01—Abstract
Summary
Summary of the 10-K filed February 27, 2015. Cited figures are marked; the original filing is the authoritative source.
Packaging Corporation of America (PCA) reported record 2014 net sales of $5,852.6 milliona, up 59.7% from $3,665.3 million in 2013, driven mainly by a full year of the Boise Inc. acquisition completed October 25, 2013 for $2.1 billion including assumed debt.
Net income was $392.6 millionb, or $3.99 per diluted share, compared with $441.3 million, or $4.52 per share, in 2013. Excluding special items, the company reported net income of $458.6 million, or a record $4.66 per diluted share, versus $325.2 million and $3.33 per share in 2013. Special items in 2014 included $65.8 million tied to the DeRidder mill restructuring, $19.9 million of Boise integration and other costs, and $17.6 million for a class action settlement.
The 2013 result was helped by $166.0 millionc of income tax benefits from the reversal of alternative energy tax credit reserves. Segment results show Packaging income of $663.2 million (up from $554.2 million) and Paper income of $135.4 million (up from $13.5 million, reflecting only about two months of ownership in 2013). Operating cash flow was $736.1 million, capital expenditures were $420.2 million, and cash dividends paid totaled $157.4 million.
Long-term debt was $2.3 billiond at year end, with a $350.0 million revolver undrawn. The company announced a dividend increase from $1.60 to $2.20 per share annually, with the first $0.55 quarterly payment set for April 2015.
Investors should note concentration risk in the Paper segment: Office Depot (including OfficeMax) represented 44% of Paper segment sales in 2014, and Office Depot had agreed to be acquired by Staples. The outlook for first-quarter 2015 calls for lower earnings than fourth quarter 2014 due to maintenance outages at Counce and DeRidder and seasonally weaker conditions.
02—Key points
Key Highlights
- Net sales rose 59.7% to a record $5,852.6 million in 2014, reflecting a full year of Boise operations versus about two months in 2013.
- Net income was $392.6 million, or $3.99 per diluted share; excluding special items, EPS was a record $4.66 versus $3.33 in 2013.
- Packaging segment income increased to $663.2 million from $554.2 million, while Paper segment income rose to $135.4 million from $13.5 million.
- Special items in 2014 totaled $103.3 million pre-tax, including $65.8 million for DeRidder restructuring and $17.6 million for a class action settlement.
- Operating cash flow was $736.1 million and capital expenditures were $420.2 million; 2015 capital investments are expected between $275.0 million and $300.0 million.
- The quarterly dividend was increased to an annual rate of $2.20 per share from $1.60, with the first $0.55 payment on April 15, 2015.
- Office Depot (including OfficeMax) accounted for 44% of Paper segment sales in 2014, and Office Depot has agreed to be acquired by Staples, Inc.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2014, Packaging Corp. of America kept $0.07.
- Revenue$5.85B100.0%
- Cost of revenue−$4.62B79.0%
- Gross profit$1.23B21.0%
- Operating costs−$526.8M9.0%
- Operating income$702.7M12.0%
- Interest, other & tax−$310.1M5.3%
- Net income$392.6M6.7%
Where FY2014 revenue went
$5.85B- Cost of revenue: $4.62B, 79% of revenue
- Net income: $392.6M, 6.7% of revenue
- R&D: $12.3M, 0.2% of revenue
- SG&A: $469.5M, 8.0% of revenue
- Other operating costs: $45.0M, 0.8% of revenue
- Interest, other & tax: $310.1M, 5.3% of revenue
Kept 6.7% as net incomeNet income $392.6M · 6.7%R&D $12.3M · 0.2%Other operating costs $45.0M · 0.8%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2014filed February 27, 2015Financial Statements
FY2014 against FY2013
| Line item | FY2014FY2013 | Change |
|---|---|---|
| Revenue | $5.85B$3.67B | +59.7% |
| Cost of Revenue | $4.62B$2.80B | +65.2% |
| Gross Profit | $1.23B$867.50M | +41.7% |
| R&D Expenses | $12.30M$11.50M | +7.0% |
| SG&A Expenses | $469.50M$326.60M | +43.8% |
| Operating Income | $702.70M$481.90M | +45.8% |
| Net Income | $392.60M$441.30M | −11.0% |
| EPS (Basic) | $3.99$4.57 | −12.7% |
| EPS (Diluted) | $3.99$4.52 | −11.7% |
| Shares Outstanding (Basic) | 97.00M96.60M | +0.4% |
| Shares Outstanding (Diluted) | 97.10M97.50M | −0.4% |
05—Questions
Frequently Asked Questions
How did the Boise acquisition affect PCA's 2014 results?
The filing states that 2014 net sales increased $2,187.3 million, of which $1,962.8 million reflected a full year of Boise operations compared with only two months and five days in 2013. Packaging segment sales rose by $878.7 million from the full-year Boise contribution. The company described the acquisition as significantly accretive to earnings before special items, aided by synergies.
What drove the decline in reported net income from 2013 to 2014?
Reported net income fell to $392.6 million from $441.3 million mainly because 2013 included $166.0 million of income tax benefits from the reversal of alternative energy tax credit reserves. In 2014, results included $103.3 million of pre-tax special expenses, including DeRidder restructuring, integration costs, and a class action settlement.
What are the main risks tied to the Paper segment's customer base?
The filing states that Office Depot (including OfficeMax) represented 44% of Paper segment sales in 2014 and that the supply agreement requires at least 80% of OfficeMax's office paper requirements through December 2017, subject to early termination circumstances. Office Depot has agreed to be acquired by Staples, and the filing says the company cannot predict how that transaction will affect purchasing decisions, which could affect sales volumes and pricing.
What is the company's outlook for the first quarter of 2015?
The filing states that PCA expects lost containerboard production of about 60,000 tons and higher operating costs from annual maintenance outages at Counce and DeRidder, along with two fewer production days than in the fourth quarter of 2014. Seasonally lower corrugated shipments, lower white paper prices, and higher wood, energy, and chemical costs are also expected. As a result, first-quarter 2015 earnings excluding special items are expected to be lower than fourth-quarter 2014.
How much debt does PCA carry and what liquidity does it have?
At December 31, 2014, the company had $2.3 billion of long-term debt outstanding and $124.9 million of cash. It had $325.1 million of unused borrowing capacity under its revolving credit facility, net of letters of credit. The filing states that about 70% of its debt bears fixed interest rates, and a one percent rise in variable rates would increase interest expense by $7.1 million annually.
06—Continue