01—Abstract
Summary
Summary of the 10-K filed February 26, 2020. Cited figures are marked; the original filing is the authoritative source.
Packaging Corporation of America (PCA) reported 2019 net sales of $6.96 billiona, down from $7.01 billion in 2018, and net income of $696 million, or $7.34 per diluted share, compared with $738 million, or $7.80 per diluted share, in 2018.
Excluding special items, net income was $726 millionb, or $7.65 per diluted share, versus $760 million, or $8.03 per diluted share, in 2018. Management attributed the decline primarily to lower Packaging prices and mix and higher operating and converting costs, partly offset by higher Packaging volumes and higher Paper prices and mix. The Packaging segment, which generated $5.93 billion of sales, saw segment income from operations fall to $963 million from $1,045 million, while the Paper segment's income rose to $175 million from $98 million on higher paper prices and mix.
Cash from operating activities increased to $1.21 billionc from $1.18 billion. The company spent $400 million on capital investments, paid $299 million in common dividends, and refinanced $900 million of senior notes in November 2019. Total debt was $2.5 billion, all at fixed rates, with $329.2 million undrawn under the revolving credit facility.
The outlook for the first quarter of 2020 points to lower containerboard prices, scheduled maintenance outages at three of the largest mills, and higher expenses, and management expects first-quarter 2020 earnings to be lower than fourth-quarter 2019. Office Depot, the largest Paper segment customer, accounted for 50%d of Paper segment sales and 7% of consolidated sales in 2019, and its supply agreement now runs through December 31, 2022.
02—Key points
Key Highlights
- Net sales were $6,964.3 million in 2019, down from $7,014.6 million in 2018.
- Net income was $696.4 million, or $7.34 per diluted share, versus $738.0 million, or $7.80 per diluted share, in 2018.
- Excluding special items, diluted EPS was $7.65 in 2019 compared with $8.03 in 2018.
- Packaging segment income from operations fell to $963.4 million from $1,045.4 million, while Paper segment income rose to $175.4 million from $97.7 million.
- Net cash provided by operating activities was $1,207.4 million; capital expenditures were $399.5 million, and dividends paid totaled $298.7 million.
- Long-term debt totaled $2.5 billion at fixed rates, and the company refinanced $900 million of senior notes in November 2019 with a $38.7 million related charge.
- Management expects first-quarter 2020 earnings to be lower than fourth-quarter 2019, citing lower containerboard prices and scheduled mill maintenance outages.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2019, Packaging Corp. of America kept $0.10.
- Revenue$6.96B100.0%
- Cost of revenue−$5.32B76.4%
- Gross profit$1.64B23.6%
- Operating costs−$590.3M8.5%
- Operating income$1.05B15.1%
- Interest, other & tax−$357.3M5.1%
- Net income$696.4M10.0%
Where FY2019 revenue went
$6.96B- Cost of revenue: $5.32B, 76% of revenue
- Net income: $696.4M, 10.0% of revenue
- R&D: $16.0M, 0.2% of revenue
- SG&A: $557.6M, 8.0% of revenue
- Interest, other & tax: $357.3M, 5.1% of revenue
Kept 10.0% as net incomeNet income $696.4M · 10.0%R&D $16.0M · 0.2%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2019filed February 26, 2020Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $6.96B$7.01B | −0.7% |
| Cost of Revenue | $5.32B$5.37B | −0.9% |
| Gross Profit | $1.64B$1.65B | −0.1% |
| R&D Expenses | $16.00M$14.40M | +11.1% |
| SG&A Expenses | $557.60M$536.40M | +4.0% |
| Operating Income | $1.05B$1.07B | −1.3% |
| Net Income | $696.40M$738.00M | −5.6% |
| EPS (Basic) | $7.36$7.82 | −5.9% |
| EPS (Diluted) | $7.34$7.80 | −5.9% |
| Shares Outstanding (Basic) | 93.80M93.70M | +0.1% |
| Shares Outstanding (Diluted) | 94.10M93.90M | +0.2% |
05—Questions
Frequently Asked Questions
Why did earnings decline in 2019?
Management attributed the decline primarily to lower prices and mix in the Packaging segment, lower Paper segment volumes, and higher operating and converting costs. These were partly offset by higher Packaging volumes, higher Paper prices and mix, lower annual outage expense, and lower freight and logistics expenses.
How concentrated is the Paper segment's customer base?
Office Depot, Inc. is the largest Paper segment customer, representing 50% of Paper segment sales revenue and 7% of consolidated sales revenue in 2019. Effective January 1, 2020, the company has a revised agreement to supply office papers to Office Depot through December 31, 2022, with no minimum volume commitment.
What is the company's debt and liquidity position?
At December 31, 2019, the company had $2.5 billion of fixed-rate senior notes outstanding and $329.2 million of unused revolving credit capacity after letters of credit. It ended the year with $679.5 million of cash and cash equivalents and $145.9 million of marketable debt securities, and management believes these sources are adequate for its liquidity needs.
What are the main outlook items for 2020?
For the first quarter of 2020, the company expects lower Packaging prices following published containerboard price decreases, four scheduled maintenance outages versus one in the fourth quarter of 2019, higher freight and labor costs, and higher corrugated shipments. The company expects 2020 capital investments between $400 million and $425 million.
06—Continue