yes, Theres no question that at times.

We will have to rationalize the business will have to do some other things, but for the most part I would just remind you I mean, we've got 16000 plus customers.

This morning.

Yes, thanks for that Bob and to some degree even you said, though in your release that price mix.

It was a positive contributor to results.

Relative to your guidance in the quarter. So I don't know if theres anything else you'd want to call out there my other two ones and I'll turn it over.

Was there or could you quantify to some degree the benefit that the packaging segment got from Jackson.

Producing.

Purely containerboard coming up the curve.

Recognizing that not all of the work is done there and similarly in paper what benefit you got from not having some of those costs trapped since are now allocated to packaging.

Was there any kind of benefit from.

No open market pulp purchasing for Jackson for the paper business and then.

Last Mark just on the.

The share repurchase authorization.

Obviously, you completed the last one.

Obviously, the company generates a lot of cash flow.

What if anything should we draw from the $1 billion authorization relative to your need for capital since you've done so many products and they seem to be generating a high return based on the result relative to capital allocation for the future. Thank you guys. Good luck in the quarter.

Thanks, Tom and I will handle both the first part of the question, but if you think about Jackson.

For the full year, we produced probably 400 and just almost 450000 tons of board at the mill.

We had a home for all of that through our system.

You look at it another way if we hadn't had Jackson, we wouldn't have been able to grow with the customers in the manner that we had in <unk>.

Generate the results I called out on my portion of the script Jackson contributed $100 million.

The segment for the year.

And again, Tom if you think about Jackson, what it allowed us to do.

Yes, certainly certainly mark.

George if you think about it.

With the volume that we had.

And we were able to grow with our with our existing customer base.

Had we not had Jackson.

None of that would have materialized for the most part and so the big jump in improvement really as a result of being able to get that board out of Jackson and if you recall I believe we forecast.

To be to take about 25% downtime in Jackson in the fourth quarter, which we didn't do it all.

Just due to the fact that we had significant demand and that demand is carrying right into the first quarter.

And then Bob you want to add to that yes in Georgia regarding to your question around the <unk>.

The shift of cost from paper segment to packaging relative to Jackson in the quarter.

Well year over year, it was probably around $13 million that moved from paper to packaging cost.

And then sequentially. It was probably six maybe about $7 million that that moved from paper to packaging.

And then regarding the share buyback as far as.

The.

Remaining authorization that was utilized.

The decision was made it was the right time to use that authorization was the right time to buy.

Send that signal and then as far as the new authorization for $1 billion again, we just feel thats the appropriate number to have available as we go forward and it continues to send the right message to the <unk>.

Investors shareholders.

We're going to continue.

Delivering.

Our return in many different ways dividends share repurchases capital investments and growing the company growing the earnings that support all of that so.

Pretty one to the next question. Please thank you.

Our next question comes from the line of Bell now from Jefferies. Your line is open. Please go ahead.

Hey, guys congrats on another strong quarter.

It's great to see box shipments track really strong out of the gates and you do have a little tougher comps be helpful. Tom maybe give us some perspective, how you're thinking about the cadence and the growth profile for this year.

Given some of the challenges you are seeing supply chain should we expect more of a normal PCA growth here again.

Yeah.

Yes, I would.

I am very bullish.

We're starting out very strong we've got very good backlogs going into the year. It would be it would certainly be nice to get on a little more onto the downside of this omicron strain.

Because if there is any one thing thats impacting right now it's the fact that not only not only do we have labor shortages as a result of episode of our customers. So it's a little bit choppy and our ability to be able to supply our customers on a consistent basis, because things are changing almost daily.

Every single box plant across the United States.

Got it that's helpful and then from a Capex standpoint, the 800 million Capex, it's a big number appreciating.

There's a lot of the capital for Jackson, but any other bigger projects you want to call out that's going to be a nice needle move or whether it's a box plant or any cost.

Take out industrial projects you have in place for this year.

Let me just.

Describe it in this manner in 2021 were working on.

<unk> thousand 60 projects.

Queen the mills and box plants.

And just in the in the box plants alone.

On what we'd call a significant sized projects.

We had over 100 projects that were were taken care of.

Involving 53 of the plants and we're continuing that effort and it involves everything from from.

Equipment.

Replacement equipment upgrades corrugator rebuilds new corrugator.

Just a continuing effort that we have been.

Executing for the last four or five years now.

We're doing it in a bigger way the mills continue to.

Enhance that opportunity too.

Work on cost and efficiency.

As we speak.

Two days ago. We just finished the rebuild of the Lula number two paper machine, we rebuilt the wet end, new Headbox restock approach all new electric drives new Dcs.

A lot of supporting equipment on the machine a lot of.

That work was done primarily by our own PCA personnel and it was again just another example of what we do.

Also as we speak we are completing the first larger phase of the 50, some odd million dollars.

Woodyard project that will Lulu.

That's been started up over the last week. So these are the type of projects that will continue to enhance our ability and so these projects.

We will just continue.

We have a whole portfolio that we worked on every year, but these are the type of projects that will continue to see.

Get numerous enhancements throughout the system so.

Sure.

That's great color Mark and just one last one I appreciate and Youre seeing a lot of inflation across the board, but did you mentioned that it's the biggest.

<unk> improvement.

Hit I guess in terms of operating costs.

A step up sequentially.

Yes, Phil this is Bob.

You sort of look as we said theres inflation like we've never seen in addition to what we the normal timing.

Timing and seasonal type type things.

Moving sequentially all in.

<unk> 55 to <unk> 60 per share and I would say, maybe 10, a little over 10 cents of that.

It's just the seasonal timing type things so the balance of that is this inflation, we're referring to.

Yes, Youre right I think.

OCC seems to have.

Stabilized a bit although extremely high compared to last year still.

But the other buckets, whether it be.

The majority of the change in wood fiber.

Pretty much every chemical that we use.

Going up.

Energy will be higher.

And then the big one is labor and benefits.

Over and above the the.

Timing type items that I mentioned, so it's really across the board in.

Repairs and materials and other things.

And of course freight freight is another another big item. So there is they are all fairly significant relative to what we've seen historically.

Got it thanks, a lot guys really appreciate it.

Thank you next question please.

Our next question comes from Mark <unk> from Bank of Montreal. Your line is open. Please go ahead.

Thanks, Good morning, Mark Tom Bob.

Mark I wondered if you could just help us with.

A little more in the way of kind of cadence and details around sort of the steps as we go forward at Jackson in terms of generally what youre doing at each phase and what the step up in capacity will be at.

And then what you expect kind of the ultimate capacity at Jackson might look like.

The phase that we talked about moving from the spring time that would be the first really big phase of machine work that will now be done in the fall.

That will enhance the capability of the machine itself to significantly produce at a higher speed.

We'll be doing some work in the pulp.

The back end of the mill to support some of that we won't fully be able to take advantage of that work until the spring of 2023. So as we come out of this fall shutdown, we will have more capability to produce.

Sure.

On a tons per day basis incremental capacity.

Have the OCC plant completed this summer that will allow.

The utilization of some of that fiber over the machine. After the work is done in the fall, but the bigger the bigger benefit will come in the spring of 2023, when the final additional dryers are added to the machine and.

There is some press work that will be done at that time.

Will allow the full benefit of the work to be completed and then youll see the the machine capability at the 700000 tons.

Production rate per year in terms of the <unk>.

Final phase.

No.

Yes.

Any sense markup, yes that does help but any sense of the second machine and what you might ultimately be able to produce on that machine.

We've studied that obviously, we're not going to talk a lot about that in public.

That is a very good quality machine, it's obviously not as big a number one Jackson machines is not as big a machine is the number three but it is a very good quality machine. It is a very good trim.

So as we're doing the analysis that we currently have underway and we look at market. We look at growth. We look at what our internal needs are that machine offers a tremendous amount of opportunity.

And then it depends on how much capital we would choose to do.

Fly to that opportunity.

And I'll give you an example, the machine.

With minimal capital could produce 500 tonnes, a day or at an appropriate capital spending you could produce 1000 tonnes a day so it all depends on.

What we determined is the right.

<unk> in terms of demand.

Where we want to get tons for them, but a lot of opportunity.

Great asset base.

Yeah. Okay. The other question I have is really.

More for Tom has further and Tom I wondered if you could just give us some sense of sort of inflationary pressures at the at the box plant level.

And also.

Yeah, Mark I'll take the last one first regarding the corrugator.

For a long time as an industry.

We've been moving to wider corrugator and.

And the mills have just my opinion.

Some of that is good for mills and some of that is not so good for milk.

And as Mark just talked about when you've got a wider machine. Obviously, we've got we've got more flexibility in terms of the trim pool for those wider machines for the wider corrugator.

So.

Quite frankly, what you need to do to efficiently get volume out of our box plant today, youre going to need a wider corrugator.

Just to be able to.

Ron a run a profitable business getting the proper amount of footage out the door.

And a lot of these narrow corrugator.

Are finding their way.

Into combining into two narrows into one larger corrugator in those sorts of things. So theres a lot of moving parts going on and that's been going on for quite some time.

And.

If you take our mill system as an example.

They just they know who their customers are and they just adapt to what the customer needs are and we figure out a way to do it and we figure out a way to do it very efficiently.

The inflationary pressures at the box plants.

Ah.

You've got.

You've got the labor, obviously is a big big issue for us.

And the inefficiencies built in with all the absenteeism and everything else around the Covid that we've been dealing with for a number of years transportation is an enormous issue.

And all indicators are that thats still rising dramatically and energy costs as well. So those are those are are those are our key drivers I want to comment. If you went back to 2019 period 2018, 2019, and you compare the.

<unk> hundreds and hundreds of projects that we've executed over the last couple of years all of these.

From new equipment equipment upgrades, new box plants.

We improved productivity per unit or approximately 20% across the packaging system.

And so our growth and the results would not be what they are if we had not been able to achieve.

Capital upgrade and improve all of the asset base and the.

Corrugated packaging side of the business.

Yes, that's helpful. Marc that Tom just to be clear on the freight.

In the box business will you carry the cost of freight between the box plant and the customer does customer pick that up.

Well that's built.

I mean, theres a lot of different things.

A lot of different pricing mechanisms that we use.

But ultimately obviously, we're just not we're not prepared to.

These are enormous freight increases and stuff and thats whats driving some of the some of the price improvements that we've that we've just realized.

Yes, Okay, I'll turn it over thanks guys.

Thank you next question please.

Our next question comes from the line of Mark Weintraub from Seaport Research. Your line is open. Please go ahead.

Thank you.

The nominal quarter great year.

Hmm.

What I was trying to get a better sense of your guys' very thoughtful whenever you go to the market raising prices to customers.

You just announced on containerboard.

Matt.

And you are performing superbly internally people have been looking at industry data and they have been questioning whether or not this is a good time to be raising prices. Again, you guys are very thoughtful I am sure you have a perspective and would love to if you are willing to hear you share that.

Now Mark this is Tom we don't.

As you know we never talk about.

Forward looking pricing or what our thoughts are around that or anything else. So it's.

Yeah.

That's all right that's all I can say about that.

Okay, well let.

Let me.

Okay.

Just to follow up on it a little bit.

And as much as.

Yeah.

I would.

One of the questions I guess people are asking about is.

Inventory seem to be going higher you guys, probably have a better view of what's really going on in the drivers and the dynamics that place, which I am sure Youre factoring in.

The way you are thinking about how your business plays out and how the market is there anything on that specific that you could share for instance.

Did notice you talked about box cars being an issue.

Would that potentially have led to.

For you guys or the industry for an increase in mill inventories, where it's not necessarily occurring so much at the box plants or any color like that that maybe you could share that would help us understand in these very unusual times.

Some of the dynamics going on in the business.

Not be so apparent to outsiders.

Mark when the <unk> data came out recently.

There was a lot of confusion, you're looking at mill data and if you think about the way the holidays fell and you think about how the mills were running.

Trying to get a truck or a boxcar.

At the mill.

And then if you could get a boxcar.

At the mill switched.

The likelihood of getting it taken away from the mill was unlikely.

Hoping that trucks would show up again it was a hope so it was the most difficult period in the history of PCA trying to move containerboard during the holidays and we saw the.

The largest increase of our mill inventory.

Since I've been here for almost 2006 years in terms of the holiday build at the mill on the other hand, we saw the opposite if the box plants, we saw the inventory drop.

To that low level as the mills built to the high level and so not being able to speak for the industry, though I believe we are probably.

All in a similar situation.

Sure a lot of the same railroads, we share a lot of the same trucking industry.

So it'll be interesting when FBA comes out with their data Tom do you want to add a little color to that.

Totally agree with you Mark and.

It's.

I think a lot of people jumped to conclusions quickly just based on mill inventory.

And.

As Mark just alluded to if you look at our box plants. Our box plants are very skinny on inventory right now and we need every ton that we can get out of those mills.

Nothing has changed in the demand curve as I talked about.

So and of course, we trade paper as well and we see the same we see the same problems coming out of other mills that we do out of our own.

I think I think we've taken I think taken a small snapshot of inventory at the mill level, which is low which is which is a low number to begin with.

And seeing those numbers go up has led to lead to a little bit of a misnomer in my opinion as to where inventories really sit right now in the industry you know Mark if you go back before the.

The pandemic.

Think about a normal holiday.

Could count on a rail switch.

One switch a day even through the holidays you.

You would have trucks still showing up.

<unk> now.

Now, we've just experienced the holiday, where we didn't see trains for days.

To come and bring empty cars in and take your loaded cars away and because of omicron in particular and what it was doing to the availability of drivers and rail cruise.

We had to deal with it we were close to in a few cases.

Running out of room to put containerboard on the floor at mills and so it was an extremely challenging holiday period. So again.

That's our take on it.

I really appreciate all that additional color.

Are you seeing any easing on those issues yet or are they still as difficult as they were a few weeks back.

It has improved significantly but it has improved but where we were before the holidays, which was not very good to begin with I mean, it's really the pandemic related impacts of <unk>.

Labor availability for everybody out there, whether it's trucking industry railroads and so we have our inventories now headed back at the mill level into a more normal balance and getting containerboard out to the box plants and our outside customers.

But again every day is still a challenge when you look at the winter weather and how that now impacts storm to storm. So.

Again, its improved but we still have.

All eyes on on whats happening 24 hours a day trying to make sure we don't fall behind.

Thank you good luck on the quarter Alright. Thank you your next question.

Our next question comes from the line of Gabe Poggi.

Wells Fargo. Your line is open you may now ask your question.

Good morning, Mark Tom Bob Good morning.

Okay.

Was hoping.

Maybe to get a little bit of insight.

Could this cause you to rethink or at least.

<unk> had.

Having a little bit more recycled containerboard exposure in your mill system over time.

So I'm wondering if you go ahead Gabe.

Listen our customer base, and primarily I mean, I think the industry has done a very good job of educating.

Our customer base consumers et cetera, with the fact that we have a sustainable product and.

You can't have a recycled product without starting with the Virgin broad product so.

I think I think that.

Most people know.

Certainly our customers and we've done a good job of educating our customers to the fact that.

Virgin fiber it performs very well it gives us a lot of flexibility in terms of the amount of fiber we have and the sheet. We constantly are working on those sorts of things and.

That creates the recycled stream down the road so they get the closed loop system. They get the sold sustainability story around.

Containerboard grades and.

We will continue to do what we see as the best things to do for our company and for our mills and for our cost structures going forward and.

We really believe in fiber flexibility and I think that's proven to be very good for us in the long term.

Okay. Thank you and then if you can give us a little bit of sense quantitatively kind of an integration rate exiting 2021, and then is there I don't want to say a formal target.

Bandwidth that you think is comfortable for PCA to operate within and once you get to the low end or the high end.

Making outside purchases.

When you might want to think about more mill capacity.

Ill answer that and I'm sure.

Bob Tom we're going to weigh in on this.

As far as integration.

We look at ourselves as fully integrated we continue to move a minimum amount of product to some outside customers.

Balance is going to stay normalized Tom mentioned earlier in his part of the script.

Export sales in particular.

We have that customer base for many decades, but we rather than calling out an exact number whether it's 92% or 94% or 95% or 98%. We are in a situation.

<unk> when we say, we're fully integrated with the business.

<unk> run through.

<unk> looked at last year, the year before and into 2022, Tom or Bob you want to add to that.

I've got I've got very little to add to that I mean that is that is the way we look at our business and.

Even the even the small outside customer base and I've mentioned before many times that that that outside independent customers have become smaller and smaller and smaller as they've begun as we've acquired them or other people in the industry have gone through the acquisition and of course.

One we just did it in advance that was another very large one.

That.

It is now will now be fully integrated but even those even those outside customers that we have we have such long term relationships with them and long term contracts with them that.

Even to some extent.

That few percentages of those customers, we consider to be.

And treat them like they're like.

They are fully integrated.

And I think also part of your question regarding <unk>.

Going to the outside market for containerboard.

We don't see that need we're looking out into the future years.

<unk>.

As the packaging side.

Grows and we need to supply that demand, we have levers to pull internally on how we would do that and were very comfortable looking out over the next three to five years on how we would achieve.

The type of growth we would expect.

Thank you guys congrats and good luck.

Thank you. Thank you question.

Our next question comes from the line of Adam.

Joseph <unk> from Keybanc. Your line is open. Please go ahead.

Thanks, Good morning, Mark Bob and Tom Congratulations on a really fine quarter.

Martin.

You didn't buyback any stock in 2020, so I guess why do you do you think now was the appropriate time as opposed to over the past preceding year or two and and.

And what what signal, where you're trying to send to investors.

The only good way to answer that is that we do.

Believe it was the right time.

We wanted to go ahead and.

Just re affirm our ability to.

Continue to take care of the investors and return value to the investors in numerous ways.

Been doing that with the dividends.

Continued to generate extremely high returns with our capital spending that ultimately generates higher profitability, which continues to feed into the value for the shareholders, but we felt again with the cash that we had available and the fact that the stock was trading in the range. It had been we felt it was.

A fair price to buy it and it was the right time to buy it.

It's as simple as that.

Sure No I appreciate that and then just one on guidance I mean, you you refrained from giving guidance at.

At the outset of the pandemic for several quarters and then you reinstated it.

A few quarters ago, and obviously you beat your guidance by 72 cents or 35% in the fourth quarter, which is outstanding but it just makes me wonder how much visibility.

You still have in your business given these.

Significant deviations versus your guidance. So how would you characterize your visibility into what's coming over the next several weeks or this quarter for that matter.

Compared to what it's been over the past several quarters and pre pandemic for that matter.

Hey, Adam this is Bob.

I'll say that I know you were one of the ones that were wanting us to quantify again once we did stop but.

There are more uncertainties now probably than when we stopped giving the guidance right there.

Pandemic began back in 2020.

Because so many things whether it be.

People, leaving the workforce the.

<unk> co.

Covid variance that have just made that situation worse.

Supply chain has become even more more complex and difficult in many more obstacles.

So things that have been embedded that started after the pandemic began I've just becoming just sort of continue to get worse. So theres more uncertainty now for us than there was when we stopped the guidance frankly and and our results have shown we've been conservative obviously in our guidance and which is one of the reasons I think we.

Ended up beating it but as Tom alluded to the same things that we struggle with our customers struggle with.

They see the orders they or they put in orders for containers and boxes, but you have to hit the other and they don't have the labor to to get their orders out the door. So they have to change.

They are doing and that changes at all back up to our forecasting and so forth and it's not like we we all of a sudden.

Got them relative to how do we do this we've always been fairly accurate, but just wait.

A lot more unknowns now frankly than there was when we started this back in the early part of 2020.

Yes, no understood. Thanks, a lot Bob best of luck.

Okay. Thank you next question please.

Our next question comes from the line of Mike Matson from Trust Securities. Your line is open. Please go ahead.

Thanks, very much hi, Mark Tom Thanks for taking my questions and congrats on a solid quarter and year.

Yeah.

Most of my questions have been asked just one quick question I wanted to ask you about.

Inventory.

There's been.

Last couple of decades has been a big focus on just in time does that continue or do you try to modify that to account for any type of issues similar to the ones that you're experiencing now.

Let me answer it in this way when we came out of 2020 into 2021, we desperately needed to build inventory and we did that and we got ourselves in a good place through the summer and into the.

Third quarter.

But as we've also mentioned the inventories now have dropped to a much lower point than we really need to be we're getting ready for where actually into our annual shutdown.

Schedule right now so we will go through the winter and spring and ended up at a very low point and so.

I'm not going to give you a number for target I'm just going to tell you that this year.

It has been for the last few years, we will continue to be a challenge to make sure that the mills are producing an adequately supplying the box plants and so in that regard, it's a high class problem to have but.

Again for PCA.

The situation is.

No.

Where we had been was a good level to be at but again, we we.

We slipped and lost ground.

With the logistics transportation issues. So Tom do you want to add well I would just say that one thing Thats one thing to keep in mind is as we've continued to grow our business.

Here, we are starting out this year, we've got a we got a pretty gigantic backlog.

Demand has moved up again.

And.

We've got a mill outage is coming so.

It is all hands on deck to not only get everything produce what we can produce at the mill level, but to get it shipped to.

The box plants, and two and to some of our other customers now the other good news is at least that are our export business as heavy in the second half of the year and primarily into the fourth quarter.

So that that will get a little relief there, but we've got a lot of work to do to get the to get the inventory levels back up.

I appreciate the color just as things normalize we get past Covid, how do you think about inventories.

Keep let's say relative to what's been the historical trend.

Will you look to have a larger amount of inventory.

The case conditions.

Supply chain issues reoccur.

And that is going to be a little more cautious with inventory management I guess on a go forward basis, yeah that really depends Mike what we'd really like to do is if we could get back to if we could get back to some normality here.

We like that we like to operate with lean inventories. If we can providing we've got the whole transportation system and supply chain in place to be able to do that.

Unfortunately, right now were still a long way away from that but.

If and when that time returns.

We will operate will operate incredibly efficient efficiently because that's a that's a cost area that wed like to like to avoid if we could.

Thanks, very much good luck in the quarter.

Next question please.

Our next question comes from the line of Anthony Pettinari from Citigroup. Your line is open. Please go ahead.

Hi, good morning.

Good morning.

Mark or Tom you talked about postponing Jackson's conversion phase from spring to the fall.

Very strong demand that you're seeing and I'm just is it possible to quantify how many tons that sort of by issued this year, if I'm thinking about that the right way.

And this is Bob I'll, just say that.

Relative to when it was originally scheduled in the spring.

Frankly, the volume we were expecting out of Jackson. This year is really about will be about the same because.

When we originally started that machine up we're actually getting more more production out of it more efficiency out of it than we had originally thought so although we won't be on that higher ramp as early in the year. This year. This year, because we push it from the spring to the fall those additional efficiency, we've been getting out of the machine.

Net net basis, we'll get about exactly what we thought we would get.

Before we push that that outage.

Okay. Okay. That's helpful.

And then on the containerboard price increase not asking for any forward looking view, but historically can you kind of remind us with previous price hikes, how many quarters or months.

Sort of typically taken to be.

To be reflected or flow through to the bottom line.

Yes, we typically from the top from a from the time a formal announcement to two completion, we typically will roll that out over about a 90 day period.

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

Thank you next question please.

Our next question comes from the line of Kyle White. Your line is open. Please go ahead.

Hey, good morning, Thanks for taking the question I just wanted to go back to the labor challenges that you're experiencing in the industry are experiencing is there any way to give us the sort of order of magnitude in terms of how many workers at the box plants, particularly out per week back in December and what that level kind of looks like today.

I wish it was as predictable as that question might make it appear.

We could have.

Sure.

A high percentage of our workforce not out.

And in one place and then have.

A pretty good percentage out at another place. So it's just moving across the country and if you track what's happened with this omicron variant as an example.

We track very closely with what's going on nationally.

However.

It's incredibly disruptive at one point in time, where you just have a you might have a whole crew.

On a particular machine center, a couple of machine centers not available on a particular shift when in essence.

We certainly have the demand for that so but I think in addition, I think what really complicates. This labor issues, what I mentioned earlier on that Bob just mentioned again, our customers are dealing with the same exact thing and so.

There's a lot of disruption as a result of that.

Tried to tried to deal with us.

Okay.

Got it that makes sense, it's definitely unprecedented times the difficult to quantify on the buyback given.

Given your healthy balance sheet is there a timeline that you expect to fully use that authorization that you didn't know.

No as we've done in the past years, we have it available and we'll just.

Leave it at that.

Sounds good I'll turn it over and good luck in the year.

Thank you.

With that Meyer I believe we're out of time and the questions.

Yes, Mr. Erik Olsson, we have no more question do you have any closing comments.

I'd like to thank everybody for taking the time to join US today, and we look forward to talking to you in April to review the first quarter earnings results.

Take care have a good day.

This concludes today's conference call. Thank you all for participating you may now disconnect have a great day.

Q4 2021 Packaging Corp of America Earnings Call

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