Q4 2023 Packaging Corp of America Earnings Call
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Thank you for joining packaging Corporation of America's fourth quarter, and full year 2023 earnings results Conference call.
Your hosts today will be Mark colds in chairman and Chief Executive Officer of PCA.
Upon conclusion of his narrative there will be a question and answer session.
I'd now like to turn the floor over to Mr. Call. Then please proceed when you're ready.
Jamie: Thank you Jamie.
Jamie: Good morning, everyone and thank you all for participating in packaging Corporation of America's fourth quarter and full year 2023 earnings release conference call.
Jamie: Again, I'm, Mark Colds, and chairman and CEO of PCA and with me on the call. Today is Tom has further executive Vice President who runs the packaging business.
Mark Wilde: And Bob Monday, our Chief Financial Officer, as usual I'll begin the call with an overview of the fourth quarter and full year results and then I'll be turning the call over to Tom and Bob Who'll provide further details.
Mark Wilde: After they're done I'll wrap things up and then we'd be glad to take questions.
Robert P. Mundy: Yesterday, we reported fourth quarter 2023, net income of $189 million or $2 10 per share.
Robert P. Mundy: Excluding special items fourth quarter 2023, net income was $192 million or $2 13 per share compared to the fourth quarter of 2020 twos net income of.
Robert P. Mundy: $215 million or $2.35 per share.
Robert P. Mundy: Fourth quarter net sales were $1.94 billion in 2023 and $1.98 billion in 2022.
Mark Wilde: Total company EBITDA for the fourth quarter, excluding special items was $394 million in 2023 and $409 million in 2022.
Mark Wilde: Excluding the special items, we also reported full year 2023 earnings of $784 million or $8.70 per share compared to the 2022 earnings of $1.04 billion or $11 14 per share.
Mark Wilde: Net sales were $7.8 billion in 2023, and $8 $5 billion in 2022.
Mark Wilde: Excluding special items total company EBITDA in 2023 was $1 $6 billion compared to the $1.9 billion in 2022.
Mark Wilde: Fourth quarter and full year 2023, net income included special items, primarily for certain costs at our Jackson, Alabama mill for the paper to containerboard conversion related activities and the closure and other costs related to corrugated products facilities and design center.
Mark Wilde: Details of all special items for the years for the year 2023, and 2022 were included in the schedules that accompanied our earnings press release.
Mark Wilde: Excluding the special items.
Mark Wilde: The <unk> 22 per share decrease in fourth quarter 'twenty twenty-three earnings compared to the fourth quarter of 2022 was driven primarily by lower prices and mix of $1 93 in the packaging segment lower prices and mix four cents in volume three cents in the paper.
<unk> and higher depreciation expense 10 cents.
Mark Wilde: These items were partially offset by very good volume in the packaging segment of $1.07 per share. We also had lower operating and converting costs of 51 cents driven by very good process efficiencies and control over other usages of fiber chemicals and energy.
Mark Wilde: Materials, and labor as well as lower energy and wood fiber prices.
Mark Wilde: In addition, we had lower scheduled maintenance outage expenses of <unk> 19 cents.
Mark Wilde: Lower freight and logistics expenses three cents.
Mark Wilde: Lower other expenses four cents and a lower share count, resulting from share repurchases four cents.
Mark Wilde: The.
Mark Wilde: Else were 37 cents above the fourth quarter guidance of $1 76 per share primarily due to higher volumes in our packaging segment, lower operating and converting costs lower freight and logistics expenses.
Mark Wilde: Looking at the packaging business EBITDA, excluding special items in the fourth quarter of 2023 of $385 million with sales of 1.8 billion resulted in a margin of 21.7% versus last year's EBITDA of $392 million and sales of 1.8 Bill.
Mark Wilde: And also a 21.7% margin.
Mark Wilde: For the full year 2023 packaging segment EBITDA, excluding special items was $1.6 billion with sales of 7.1 billion or 21, 8% margin compared to the full year 2022 EBITDA.
A $1.8 billion with sales of $7.8 billion or a 23, 8% margin.
Throughout the quarter demand and packaging segment was stronger than our expectations.
Mark Wilde: This higher volume along with the operational benefits of our capital spending program and continued emphasis on cost management and process efficiencies across the entire manufacturing and converting facility system drove operating and converting costs lower as well.
Mark Wilde: We had an excellent restart of the little Washington Mill, and the number three machine.
During the latter.
The latter part of October and ran exceptionally well during the November December period.
Mark Wilde: And that helped us meet the stronger demand and build some needed inventory during the quarter to ensure the customers.
Mark Wilde: That our customers are supplied with their needs.
Mark Wilde: We plan to restart the number two machine at the Lula mill in this first quarter to help manage our expectations in the first half of 'twenty 'twenty four for continued strong demand together with scheduled mill maintenance outages and the final phase of the containerboard.
Conversion of the number three machine at our Jackson, Alabama Mill.
Tom: I'll now turn it over to Tom who will provide more details on containerboard sales and our corrugated business.
Tom: Thank you Marc.
Tom: As Mark mentioned packaging segment volume for the quarter exceeded our guidance estimates corrugated product shipments per workday were up five 1% and total shipments with one additional shipping day were up 6.9% compared to last year's fourth quarter.
Tom: Versus the third quarter of 'twenty twenty-three shipments per day were up 5.2% and total shipments were up 3.4%, even though there was one less shipping day outside sales volume of containerboard was 88000 tons above last year's fourth quarter, and 17000 tons above the third quarter of 2023.
Tom: Our order backlog and containerboard cut up remain incredibly strong throughout the quarter, although demand continues to be challenged by persistent inflation higher interest rates and other factors. We expect our shipments to continue this positive momentum as we enter the first half of 'twenty 'twenty four.
Mark Wilde: Relative to the published reductions in the industry benchmark grades that occurred in 2023, domestic containerboard and corrugated products prices and mix together were $1 73 per share below the fourth quarter of 2022 and down 40 cents per share compared to the third quarter of 2023 which included a richer mix of graph.
Mark: Fix them point of purchase display business ex.
Export containerboard prices and mix were down 20 cents per share compared to the fourth quarter of 2022 and down a penny per share compared to the third quarter of 2023.
Mark Wilde: Beginning January one 'twenty 'twenty four we began invoicing a $70 per ton price increase for linerboard and 100 dollar per ton increase for medium. According to a recent price announcements as you are probably aware this past Friday, the Ritchie pulp and paper week publication did not recognize any increase in the industry's benchmark.
Mark Wilde: Prices for either linerboard or medium.
Mark Wilde: I'm sure you will have some questions for us on this topic and we will be happy to discuss them with you shortly I'll turn it back to Mark.
Mark Wilde: Thanks, Tom looking at the paper segment EBITDA, excluding special items in the fourth quarter was $35 million with sales of $144 million or a 24, 5% margin compared to the fourth quarter of 2020, twos EBITDA of $39 million and sales of 154.
Mark Wilde: $4 million or 25.7% margin.
Tom: For the full year 2023 paper segment EBITDA, excluding special items was $151 million with sales of $595 million or a record 25.3% margin compared to the full year 2022, EBITDA of $132 million with sales of 602.
Tom: $2 million or a 21, 3% margin.
Mark Wilde: Prices and mix were down 3% from last year's fourth quarter and from the third quarter of 2023, driven by the declines in the index prices that occurred during the year, although slightly better than our fourth quarter guidance sales volume was 3% below last year's fourth quarter and down approximately 6% versus the seasonally stronger.
Mark Wilde: Third quarter of 2023.
Mark Wilde: The management team and all the employees of our paper business had done a tremendous job over the last several quarters to optimize our inventory and product mix and remain focused on efficient and cost effective operations in order to continue delivering outstanding results during 2023.
Robert P. Mundy: I'll now turn it over to Bob.
Bob: Thanks Mark.
Bob: Provided by operations during the quarter totaled $335 million.
Bob: And free cash flow was 194 million.
Bob: The primary payments of cash during the quarter included capital expenditures of $141 million.
Mark Wilde: Dividend payments of $112 million cash tax payments of $59 million and net interest payments of $26 million.
Mark Wilde: For the full year 2023 cash from operations was $1 $3 billion with capital spending of $470 million and free cash flow a record $845 million.
Mark Wilde: Our final recurring effective tax rate for 2023 was 24, 5%.
Mark Wilde: During the fourth quarter, we issued 400 million of new 10 year notes.
Mark Wilde: The proceeds from these notes will be used to redeem our 400 million dollar notes.
Mark Wilde: That mature in September of 'twenty 'twenty four.
Mark Wilde: Our net debt is not affected by this transaction and the proceeds from this issuance will be invested in marketable securities at an interest rate exceeding that of the new notes.
The new bonds raised our overall fixed interest rate by approximately 30 basis points and extended the overall average maturity of our debt portfolio from 14.1 years to 15.6 years.
Mark Wilde: Excluding the proceeds from this transaction.
Mark Wilde: Our yearend cash on hand balance, including marketable securities, which just over $800 million with liquidity of $1 $1 billion.
Mark Wilde: Regarding full year estimates of certain key items for the upcoming year, we expect total capital expenditures to be in the range of $470 million to $490 million in.
Mark Wilde: And D D N a as expected to be approximately $530 million.
Mark Wilde: We estimate dividend payments of $450 million in cash pension and post retirement benefit plan contributions of $27 million.
Mark Wilde: Our full year interest expense in 2024 is expected to be approximately $53 million and net cash interest payments should be about $60 million.
Mark Wilde: The estimate for our 2024 book effective tax rate is 25%.
Mark Wilde: Currently planned annual outages at our mills in 'twenty, 'twenty, four including lost volume direct costs and amortized repair costs as.
Mark Wilde: As expected to total 96 cents per share.
Mark Wilde: The current estimated impact by quarter in 2024 is 26.
Mark Wilde: Cents per share in the first quarter.
Mark Wilde: <unk> 16 in the second.
Mark Wilde: 19 cents in the third and 35 cents per share in the fourth quarter.
Mark Wilde: These expenses include the volume and cost impact that would be incurred during the completion of the final phase of converting the number three machine at the Jacksonville to containerboard during the first and second quarters.
Mark Wilde: This will negatively impact our first quarter results by approximately 16 cents per share in our second quarter results by eight cents per share.
Mark Wilde: I'll now turn it back over to Mark Thank you Bob.
Mark Wilde: I'm very proud of the outstanding results PCA delivered in 2023 under very challenging demand conditions. We successfully completed numerous cost reduction and process improvement projects along with other key strategic initiatives at the containerboard mills and corrugated products plants are.
Mark Wilde: Our dedicated sales and customer service organizations continued to be extremely motivated and understanding the business of our customers.
Bob: They were very responsive to our customers' needs and worked proactively to help them with their solutions to their opportunities and their challenges.
Mark Wilde: These combined efforts allowed us to enhance our entire packaging business and deliver profitable growth opportunities for our customers and shareholders now and into the future 'twenty.
2023 also saw our paper business deliver record margins, reflecting the capabilities of our employees to optimize our product mix inventory distribution channels and overhead structure, along with running very efficient manufacturing operations.
Mark Wilde: These accomplishments helped us to achieve a new all time annual record free cash flow we.
Mark Wilde: We ended the year with over $1 $1 billion of liquidity and extended the overall average debt maturity to almost 16 years.
Mark Wilde: We continued our commitment to a strong balance sheet and a balanced approach towards capital allocation.
Mark Wilde: This allows us to profitably grow the company and to maximize returns for our shareholders, while maintaining the financial flexibility to react quickly to situations and opportunities.
Mark Wilde: None of these things would be possible without the hard work of the talented employees and strong partnerships with built with our customers and suppliers over many many years.
Mark Wilde: Looking ahead as we move from the fourth and into the first quarter as Tom indicated in our packaging segment. We expect continued positive momentum in demand along with two additional shipping days in the first quarter.
Mark Wilde: To drive higher total corrugated product shipments.
Mark Wilde: Despite a restarting the number two machine at the Lula mill containerboard volume will be lower due to the downtime associated with the conversion of the number three machine at the Jackson mill.
Mark Wilde: And a scheduled maintenance outage at the Counce, Tennessee mill.
Mark Wilde: <unk> and mix should be slightly higher with the implementation of our announced January price increases partially offset by a decrease in the published benchmark prices that occurred late in 2023.
Mark Wilde: With export prices fairly flat.
Mark Wilde: In our paper segment, we expect an improved mix to move our prices slightly higher with flat sales volumes.
Mark Wilde: Recycled fiber and energy prices will be higher and unusually cold seasonal weather will negatively impact usages and yields for energy wood and chemicals, along with higher operating costs associated with the restart of the full operations.
Mark Wilde: At the Lula mill compared to the fourth quarter operations.
Mark Wilde: Labor and benefits costs will have seasonal timing related increases that occur at the beginning of a new year related to annual wage and benefit increases the restart of payroll taxes and share based compensation expenses.
Mark Wilde: And finally as Bob mentioned scheduled outage expenses will include the significant first quarter impact of the conversion outage at the Jackson mill, which is estimated to be 16 cents per share.
Mark Wilde: Considering these items, we expect first quarter earnings of $1 54 per share.
Mark Wilde: And with that Jamie I'd like to open the call for questions and we can proceed as you call. It up thanks, Jamie.
Jamie Smith: Ladies and gentlemen at this time, we'll begin the question and answer session.
Jamie Smith: He joined the question can you May press Star and then one to withdraw your question you May Press Star two.
Jamie Smith: If you are using a speaker phone could you ask you. Please pick up the handset prior to pressing the keys to ensure the best sound quality.
Jamie Smith: Once again in order to us in order to join the question queue. Please press Star then one.
Jamie Smith: Our first question today comes from Mark Weintraub from Seaport Research Partners. Please go ahead with your question. Thank you first congrats on another really strong year in a challenging environment.
Mark Weintraub: The so you you say in the press release that you are expecting a little slightly higher pricing. Despite the 20 dollar decrease in November and obviously, you're including some from the January increase which as you mentioned, we're going to have questions on daily D is that fair to say that you're including a little bit more than <unk>.
$20 on average in the <unk>, how should we think about that.
Tom: Yeah, Mark this is Tom Yeah, well, it's it's it's slightly above the 20 Bucks a you know we've got the we've got the follow through on on that published a 20 dollar down and as I said, we put the linerboard or medium price increase and do effect January 1st.
Tom: And where we're invoicing accordingly, and getting paid accordingly, and I might also add that as a net buyer we also.
Tom: Have accepted the 70 dollar increase on the buy side and have been paying invoices accordingly.
Tom: Okay, and sorry, just to clarify so when you said net 'twenty was was that the increase.
Mark Wilde: Minus the impact of the 20 or with that that you are effectively because of the way the lags work et cetera, as you push it through into box prices that the impact of the $70. That's that's been announced is slightly more than 20 in the first quarter I apologize for that.
Mark Wilde: But just clarify you pretty much you could pretty much right and you got to keep you've got to also think about it is is the 20 dollar is factoring into the box business right now given the contract triggers.
Mark Wilde: Got it under understood and.
Mark Wilde: And lastly, and I'll turn it over.
Mark Wilde: Could you just a sense of how demand is shaping up in January so far for the business.
Yeah demand remains very strong, we're currently booking and billing about 8% above a year ago and.
Mark Wilde: And and we and we see that trend continuing through the quarter.
Mark Wilde: Okay. Thank you.
Mark Wilde: Thank you <unk>.
Mark Wilde: Next question.
Speaker Change: Our next question comes from Sandro.
Speaker Change: Liang from Banc of America Securities. Please go ahead with your question.
Andrew Your line is live is it possible your phone maybe on mute.
Speaker Change: Jamie lets move to the next question.
Mike <unk>: And our next question comes from Mike <unk> from Truest, but do you have with your question.
Mike <unk>: Yes, Thank you Mark Bob Bob and Tom for taking my questions. Congrats on a really good quarter.
Mike <unk>: Thank you. Thank you.
Mike <unk>: Just wanted to get a sense from you regarding the mix for Q box prices look like they were notably down sequentially year over year now aside from lower price were there any one time mix issues as well and I recall that you know on three key you called out weaker building products lower graphics himself to retail yeah, UAW strike I'm wondering if that.
Mike <unk>: Had an impact in <unk> as well and whether you expect that to fade in 2024.
Mike <unk>: Mike The our you know our fourth Q mix was about what we expected it to be a at the end of the third quarter, we had a little more graphics business that came in which was which was positive but are you know our mix in the fourth quarter, followed pretty much truth of true to form and you know going into this year.
Mike <unk>: I think that you know with some of those headwinds that you talked about behind us and especially the Destocking, which was very unpredictable that we incurred during 2023 will be a it's kind of steady as she goes in 2024.
Mike <unk>: Got it. Thank you Tom so would it be fair to say that with <unk>. Some of those issues you mentioned in <unk> you last time.
Tom: Need a little bit in <unk>.
Tom: Yeah, they did a little bit into fork. They did but then they began to settle out towards the end of the year.
Tom: Okay.
Mark Wilde: Okay got it. Thank you for that and then just the 193 in lower prices and mix is there any way to parse how much was price versus mix and then in terms of your the $1 54 guide, what's embedded for price and mix separately.
Mark Wilde: Well I think it's it's a you know I mean, it's it's mostly price obviously, but then but then it does get impacted by mix and you know that kind of that kind of varies back and forth. So you know we try to we tried to do the best we can to forecast that.
Mark Wilde: Got it and this was sold which is time it would be fair to say you're expecting a good.
Mark Wilde: Destocking coming to an end given some of these issues mentioned previously my question, probably better than you expected better quality of high quality mix and 24 versus 23.
Mark Wilde: I think our mix will be traditional to what it does to what you know we typically have.
Mark Wilde: Got it and last question before turning it over.
Mark Wilde: Can you help us just think about what's next for P. J from a from a growth perspective, obviously, if you're finishing up Jackson here, you're still the I falls now realizing that.
Mark Wilde: It's a great asset its modern generates a lot of cash hasnt reach in paper.
Mark Wilde: Would you expect a one household as is what's really the next leg of the growth trajectory for our PK J F.
Mike: Yeah, Mike.
Mike: Obviously.
Mike: You don't know what the future's going to hold but we've got a lot of optionality and what we're doing.
All of the capital spending that we continue to do in the box plants. As an example continues to create incredible opportunity to grow with our customers.
Mike: Just this year alone for 2024, we planned over 30 strategic projects at 26 of our box plants.
Mike: And this is a major major converting equipment installations, corrugator corrugator rebuild and upgrades of significant magnitude.
Mike: You know this past year. It was the same same situation.
Mike: Number of evolves rotary die cutters.
Mike: Okay.
Mike: Coordinators.
Mike: New plant in Pennsylvania.
Mark Wilde: Out of a new plant out in Salt Lake City, and so we will continue to build in the <unk>.
Mark Wilde: Internal organic capability to grow with the marketplace.
Speaker Change: Mills have the runway to continue providing that over the next few years.
Speaker Change: And then you have to assume as we have always done well, we can grow with the containerboard supply as we need to whether it's adding capacity in an existing mill or if we had to go out and buy a mill or build email there's there's a lot of.
Mark Wilde: Optionality in the future that we have the ability to proceed with.
Mark Wilde: But that's never been an issue for us and I don't expect it to be an issue in the future.
Mark Wilde: But right now the key is that we had tremendous capability within the converting side of the packaging unit in the in the mill system to provide the containerboard to grow for the next number of years. So I'm very very encouraged by where we are.
Mark Wilde: That's great market very good color I really appreciate it and best of luck in 'twenty four.
Mark Wilde: Thanks, Mike next question.
Mark Wilde: Our next question comes from George Staphos from Bank of America Securities. Please go ahead with your question.
Mark Wilde: Yeah, Hi, good morning. This is actually Catherine killer sitting in for George Josh Internal conflict. This morning. So I guess just back to the pricing discussion are you able to comment at all.
Catherine killer: What percent of your customer base or invoicing at those higher prices in Boston 10, aborted and boxes.
Catherine killer: Well with regard to linerboard and medium I'm talking about linerboard or medium here, it's 100% of our of our customers.
Josh: Outside customers on linerboard or medium.
Catherine killer: And and trade partners as well so.
Catherine killer: That's that's where that stands and are you know I can't I'd just like to add you know I mean, we're we're having no customer dispute us on these price increases or anything and you know.
Catherine killer: Obviously, we're we're disappointed that it didn't show up in the trade publication as I mentioned earlier and you know right now we have customers that are incredibly frustrated with the with the mechanism right now and feel that there is a feel that there's a disconnect between what they see going on in the market and what's being reported now.
Catherine killer: Maybe some of that is because the outside market has shrunk. So so severely that are that it's quite small now and.
Catherine killer: And you know, we don't want to we don't want the tailwind and the dog here, but.
Mark Wilde: It's it's a you know we've got customers now both on the liner and the box side that are asking us to look for alternatives and we'll be exploring any and all alternatives going forward, including maybe not even using an index but.
Mark Wilde: I will will kind of give you. Some we'll give you some color on that going forward as that progresses, but.
Mark Wilde: I just wanted to I just wanted to make you aware of.
Mark Wilde: Or where are where our customer base is in and how they feel about certain things at the moment.
Mark Wilde: Okay I appreciate that color and then in terms of production was the cost of production for Q, where you had anticipated it and packaging I know you commented that you had lower operating and converting costs year over year, but just interested if there were any items that were higher than you expected kind of in there.
Mark Wilde: And as you look out for the rest of <unk> any kind of cost items reliance that that might give you pause I know your comment that the fiber and energy in cabinets, but since shut down those items.
Bob: Yeah. This is Bob I would just say relative to <unk>, maybe you know OCC prices that that was probably a little higher than what we had what we had baked in but maybe there were some other fixed type costs around some services in.
Bob: Equipment rentals I'm outside things like that maybe just a touch higher but.
All in it was certainly a very good quarter from a from a cost perspective relative to what we had guided to.
Bob: As far as the first the first go into the first quarter from the fourth.
Bob: There are some moving parts there and some of them are just you know not what we normally see obviously, we pointed out the the big significant change that we're being impacted by relative to the Jackson conversion, which as you know on a sequential basis as 16 cents per share.
Bob: But outside of that if you look at all of our other costs you know theres, probably 60% of our so we're those are what we call seasonal or our timing type cost increases you know those who would be weather related which are actually a little more severe going <unk>. This year because of so much cold weather down in the southern mills and the box plants, which.
Bob: Typically we don't see much of a change relative to usages and things that get impacted by cold weather down there.
And then you know the wages and benefits you know.
Bob: The base that base gets larger every year, you never have deflation with your wages and benefits.
Bob: So the annual increases that we experienced going from <unk> to start a new year in <unk>, you don't just gets higher and higher than the dollar impact of that plus this year, you know our medical costs alone.
Bob: They were up probably you know over time towards 12% to 15%.
Bob: However, on a sequential basis, the weather related items should flip back the other way as we move from <unk> in two to three mm eschewed about half of the.
Bob: Those wage related timing items those start to flip back the other way on a on a sequential basis. So you have to sort of keep that in mind going forward.
Bob: You know, what let's say the balance of you know.
Bob: Well I guess, one other item as we talked about bringing <unk> on.
In the first quarter and taking Jackson down so, we're replacing low cost tons with very high cost tons.
Bob: That's a that's probably got 10 cent hit in and of itself right. There exclusive of the outage impact that 16 cents.
Bob: And then the balance of that is just inflation related things that.
Bob: Get talked about a lot.
Bob: For all of these cost increases we incur believe me anyone who's who provides a part a good a product or service to us they're experiencing those same increases so theres a lot of outside.
Bob: Outside services equipment rentals rents property taxes.
Bob: You can go on and on and on all of that is it's a lot of money that we have to absorb.
Bob: Especially on up you see it mostly in a sequential and a consequential in Asia going from <unk>. So I hope that gives you a little color about whats in those what's in those numbers for the for our guidance.
Bob: Great. Thanks for the detail.
Bob: Next question please.
Bob: Our next question comes from Gabrielle Haidee from Wells Fargo. Please go ahead with your question.
Bob: Mark.
Mark: Good morning, Thanks for taking the question.
Mark: Good morning, guys good morning.
Gabrielle Haidee: I wanted to ask a little bit on the demand side.
Gabrielle Haidee: Historically speaking you guys have had done a good job of kind of outperforming industry or even exceeding that you know kind of a GDP type growth.
Gabrielle Haidee: But this quarter was was seemingly pretty pronounced relative to what we're reading maybe on the green markets report or re see but I'm just curious.
If theres anything that you can talk about it and I know historically you guys haven't talked about like a vitality index or something like that but just maybe new business wins that you all are excited about or <unk>.
Gabrielle Haidee: Change the incentive structure for your sales folks to go out and.
Jamie Smith: Win new business.
Jamie Smith: Gabe.
Mark Wilde: The majority of our increase in volume came from our existing customers are you know as we've as we've said many many times I mean, you know that's our that's our main growth engine and we've tried to align with the right kind of customers who over the long haul will grow and I think that's been a big that's been a big plus for US are are we.
Gabrielle Haidee: Winning any new business, yes, we win some we win some new business. Some other business goes the other way. It's a you know in the over over the over time you know we we we do come out we do come out ahead, but you know as you mentioned I mean, historically, we have outperformed the industry and we plan to do so going forward, but we did lag.
<unk> you know as you probably know you know for a number of quarters over the last couple of years there were times, when we did lag and it's.
Mark Wilde: It's because of some of the segments that we were in and I mentioned before you know as a as an example, I mean building products went crazy during during Covid and then suddenly that came to a screeching halt and so some of those segments that were in did hold us back, but but theyre coming back now nicely and that's a big part of our growth.
Mark Wilde: Okay. Thank you and then maybe two questions on the Jackson conversion it sounds like.
Speaker Change: I know, sometimes but they're not always directly linked in terms of when the costs flow through and the guidance that you gave us Bob in terms of the.
Speaker Change: 26 cents in the 16th.
Bob: But it is that happening throttling.
Bob: In March April from a timing standpoint.
Bob: And then I'll ask a question I don't know if you guys will answer but.
Bob: On a sequential basis, if the $70 and $100 a ton is going through.
Bob: And by our math, that's you know to your point, Mark maybe $25 a tonne is being reflected in Q1.
Mark Weintraub: And is it fair that the extra $50 a ton incrementals should be on a sequential basis embedded into the second quarter. Thank you.
Mark Weintraub: Yes.
Mark Weintraub: Yeah.
Mark Weintraub: Okay.
Mark Weintraub: Okay.
Mark Weintraub: Yeah.
Mark Weintraub: Okay.
Mark Weintraub: Yes.
Mark Weintraub: Yes.
Mark Weintraub: As far as the 20 dollar.
Mark Weintraub: Yes.
Mark Weintraub: Yes.
Mark Weintraub: Well we.
Mark Weintraub: Sure.
Mark Weintraub: Okay.
Mark Weintraub: Yes.
Right well, we are and then you know we're in the midst of discussing all of that with our customers, especially on the box side and what the role of the rule. They etcetera. So as I mentioned, we've got the we got the increase in place for the for Linerboard and medium and we'll see where we will see where things roll through but we expect it to be a traditional roll through.
Mark Weintraub: Thank you.
Mark Weintraub: Thank you next question please.
Mark Weintraub: Our next question comes from Anthony Pettinari from Citi. Please go ahead with your question.
Mark Weintraub: Hi, good morning.
Anthony Pettinari: Good morning, Anthony.
Anthony Pettinari: Following up on your earlier comments I'm wondering is there some percentage of your box contracts that are not on pulp and paper weak and I guess looking at other paper grades there were some box board producers, who didn't feel like the index was really reflecting what was really happening in the market.
Anthony Pettinari: And they were able to move some customers off of pulp and paper week is that something that you potentially could do or you think some customers might welcome I'm. Just wondering if you you know to the extent you can discuss.
How do you think about that.
Anthony Pettinari: Well Anthony as I mentioned I mean, we you know we do have a high level of frustration both with customers both on the liner and on the box side with with pulp and paper and feel that there's a disconnect there to what they see in the market and what's being reported as I've said for for a number of years now as this IND.
Dependent market continues to shrink and what what we really considered to be a real open market gets into the mid single digits.
Anthony Pettinari: You know it and if that's all that's being reported on that becomes that becomes quite a.
Anthony Pettinari: Ken can cause that that disconnect in my opinion, so our customers have asked us to look at a lot of different alternatives, which we are going which we are doing along with them and you.
Anthony Pettinari: You know, we'll we'll see we'll see where we end up have we moved some people off of that we don't really like to get into those kind of details just because that's between us and our customers. So I'll leave I'll leave that I'll leave that one you know as aside because we're not going to really get into those discussions other than I. Just will tell you we are looking at.
Anthony Pettinari: And all our targets.
Anthony Pettinari: Okay, that's very helpful.
Anthony Pettinari: And then just switching gears on the Capex guidance for 'twenty four I think you said $470 to $490 million Capex is it possible to break that down between maintenance and discretionary and then Jackson.
Anthony Pettinari: And is there any kind of finer point.
Anthony Pettinari: In terms of the run rate capacity add.
Anthony Pettinari: From Jackson when that conversion is completed.
Mark Wilde: Yeah as far as I would say you know Jackson will be $30 million to $40 million of that amount.
Mark Wilde: The balance I would I'd say, 65% or so would be sort of that non discretionary must do type maintenance type type capital spending.
Mark Wilde: And Mark you talked about I mean, we're probably spending are probably close to $250 million just in the box plants alone this year yeah.
Mark Wilde: And that's all of the.
Mark Wilde: 30 strategic project, we're working on the box plants and building the new plant out in Salt Lake City, and finishing that up and then the the rest will be just in the smaller one off projects in the mills and then obviously we've got the <unk>.
Mark: The maintenance type capital that goes on but the bulk of its quite frankly, the bulk of it's in the box plants.
Mark Wilde: And then finish up the the Jackson conversion.
Mark Wilde: Okay and is there a final number on the Jackson capacity add in terms of how much how many tons that you would expect to have to add when it is completed.
Mark Wilde: You know the machine certainly ought to be able to add approximately 175000 to 200000 more incremental tons a year when we're done with this phase work.
Mark Wilde: I believe the number for 2020 Three's production off that machine with somewhere around 537000 tons of production for 2023.
Mark Wilde: So if you add two.
Mark Wilde: 200000 more tons of that Europe in that 700000 tons capability, but again it all depends on our demand right and so we're going to run to demand as we always have but that's that's.
Mark Wilde: The.
Mark Wilde: Necessity runway of being able to build this runway that our customers can depend on and they'll they know they can grow with us and we can supply them the.
Mark Wilde: The product and the value they need and so the the Jackson machine is going to have that capability to ramp up and ramp down and provide all the grades we need at an incredibly attractive cost position.
Mark Wilde: Got it got it I'll turn it over.
Mark Wilde: Okay next question please.
Mark Wilde: Our next question comes from Phil <unk> from Jefferies. Please go ahead with your question Hey.
Mark Wilde: Hey, guys congrats on a really strong quarter.
Philip Ng: As your business is relatively a shorter cycle business, but it certainly seemed pretty confident on the demand outlook for the first half with capacity you bring back online what are your customers telling or are there any pockets of end markets that really stand out where you're seeing demand kind of bounce back in a bigger way and are you seeing any restocking after.
Philip Ng: Years worth of Destocking effectively.
Phil: Phil I think the the demand outlook, obviously remains good it's pretty much across the board. There's no. There's no one industry that stands out more than the other other than may be e-commerce.
Philip Ng: Because you still see the you know the brick and mortar stores continue to struggle a little bit, but that's more than offset by the e-commerce side of the business.
Philip Ng: So that so that that remains quite good and I.
Philip Ng: I think you know.
Philip Ng: During it relative to restocking I would say that the restocking has been quite conservative to date I you know nobody nobody jumped up and said I'm going back to where I was drink during COVID-19 or anything like that they're trying to be reasonably conservative going forward and.
So I think we saw a little bit we probably saw a little bit of a jump as a result of that but but not nothing like nothing like we saw on the Destocking side.
Philip Ng: Okay. That's that's helpful and then.
Philip Ng: I guess a question for Bob if I look at your last two quarters, our operational and converting costs were down pretty sharply which is impressive.
Prices, especially with a little to come back on you know pushing the first half that youre going to have some outage expensive Jackson, but some of the gains you saw in the back half is that pretty sticky and that's still to come and I know you guys talked about all these different projects you guys are working on the box out of things to kind of help us think through that.
Bob: That driver potentially good or bad this year.
Bob: I'm sorry, what did you say was sticky feel I didnt catch that part the operational and converting costs that came down pretty nicely in the back half of 2023.
Bob: Right.
Bob: I'm just trying to gauge.
Bob: Should we expect a follow through in 2020, four, especially with some of the investments you're making on the box plants is that a good guy as well.
Bob: Oh, no absolutely I mean.
Bob: As we've said many times that that never stops.
Bob: It's not just capital projects.
Bob: Things that don't just changing our behavior of technique of a process you know it doesn't cost money comparing to others.
Bob: New things new technologies, new ideas and those thousands of those things are going on every year in that and that is really what drives those those reductions that we've talked about historically and that certainly will continue in the future. What wasn't good example of that and we don't talk about a lot.
Bob: Our transportation capability over the last decade, we built an incredibly strong transportation logistics group within the company and this nationwide now we've got a very very large fleet of tractors and trailers are running the country, taking care of not only containerboard, but a lot of our.
Bob: Packaging to the customer and so that capability of having our own Oh trucking.
Bob: You know in house has provided enormous flexibility and cost management on the transportation side of the equation. So that's just one example of.
Bob: How we go about looking at our business and then executing.
Mark Weintraub: Super I just one last one for me I think on the prepared remarks, you called it out one 1 billion of liquidity Mark you highlighted being balanced in terms of capital deployment any opportunities perhaps to play a little offense in a market that's a little more distress, especially some of the capacity. That's come on is that an opportunity you guys are obviously growing pretty nicely.
Mark Weintraub: And generally a ton of free cash flow here.
Mark Weintraub: And I'll, let you know when it happens.
That's the that's the beauty of having that firepower.
Mark Weintraub: Sounds good.
Mark Weintraub: We can not only continue to look at share buyback and dividends, but if if an opportunity comes up on a one off.
On the packaging side by our existing business.
Mark Weintraub: We can easily move into that if it's something on the mill side came up that we found attractive we can move into that and I'm not worried about how we finance it or how it affects the balance sheet and so the other thing I want to remind everybody that.
Mark Weintraub: Uh huh.
Mark Weintraub: When we called out the 2023s capital and the 2022 capital up over $800 million and we reminded everybody that the 2022 capital would be.
Mark Weintraub: Going down into a much more manageable level much more reasonable level in that $400 million range just keep in mind, we did that and we accomplished an incredible amount of high return projects and impact projects that benefit our customers.
Mark Weintraub: <unk> and our shareholders alike, but also this year, we continued that trend or the 400 million range of high return high impact projects affords us again, an incredible opportunity with the balance sheet, because all of that that operating cash that we're generating goes into free cash.
Mark Weintraub: Can be deployed appropriately and so we're in a very good place over the last 10 years, we've done all the heavy lifting to get the mills and the box plants and in very very efficient condition and so now it's much more manageable about how we go about.
Mark Weintraub: With these these projects and so with the fact that we have the internal capability with the engineering and technology organization to manage the bulk of all this work.
Mark Weintraub: Where we're in a much better position than we've ever been and we'll continue that but again all optionality is open for us on how we look at the world.
Mark Weintraub: Okay I appreciate that.
Mark Weintraub: Thank you your next question.
Mark Weintraub: Our next question is a follow up from Mark Weintraub from Seaport Research partners. Please go with your follow up.
Mark Weintraub: Thank you. So can you share with us the types of alternatives on pricing structures that that might be contemplated would they be more cost tied would they be more macro or data tide would it be more just going in and negotiating with.
Mark Weintraub: Counterparties, some combination or any color as to kind of where the bias might be from from your perspective.
Mark Weintraub: Mark It's nice that you're taught you you're thinking about it and and I. Appreciate all your options that you just presented but I'm not going to get into that at all because as I told you before that's between us and our customers and we'll work those out as we as we go forward. So I am sorry, I can't I can't give you anything but that's the that's the way we do business.
Mark Weintraub: Totally understood that but is there anything that I may be may have been missing that would have been in the list recognizing there's going to be a whole bunch of things that youre going to be talking about with your customers that you got nice try nice try but I've got ditto again, okay. Yeah I did.
Mark Weintraub: And then.
Mark Weintraub: Yeah.
Mark Weintraub: Bob You had mentioned about 60% of the cost increase you know from 14, <unk> seasonal or timing could you sort of put a number on that would that be like 20 cents per share and if we were just that how about 6% come back in the second quarter.
No Mark Hurd that'd be it would be closer to 30.
Mark Weintraub: <unk> 35, maybe a little more for sure right. Okay. Thanks, so much.
Mark Hurd: Okay. Thank you Mark any any other questions. Please.
Mark Hurd: Once again, if he would like to ask a question. Please press star and then one to withdraw your question you May Press Star and two once again that is star and then one to join the question queue. Our next question is also a follow up from.
Mark Hurd: Every all Hayden.
Mark Hurd: From Wells Fargo. Please go with your follow up.
Mark Hurd: Tom Mark I'm going to try one more time, so I apologize in advance, but it's more trying to understand the thought process and.
Mark Hurd: And I think the price discovery process that we've seen over the past 25 years.
Mark Hurd: What we're hearing is maybe it's not.
Mark Hurd: As.
Mark Hurd: As bulletproof or as useful as it maybe once was and so maybe really what we're hearing is something I think is misunderstood in the industry.
Mark Hurd: Is that you guys sell boxes that are made to affect that service our customers' needs.
Mark Hurd: As opposed to selling a customer a parent roll of paper and so is it fair that that maybe what's going on behind the scenes of the value that you're bringing to your customers is really what you're trying to understand and work with them to help them understand ultimately end.
Mark Hurd: Move the pricing structure to something like that.
Mark Hurd: Well gave you described it very well I got to be honest with you. There is a there is a linerboard or medium market and then there's and then there's a box market in the box market is you know all custom made a lots of different things go into it.
Mark Hurd: And and Theres, a and Theres a value created accordingly.
Mark Hurd: No.
Mark Hurd: You know you are as I've said before I'm not going to get into all the optionality and all those other sorts of things those things, we will discuss with our with our customers, but you do describe it accurately I think especially from our customers' point of view that what you're what gets reported is quite different than what they see in the marketplace. So just as an exam.
Mark Hurd: I mean, even when the prices went down.
Mark Hurd: Over the past 18 months or so there isn't there isn't a customer who said I I see that there's a need for that or or that are that they saw that in the marketplace.
Mark Hurd: So we've got what we're hearing from our customers is very different than what gets that's what's getting published and that disconnect. We've got it we've got to figure out how to how to.
Mark Weintraub: Solve that disconnect I guess is probably the best way to put it.
Mark Weintraub: Very much appreciate it thank you and good luck.
Mark Weintraub: Thank you. Thank you any other questions Jamie.
Mark Weintraub: Our next question comes from Charlie Muir Sands from BNP pair of off. Please go ahead with your question.
Mark Weintraub: Hi, Good morning, gentlemen, thank you for very much for all the good answer so far is given.
Mark Weintraub: A lot to think about just had one question on the Jackson mill, you've obviously very helpful. Quantified the temporary cost drag we should expect in Q1 and Q2, but can you just talk about the cost benefit that we should see from the no. Once it fully ramps up and you know, perhaps contextualize how much more efficiently.
Mark Weintraub: L as compared with the rest of your network.
Mark Weintraub: Yeah, you know we talked about this for the last couple of years and that when we're done with all of this work because the the work that's going on it will start next month and then finish up it's about a 58 day outage at the mill, but it involves more than just the paper machine.
Mark Wilde: To get it in and of itself has a lot of work with dryer cans real.
Mark Wilde: The press section rebuild but it's also power plant work, we're going to be Reconfiguring, a lot of the power plant steam flows 16 pressures will be ultimately will be producing more megawatts off the power plant and the back end of the mill and providing more high pressure high higher efficient.
Mark Wilde: Steamed into the paper machine and so net net a little.
Mark Wilde: Mill when it's done.
Mark Wilde: We will have the capability to produce linerboard and be at or amongst our lowest cost in the system.
Mark Wilde: So if you think about valdosta, the reader and counts.
Mark Wilde: Jackson should be.
Mark Wilde: As good or better quite frankly than and counts in deridder, and probably give valdosta a run for its money. So so the huge opportunity is in the a and the cost savings as we go forward that will flow through in the future of you want to hear that yeah, Charlie and you know what.
Mark Wilde: Marc is describing have you sort of quantify that you know, we're looking at somewhere between $35 $40 a ton.
Once all of that work is completed and that machine is fully fully operational.
Mark Wilde: Many thanks.
Mark Wilde: Thank you.
Mark Wilde: Any other questions. Please.
Speaker Change: And we have an additional question from Richard work from Bloomberg Intelligence. Please go ahead with your question.
Richard Work: Thank you for taking the time to answer my questions gentlemen, I was just wondering with your announced price increase.
Richard Work: To be effective January 1st if you maybe saw some demand get pull forward into the fourth quarter by customers attempting to get price.
Richard Work: Price increase.
Richard Work: No we did not see that Richard.
Richard Work: Okay. Thank you.
Richard Work: Thank you.
Richard Work: Any other follow up questions Jamie.
Richard Work: Oh I'm sorry at this time I'm showing no additional questions.
Richard Work: Alright, why don't we go ahead and conclude this.
Richard Work: There are no questions I'd like to thank everybody for joining us on the call and we look forward to talking with you in April.
Richard Work: Thank you everybody have a good day.
Richard Work: Ladies and gentlemen, with that we'll conclude today's conference call and presentation. We thank you for joining you may now disconnect your lines.