01—Abstract
Summary
Summary of the 10-K filed February 29, 2024. Cited figures are marked; the original filing is the authoritative source.
Packaging Corporation of America (PCA) reported net sales of $7.8 billiona for 2023, down from $8.5 billion in 2022, and net income of $765 million, or $8.48 per diluted share, compared with $1,030 million, or $11.03 per diluted share, in 2022.
Net income excluding special items was $784 millionb, or $8.70 per diluted share. Management attributed the decline primarily to lower prices and mix in the Packaging segment and lower volumes in the Packaging and Paper segments, partially offset by higher Paper prices and mix, lower operating and converting costs, and lower annual outage expense. Packaging segment income from operations fell to $1,074 million from $1,424 million, while Paper segment income rose to $119 million from $103 million.
The company ended 2023 with $1,206 millionc of cash and marketable debt securities and $1,529 million of total liquidity including revolver availability. Net cash provided by operating activities was $1,315 million, compared with $1,495 million in 2022. Capital expenditures for property and equipment were $470 million, and dividends paid totaled $449 million.
Total debt outstanding was $2.9 billiond, all fixed-rate senior notes. In November 2023 the company issued $400 million of 5.70% senior notes due 2033 and intends to use the proceeds, with cash on hand, to repay its 3.65% senior notes due September 15, 2024.
For 2024, management expects first-quarter earnings to be lower than fourth-quarter 2023, citing a prolonged outage at the Jackson mill for the conversion of the No. 3 machine and a scheduled outage at the Counce mill. The company notified customers of price increases of $70 per ton for linerboard and $100 per ton for medium effective January 1, 2024, and expects 2024 capital investments of $470 million to $490 million.
02—Key points
Key Highlights
- Net sales declined to $7.80 billion in 2023 from $8.48 billion in 2022, driven by lower Packaging prices and mix ($397 million) and lower volumes ($248 million).
- Net income was $765.2 million, or $8.48 per diluted share, versus $1,029.8 million, or $11.03 per diluted share, in 2022; excluding special items, EPS was $8.70 versus $11.14.
- Packaging segment income from operations fell to $1,074.3 million from $1,423.7 million, while Paper segment income rose to $118.9 million from $103.0 million.
- Domestic containerboard prices decreased 10.5% and export prices decreased 29.7% in 2023 compared with 2022; the company notified customers of $70 per ton linerboard and $100 per ton medium price increases effective January 1, 2024.
- Operating cash flow was $1,315.1 million, and year-end cash and marketable debt securities totaled $1,206 million, with total liquidity of $1,529 million.
- Total debt was $2.9 billion, all fixed-rate senior notes; the company issued $400 million of 5.70% senior notes due 2033 to help repay the 3.65% notes maturing September 15, 2024.
- Capital investments were $470 million in 2023 versus $824 million in 2022, with 2024 capital investments expected between $470 million and $490 million; the company repurchased $41.5 million of stock in 2023 and had $436.0 million remaining under its authorization.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2023, Packaging Corp. of America kept $0.10.
- Revenue$7.80B100.0%
- Cost of revenue−$6.10B78.2%
- Gross profit$1.70B21.8%
- Operating costs−$623.8M8.0%
- Operating income$1.08B13.8%
- Interest, other & tax−$309.9M4.0%
- Net income$765.2M9.8%
Where FY2023 revenue went
$7.80B- Cost of revenue: $6.10B, 78% of revenue
- Net income: $765.2M, 9.8% of revenue
- SG&A: $580.9M, 7.4% of revenue
- Other operating costs: $42.9M, 0.5% of revenue
- Interest, other & tax: $309.9M, 4.0% of revenue
Kept 9.8% as net incomeNet income $765.2M · 9.8%Other operating costs $42.9M · 0.5%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2023filed February 29, 2024Financial Statements
FY2023 against FY2022
| Line item | FY2023FY2022 | Change |
|---|---|---|
| Revenue | $7.80B$8.48B | −8.0% |
| Cost of Revenue | $6.10B$6.39B | −4.4% |
| Gross Profit | $1.70B$2.09B | −18.7% |
| SG&A Expenses | $580.90M$608.60M | −4.6% |
| Operating Income | $1.08B$1.42B | −24.3% |
| Net Income | $765.20M$1.03B | −25.7% |
| EPS (Basic) | $8.52$11.08 | −23.1% |
| EPS (Diluted) | $8.48$11.03 | −23.1% |
| Shares Outstanding (Basic) | 89.10M92.30M | −3.5% |
| Shares Outstanding (Diluted) | 89.50M92.70M | −3.5% |
05—Questions
Frequently Asked Questions
Why did PCA's earnings decline in 2023?
Net income fell to $765.2 million from $1,029.8 million. The filing attributes the decrease primarily to lower prices and mix in the Packaging segment and lower volumes in the Packaging and Paper segments, partially offset by higher Paper prices and mix, lower operating and converting costs, and lower annual outage expense. Published containerboard prices declined from the fourth quarter of 2022 through 2023.
What is the outlook for the first quarter of 2024?
Management expects first-quarter 2024 earnings to be lower than fourth-quarter 2023. Containerboard volume is expected to be lower due to a prolonged outage at the Jackson mill for the No. 3 machine conversion and a scheduled maintenance outage at the Counce, Tennessee mill. Price increases of $70 per ton for linerboard and $100 per ton for medium take effect January 1, 2024, partly offset by a decrease in late-2023 published prices.
How is PCA's debt structured and how will it handle the 2024 maturity?
At December 31, 2023, PCA had $2.9 billion of fixed-rate senior notes outstanding and a $350 million revolving credit facility with $323.0 million unused. The company intends to repay its $400 million 3.65% senior notes due September 15, 2024 using cash on hand and proceeds from the $400 million 5.70% senior notes issued in November 2023.
How much cash did PCA generate and how did it use it in 2023?
Net cash provided by operating activities was $1,315.1 million. Investing activities used $875.1 million, including $469.7 million of capital expenditures and $400 million of time deposits funded by the notes issuance. Financing activities used $112.0 million, including $448.9 million of common dividends and $41.5 million of share repurchases, partly offset by $397.1 million of net debt proceeds. Cash and cash equivalents rose to $648.0 million.
What are the main risks highlighted in the filing?
Key risks include a deterioration in economic conditions and lower demand, cyclical containerboard and paper pricing, competition from overseas producers and electronic alternatives reducing UFS paper demand, and rising fiber, energy, and chemical costs. The filing also notes customer concentration, as ODP Corporation represented 61% of Paper segment sales and 5% of consolidated sales in 2023, and labor relations, with about 63% of hourly employees under collective bargaining agreements.
06—Continue