How much exposure does PCA have to Office Depot?

In 2021, sales to Office Depot, Inc. represented 51% of the Paper segment's sales revenue and 4% of consolidated sales revenue. The current agreement runs through December 31, 2022, and if it is not renewed, Office Depot's purchase obligation would phase down over two years beginning January 1, 2023.

What is the company's debt position and liquidity?

At December 31, 2021, PCA had $2.5 billion of debt outstanding, all of it fixed-rate senior notes, and a $323.2 million undrawn revolving credit facility after letters of credit. Year-end cash and cash equivalents were $618.7 million, and total liquidity including revolver availability was $1.1 billion. In 2021 the company issued $700 million of 3.05% Senior Notes due 2051 and redeemed its $700 million 4.50% notes due 2023.

What are the main cost pressures and risks mentioned in the filing?

The filing cites cost inflation across labor and benefits, recycled fiber, energy, repairs, materials, supplies, and transportation, with higher fuel costs, tight rail supply, and truck and driver shortages. It states that a $10 per ton increase in recycled fiber would add approximately $8.6 million of expense based on 2021 consumption, and that a 1% increase in cost of sales and SG&A would increase costs by $64 million. Labor shortages related to the COVID-19 pandemic and the Omicron variant are also noted.

What does the company expect for early 2022?

For the first quarter of 2022, PCA expects higher corrugated products volume than in the fourth quarter of 2021 and has notified customers of a $70 per ton price increase for linerboard and corrugating grades, though it does not expect significant benefit during the quarter. Management expects first-quarter earnings, excluding special items, to be lower than fourth-quarter 2021 earnings because of continued cost inflation and seasonal energy and fiber costs.

PKG 10-K FY2021 Annual Report — Revenue, Net Income, EPS

Q: How did PCA's profitability change in 2021?

Net income rose to $841.1 million, or $8.83 per diluted share, from $461.0 million, or $4.84 per diluted share, in 2020. The increase was driven primarily by higher prices and mix in the Packaging and Paper segments and higher Packaging volumes, partially offset by higher operating and converting costs, higher annual outage expense, and higher freight and logistics expense.

01—Abstract

Summary

Summary of the 10-K filed February 24, 2022. Cited figures are marked; the original filing is the authoritative source.

Packaging Corporation of America (PCA) reported net sales of $7.73 billion^a for 2021, up from $6.66 billion in 2020, and net income of $841 million, or $8.83 per diluted share, compared with $461 million, or $4.84 per diluted share, in 2020.

Excluding special items, net income was $894 million^b, or $9.39 per diluted share, versus $550 million, or $5.78 per diluted share, in 2020. The filing attributes the increase primarily to higher prices and mix in the Packaging and Paper segments and higher Packaging volumes, partially offset by higher operating and converting costs, higher annual outage expense, lower Paper volumes, and higher freight and logistics expense. Packaging segment income from operations rose to $1,306 million from $830 million, while Paper segment income was $39 million compared with a loss of $20 million in 2020.

Cash flow and liquidity remained solid. Operating cash flow was $1,094 million^c, and the company ended the year with $765 million of cash and marketable debt securities and $1.1 billion of total liquidity. Capital expenditures were $605 million, and the company completed the $195 million acquisition of Advance Packaging Corporation in December 2021.

Shareholders received $380 million^d in dividends, and the company repurchased $193 million of stock in the fourth quarter. The Board authorized a new $1 billion repurchase program in January 2022.

The filing highlights risks including cost inflation across fiber, energy, chemicals, labor and transportation, a reliance on Office Depot for 51% of Paper segment sales, continued secular decline in uncoated freesheet demand, and total debt of $2.5 billion, all at fixed rates. Management expects first-quarter 2022 earnings, excluding special items, to be lower than fourth-quarter 2021 earnings, and expects 2022 capital investments of about $800 million.

02—Key points

Key Highlights

Net sales rose to $7.73 billion in 2021 from $6.66 billion in 2020, driven by Packaging segment net sales of $7.05 billion.
Net income was $841 million ($8.83 per diluted share), or $894 million ($9.39 per diluted share) excluding special items, versus $550 million ($5.78 per diluted share) excluding special items in 2020.
Packaging segment income from operations was $1,306 million, up from $830 million, on higher prices and mix of $646 million and higher volumes of $278 million.
Paper segment income was $39 million, compared with a loss of $20 million in 2020, and the Jackson No. 3 machine was converted from uncoated freesheet to linerboard production.
Operating cash flow was $1,094 million, and cash, cash equivalents and marketable debt securities totaled $765 million at year end, with $1.1 billion of total liquidity.
Capital expenditures were $605 million in 2021, with about $800 million expected in 2022, and the company acquired Advance Packaging Corporation for $195 million.
Shareholder returns included $380 million in dividends paid and a new $1 billion share repurchase authorization announced on January 26, 2022.

03—One dollar

Follow one dollar

Of each $1.00 of revenue in FY2021, Packaging Corp. of America kept $0.11.

Revenue$7.73B100.0%100.0%
Cost of revenue−$5.86B75.8%75.8%
Gross profit$1.87B24.2%24.2%
Operating costs−$631.6M8.2%8.2%
Operating income$1.24B16.1%16.1%
Interest, other & tax−$400.3M5.2%5.2%
Net income$841.1M10.9%10.9%

10-KFY2021filed February 24, 2022Computed from this filing’s revenue, gross profit, operating income and net income · right columngrey figure: share of revenue

Where FY2021 revenue went

$7.73B

Cost of revenue: $5.86B, 76% of revenue
Net income: $841.1M, 11% of revenue
R&D: $14.5M, 0.2% of revenue
SG&A: $576.8M, 7.5% of revenue
Other operating costs: $40.3M, 0.5% of revenue
Interest, other & tax: $400.3M, 5.2% of revenue

Kept 11% as net incomeNet income $841.1M · 11%R&D $14.5M · 0.2%Other operating costs $40.3M · 0.5%

Full revenue history →

04—Financials

Financial Highlights

10-KFY2021filed February 24, 2022

Revenue$7.73B24.2% Gross Margin Net Income$841.10M10.9% Net Margin EPS (Diluted)$8.83 Total Assets$7.84B Cash & Equivalents$618.70M Free Cash Flow$489.00M

Financial Statements

FY2021 against FY2020

Line item	FY2021FY2020	FY2020	Change
Revenue	$7.73B$6.66B	$6.66B	+16.1%
Cost of Revenue	$5.86B$5.29B	$5.29B	+10.7%
Gross Profit	$1.87B$1.37B	$1.37B	+36.8%
R&D Expenses	$14.50M$15.50M	$15.50M	−6.5%
SG&A Expenses	$576.80M$539.60M	$539.60M	+6.9%
Operating Income	$1.24B$723.90M	$723.90M	+71.5%
Net Income	$841.10M$461.00M	$461.00M	+82.5%
EPS (Basic)	$8.87$4.86	$4.86	+82.5%
EPS (Diluted)	$8.83$4.84	$4.84	+82.4%
Shares Outstanding (Basic)	94.10M94.10M	94.10M	0.0%
Shares Outstanding (Diluted)	94.50M94.40M	94.40M	+0.1%

05—Questions

Frequently Asked Questions

How did PCA's profitability change in 2021?
Net income rose to $841.1 million, or $8.83 per diluted share, from $461.0 million, or $4.84 per diluted share, in 2020. The increase was driven primarily by higher prices and mix in the Packaging and Paper segments and higher Packaging volumes, partially offset by higher operating and converting costs, higher annual outage expense, and higher freight and logistics expense.
How much exposure does PCA have to Office Depot?
In 2021, sales to Office Depot, Inc. represented 51% of the Paper segment's sales revenue and 4% of consolidated sales revenue. The current agreement runs through December 31, 2022, and if it is not renewed, Office Depot's purchase obligation would phase down over two years beginning January 1, 2023.
What is the company's debt position and liquidity?
At December 31, 2021, PCA had $2.5 billion of debt outstanding, all of it fixed-rate senior notes, and a $323.2 million undrawn revolving credit facility after letters of credit. Year-end cash and cash equivalents were $618.7 million, and total liquidity including revolver availability was $1.1 billion. In 2021 the company issued $700 million of 3.05% Senior Notes due 2051 and redeemed its $700 million 4.50% notes due 2023.
What are the main cost pressures and risks mentioned in the filing?
The filing cites cost inflation across labor and benefits, recycled fiber, energy, repairs, materials, supplies, and transportation, with higher fuel costs, tight rail supply, and truck and driver shortages. It states that a $10 per ton increase in recycled fiber would add approximately $8.6 million of expense based on 2021 consumption, and that a 1% increase in cost of sales and SG&A would increase costs by $64 million. Labor shortages related to the COVID-19 pandemic and the Omicron variant are also noted.
What does the company expect for early 2022?
For the first quarter of 2022, PCA expects higher corrugated products volume than in the fourth quarter of 2021 and has notified customers of a $70 per ton price increase for linerboard and corrugating grades, though it does not expect significant benefit during the quarter. Management expects first-quarter earnings, excluding special items, to be lower than fourth-quarter 2021 earnings because of continued cost inflation and seasonal energy and fiber costs.

06—Continue

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