01—Abstract
Summary
Summary of the 10-K filed February 20, 2008. Cited figures are marked; the original filing is the authoritative source.
Packaging Corporation of America (PCA) is the sixth largest producer of containerboard and corrugated products in the United States by production capacity.
In 2007 it reported net sales of $2.3 billiona (up $129.0 million, or 5.9%, from 2006), net income of $170.1 million (diluted EPS $1.61, versus $1.20 in 2006), and produced about 2.4 million tons of containerboard and shipped 31.2 billion square feet of corrugated products. The improvement was driven mainly by higher containerboard and corrugated product prices, partially offset by higher recycled fiber, labor, benefit and transportation costs. Income from operations rose $67.6 million, or 29.9%, to $293.5 million.
The company operates four containerboard mills, 67 corrugated manufacturing operations and about 8,350 employees, with roughly 75% of hourly employees unionized. Cash from operations rose to $300.1 millionb, and the company ended 2007 with $228.1 million in cash and cash equivalents against $677.2 million of total debt. Management expects first-quarter 2008 earnings to be lower than fourth-quarter 2007 diluted EPS of $0.42, due to planned mill maintenance outages and seasonally higher energy and fiber costs.
The company also raised its quarterly dividend to $0.30c per share and authorized a new $150 million share repurchase program. The $150.0 million receivables facility and $400.0 million of 5¾% notes due 2013 remain key financing elements, and the $150 million 4⅜% notes due August 2008 are slated for refinancing.
02—Key points
Key Highlights
- Net sales of $2,316.0 million in 2007, up 5.9% from $2,187.0 million in 2006, driven mainly by higher sales prices for corrugated products and containerboard.
- Net income of $170.1 million, or $1.61 per diluted share, compared with $125.0 million, or $1.20 per diluted share, in 2006.
- Income from operations increased 29.9% to $293.5 million; gross margin rose to 22.7% of net sales from 20.3%.
- Containerboard export shipments set a record, 25.1% above 2006; external containerboard sales volume rose 12.3% to 541,000 tons.
- Recycled fiber costs averaged about 56% above 2006 levels, a key cost headwind; an October 2007 unplanned outage at the Counce mill cost $7.4 million.
- Quarterly dividend raised to $0.30 per share from $0.25; $100 million buyback completed in 2007 and a new $150 million program authorized in October 2007.
- Refinancing needs in 2008: a $20.0 million term loan, the $109.0 million receivables facility and $150.0 million of 4⅜% senior notes are due in 2008, with the company intending to refinance them.
03—Questions
Frequently Asked Questions
How did PCA's profitability change in 2007?
Net income rose to $170.1 million from $125.0 million, and diluted EPS rose to $1.61 from $1.20. Income from operations increased $67.6 million, or 29.9%, to $293.5 million, primarily from higher sales prices and volume ($120.1 million), partly offset by higher recycled fiber, wage, medical and transportation costs.
What is the outlook for the first quarter of 2008?
The company expects first-quarter 2008 earnings to be lower than fourth-quarter 2007 diluted EPS of $0.42, mainly due to planned maintenance outages at its Counce, Tennessee and Valdosta, Georgia linerboard mills, along with typically higher energy and fiber costs in colder weather and higher first-quarter benefit costs.
How much debt does PCA carry and when does it come due?
Total short- and long-term debt was $677.2 million at December 31, 2007. The term loan ($20.0 million) and the revolving credit facility mature in 2008, the receivables credit facility ($109.0 million outstanding) expires October 3, 2008, and the 4⅜% senior notes ($150.0 million) are due August 1, 2008. The 5¾% senior notes ($400.0 million) are due August 1, 2013. The company intends to refinance the 2008 maturities.
Is PCA returning cash to shareholders?
Yes. Dividends declared were $1.05 per share in 2007, and the quarterly dividend increased to $0.30 per share starting with the January 15, 2008 payment. PCA repurchased $30.5 million of stock in 2007, completed a $100 million program, and authorized a new $150 million program, of which $19.4 million had been used through December 31, 2007.
What are the main risks to PCA's earnings?
The filing cites containerboard price cyclicality from supply and demand imbalances, intense commodity-like competition, dependence on purchased wood and recycled fiber (recycled fiber costs rose 56% in 2007), energy price volatility, and the risk of material disruption at its mills. The company also notes it owns no timberlands, making it more exposed to wood fiber price changes than competitors that do.
04—Continue