Packaging Corp. of America Reports Operating Results (10-Q)

Author's Avatar
Aug 07, 2009
Packaging Corp. of America (PKG, Financial) filed Quarterly Report for the period ended 2009-06-30.

Packaging Corp. of America is one of the largest producers of containerboard in the United States and also one of the largest manufacturers of corrugated packaging products. The company produces corrugated containers as well as the containerboard used to manufacture corrugated containers. Corrugated containers are the most commonlyused type of paper packaging. Corrugated containers referred to as cardboard boxes are made by combining multiple layers of heavyweight paper known as containerboard and fabricating them into finished boxes. Packaging Corp. of America has a market cap of $1.98 billion; its shares were traded at around $19.36 with a P/E ratio of 16 and P/S ratio of 0.9. The dividend yield of Packaging Corp. of America stocks is 3.1%. Packaging Corp. of America had an annual average earning growth of 28.2% over the past 5 years.

Highlight of Business Operations:

$8.2 million below the previous years second quarter as a result of the impact of lower sales volume ($23.7 million), increased labor and fringe benefit costs ($2.8 million) and decreased sales prices of corrugated products and containerboard ($2.8 million). These items were partially offset by decreased costs of recycled fiber ($8.8 million), transportation ($6.8 million) and lower energy costs ($4.5 million).

Net interest expense increased $0.6 million, or 7.7%, for the three months ended June 30, 2009 from the three months ended June 30, 2008, primarily as a result of lower interest income ($2.0 million) earned on PCAs cash equivalents, partially offset by lower interest expense ($1.4 million) related to PCAs outstanding debt balances. The $2.0 million decrease in interest income was primarily due to lower interest income rates during the three months ended June 30, 2009 compared to the same period in 2008. The $1.4 million decrease in interest expense was primarily related to PCAs 43/8% senior notes that were repaid in August of 2008.

Income from operations increased by $64.0 million, or 52.8%, for the six months ended June 30, 2009 compared to the six months ended June 30, 2008, primarily attributable to the alternative fuel mixture tax credit of $79.7 million described previously. Excluding the alternative fuel mixture tax credit, income from operations decreased $15.7 million for the six months ended June 30, 2009 compared to the six months ended June 30, 2008 primarily attributable to lower sales volume ($56.2 million) and increased labor and fringe benefit costs ($7.2 million). These items were partially offset by increased sales prices of corrugated products and containerboard ($18.7 million), and decreased costs of recycled fiber ($16.5 million), transportation ($9.8 million), and energy ($4.0 million).

Net interest expense increased $3.1 million, or 21.2%, for the six months ended June 30, 2009 from the six months ended June 30, 2008, primarily as a result of lower interest income ($3.9 million) earned on PCAs cash equivalents, partially offset by lower interest expense ($0.8 million) related to PCAs outstanding debt balances. The $3.9 million decrease in interest income was primarily due to lower interest income rates during the six months ended June 30, 2009 compared to the same period in 2008. The $0.8 million decrease in interest expense was primarily due to a decrease in interest expense related to the Companys receivables credit facility due to lower interest rates.

Net cash provided by operating activities for the six months ended June 30, 2009 was $141.2 million compared to $110.8 million for the six months ended June 30, 2008, an increase of $30.5 million, or 27.5%. Net income excluding the impact of the alternative fuel mixture tax credits described in Note 13 to the financial statements included in this report was $54.3 million for the first six months of 2009 compared to $67.3 million for the comparable period in 2008, a decrease of $13.0 million that reduced net cash provided by operating activities. This decrease was more than offset by reduced cash requirements, including a $18.7 million reduction in federal tax payments in the second quarter of 2009 as a result of the alternative fuel mixture tax credits. Cash requirements for operating activities are subject to PCAs operating needs, which were impacted by the weakened business conditions during the first six months of 2009, the timing of collection of receivables and payments of payables and expenses, and seasonal fluctuations in the Companys operations.

Net cash used for financing activities totaled $45.6 million for the six months ended June 30, 2009, a difference of $71.8 million, or 274.5%. The difference was primarily attributable to $144.7 million in net proceeds received from PCAs notes offering in 2008 described below, partially offset by a debt prepayment of $20.0 million made in the first quarter of 2008, $36.8 million in repurchases of PCA common stock during the first six months of 2008, and lower common stock dividends paid of $16.7 million during the first six months of 2009 compared to the same period in 2008.

Read the The complete ReportPKG is in the portfolios of John Griffin of Blue Ridge Capital, NWQ Managers of NWQ Investment Management Co, Jean-Marie Eveillard of Arnhold & S. Bleichroeder Advisers, LLC.