01—Abstract
Summary
Summary of the 10-K filed February 28, 2019. Cited figures are marked; the original filing is the authoritative source.
Packaging Corporation of America (PCA) reported net sales of $7.01 billiona for 2018, up from $6.44 billion in 2017, and net income of $738 million, or $7.80 per diluted share, compared with $669 million, or $7.07 per diluted share, in 2017.
Excluding special items, net income was $760 millionb, or $8.03 per diluted share, versus $569 million, or $6.02 per diluted share, in 2017. The company attributed the increase primarily to higher Packaging segment prices and mix and volumes, higher Paper segment prices and mix, lower taxes, and lower wood and recycled fiber costs, partly offset by higher operating and converting costs, freight and logistics expenses, and annual outage expense. Packaging segment income from operations rose to $1,045 million in 2018 from $950 million in 2017, while Paper segment income rose to $98 million from $54 million.
Operating cash flow was $1,180 millionc in 2018 versus $856 million in 2017. Capital expenditures for property and equipment were $551 million in 2018, and the company expects 2019 capital investments of $390 million to $410 million. Total debt outstanding was $2.5 billion at year-end, all fixed-rate senior notes, and the company paid $268 million in dividends in 2018.
The filing also highlights concentration and operational risks. Office Depot represented 47%d of Paper segment sales and 7% of consolidated sales in 2018, and its supply agreement runs through December 2019. The company expects first-quarter 2019 earnings excluding special items to be lower than fourth-quarter 2018, citing higher labor and benefit costs, inflation in chemicals and repairs, and a higher tax rate.
02—Key points
Key Highlights
- Net sales rose to $7.01 billion in 2018 from $6.44 billion in 2017; Packaging segment sales were $5.94 billion.
- Reported net income was $738 million ($7.80 per diluted share), up from $669 million ($7.07 per diluted share) in 2017; excluding special items, EPS was $8.03 versus $6.02.
- Packaging segment income from operations increased to $1,045 million from $950 million, driven by higher containerboard and corrugated prices and mix and higher volumes.
- Paper segment income from operations increased to $98 million from $54 million, primarily due to higher paper prices and mix and lower operating costs.
- Operating cash flow was $1,180 million in 2018 versus $856 million in 2017; capital expenditures were $551 million, with 2019 capital investments expected at $390 million to $410 million.
- Total debt was $2.5 billion at December 31, 2018, all fixed-rate senior notes; $326.9 million was undrawn under the revolving credit facility.
- Office Depot accounted for 47% of Paper segment sales and 7% of consolidated sales in 2018; the supply agreement requires at least 50% of its commodity office paper requirements through December 2019.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2018, Packaging Corp. of America kept $0.11.
- Revenue$7.01B100.0%
- Cost of revenue−$5.37B76.5%
- Gross profit$1.65B23.5%
- Operating costs−$577.6M8.2%
- Operating income$1.07B15.2%
- Interest, other & tax−$329.7M4.7%
- Net income$738.0M10.5%
Where FY2018 revenue went
$7.01B- Cost of revenue: $5.37B, 77% of revenue
- Net income: $738.0M, 11% of revenue
- R&D: $14.4M, 0.2% of revenue
- SG&A: $536.4M, 7.6% of revenue
- Interest, other & tax: $329.7M, 4.7% of revenue
Kept 11% as net incomeNet income $738.0M · 11%R&D $14.4M · 0.2%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2018filed February 28, 2019Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $7.01B$6.44B | +8.8% |
| Cost of Revenue | $5.37B$4.97B | +8.0% |
| Gross Profit | $1.65B$1.47B | +11.9% |
| R&D Expenses | $14.40M$12.80M | +12.5% |
| SG&A Expenses | $536.40M$519.90M | +3.2% |
| Operating Income | $1.07B$932.50M | +14.5% |
| Net Income | $738.00M$668.60M | +10.4% |
| EPS (Basic) | $7.82$7.09 | +10.3% |
| EPS (Diluted) | $7.80$7.07 | +10.3% |
| Shares Outstanding (Basic) | 93.70M93.50M | +0.2% |
| Shares Outstanding (Diluted) | 93.90M93.70M | +0.2% |
05—Questions
Frequently Asked Questions
How did Packaging Corporation of America perform financially in 2018?
Net sales were $7.01 billion, up from $6.44 billion in 2017. Net income was $738 million, or $7.80 per diluted share, compared with $669 million, or $7.07 per diluted share, in 2017. Excluding special items, net income was $760 million, or $8.03 per diluted share.
What drove the improvement in results?
The filing attributes the increase primarily to higher Packaging segment prices and mix and sales and production volumes, higher Paper segment prices and mix, lower taxes, and lower wood and recycled fiber costs. These were partly offset by higher operating and converting costs, higher freight and logistics expenses, and higher annual outage expense.
How much debt does the company carry and what are its near-term maturities?
Total debt was $2.5 billion at December 31, 2018, all fixed-rate senior notes. The filing states no principal maturities in 2019, $500.0 million in 2020, and $400.0 million in 2022. The company had $326.9 million of unused revolving credit capacity after letters of credit.
What does the outlook say for early 2019?
The company expects continued strong demand in Packaging and strong market conditions in Paper. It expects first-quarter 2019 earnings excluding special items to be lower than fourth-quarter 2018, citing higher labor and benefits costs, inflation in chemicals and repair materials, and a slightly higher tax rate.
What are the main customer concentration risks?
Office Depot represented 47% of Paper segment sales and 7% of consolidated sales in 2018. The supply agreement runs through December 2019, and certain circumstances could cause it to terminate in 2019, with purchase obligations phasing out over two years if so.
06—Continue