Packaging Co. of America Q2 2023 Earnings Call Transcript

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July 25, 2023

There are 9 speakers on the call.

Operator

Morning, everyone, and thank you for joining Packaging Corporation of America's Second Quarter 2023 Earnings Results Conference Call. Your host for today will be Mark Colzan, Chairman and Chief Executive Officer of PCA. Upon conclusion of his narrative, there will be a Q and A session. I'd now like to turn the floor over to Mr. Kowlzan.

Operator

Sir, please proceed when you're ready.

Speaker 1

Thank you, Jamie. Good morning, everyone, and thank you for participating in Packaging Corporation of America's Q2 2023 earnings release conference call. Again, I'm Mark Coles, Chairman and CEO of PCA. And with me on the call today is Tom Hassfurther, Executive Vice President, who runs the Packaging Business and Bob Munday, our Chief Financial Officer. I'll begin the call with an overview of our 2nd quarter results and then I'll be turning the call over to Tom and Bob who'll provide further details.

Speaker 1

I'll then wrap things up and then we'll be glad to take any questions. Yesterday, we reported 2nd quarter net income of $203,000,000 or $2.24 per share. Excluding special items, Q2 2023 net income was $209,000,000 or $2.31 per share, Compared to the Q2 of 2022, net income of $304,000,000 or $3.23 per share. 2nd quarter net sales were $2,000,000,000 in 2023 $2,200,000,000 in 2022. Total company EBITDA for the 2nd quarter excluding special items was $418,000,000 in 2023 and $533,000,000 in 2022.

Speaker 1

2nd quarter net income included special items expenses of $0.07 per share for certain costs at the Jackson, Alabama mill for paper to containerboard conversion related activities and closure costs related to corrugated products facilities and design centers. Details of special items for both the Q2 of 2023 In 2022, we're included in the schedules that accompanied our earnings press release. Excluding special items, The $0.92 per share decrease in Q2 2023 earnings compared to the Q2 of 2022 was driven primarily by lower volumes in the Packaging segment for $0.90 and Paper segment, dollars 0.07 Lower price and mix in the Packaging segment of $0.47 and higher depreciation expense 0 point 0 $9 and higher other converting costs $0.03 These items were partially offset by lower operating costs of $0.34 primarily driven by lower fiber, energy and chemical costs. We also had higher prices and mix in the Paper segment for $0.12 a lower share count resulting from the share repurchase in the second half of twenty twenty two for $0.13 Lower schedule maintenance outage expenses for $0.03 and lower tax rate for $0.02 The results were $0.35 above the 2nd quarter guidance of $1.96 per share, primarily due to lower operating costs resulting from efficiency and usage initiatives and lower freight and logistics expenses.

Speaker 1

Looking at our Packaging business. EBITDA excluding special items in the Q2 of 2023, a $405,000,000 with sales of $1,800,000,000 resulted in a margin of 23% versus last year's EBITDA of $525,000,000 and sales of $2,100,000,000 or a 25 percent EBITDA margin. Demand in the Packaging segment was about where we expected for the quarter and Tom will discuss this further in a moment. As they did in the Q1, our employees remain focused on very efficient and cost effective operations as we balanced our apply according to the demand. Or said another way, we are extremely effective at managing what is in our control.

Speaker 1

In our mills, this included things like improving our wood yields, producing board closer to nominal basis weights, Reducing fiber and chemical usage and running our pulp mills more efficiently, increasing our internal energy generation, while also reducing our energy consumption and executing our planned maintenance outages for less cost than we had estimated. Also at our mills and including our corrugated facilities, we closely monitored headcount and overtime as well as usage of materials and supplies in addition to other discretionary spending items. In addition, our mills and plants together with our logistics and distribution personnel worked effectively to minimize the negative impacts from rail rate increases at certain locations and changes in the mix of shipping locations as we ran our system to demand. Finally, as you know, we temporarily curtailed operations at our Wallula, Washington mill once we exited the planned maintenance outage early in the quarter. This was not a reaction to any change in our views on demand, but rather our thoughtful approach to manage containerboard supply as economically as possible.

Speaker 1

The mill remains temporarily curtailed and we will continue to monitor any potential changes to this strategy along with our outlook for demand during the second half of the year. I'll now turn it over to Tom, who will provide more details on containerboard sales in the corrugated business.

Speaker 2

Thank you, Mark. Total prices and mix in the Packaging segment came in where we anticipated with domestic containerboard and corrugated products prices and mix together $0.32 Per share below the Q2 of 2022 and also $0.32 per share below the Q1 of 2023. Export containerboard prices were down $0.15 per share versus last year's Q2 and down $0.07 per share compared to the Q1 of 2023. As Mark indicated, Packaging segment volume for the quarter also came in where we expected. Corrugated product shipments were down 9.8% in total and per workday compared to last year's Q2.

Speaker 2

Outside sales volume of containerboard was 62,000 tons below last year's Q2 and 33,000 tons above the Q1 of 2023. With last year's box volume tying our shipments per workday 2nd quarter record, we knew this will be a tough comparison period. As we said on last quarter's call, the same variables that have impacted demand the last few quarters would continue into the 2nd quarter. The shift of consumer buying preferences more towards service oriented spending, persistent inflation and higher interest rates continue to negatively impact consumers' Also continued to varying degrees across our customer bases and the manufacturing index has remained in contraction territory for 8 months in a row now. However, as we talked about last quarter, we expected some improvement relative to the inventory destocking of both customer product and boxes as well as improvements based on certain customers' feedback regarding their business, and that is what helped the 2nd quarter shipments improve almost 3% compared to the first We expect continued positive momentum this quarter, although there is one less workday compared to the Q2.

Speaker 2

I'll now turn it back to Mark.

Speaker 1

Thank you, Tom. Looking at the Paper segment, EBITDA excluding special items in the 2nd quarter was $39,000,000 with sales of 1 of $32,000,000 and sales of $150,000,000 or 21% margin. Paper prices and mix were twelve Paper demand remains soft with our sales volume just over 14% below last year's Q2, which also included some Sales from our Jackson, Alabama mill, where there was no volume in this year's Q2. We ran our International Falls mill to match supply with demand as well as to build some additional inventory during the quarter to prepare for the 9 day planned outage maintenance outage that's coming up this Q3. Similar to the comments I made regarding the Packaging business and for many of the same categories, employees in our Paper business remained focused on efficient and cost effective operations as they also balance supply according to demand and delivered outstanding margins for the quarter.

Speaker 1

I'll now turn it over to Bob.

Speaker 3

Thanks, Mark. For the quarter, we generated new 2nd quarter records for cash from operations of $360,000,000 as well as free cash flow of $233,000,000 Key cash payments during the quarter included capital expenditures of $126,000,000 Common stock dividends of $112,000,000 cash taxes of $83,000,000 and net interest payments of $30,000,000 We ended the quarter with $630,000,000 of marketable securities and cash on hand with liquidity of almost $1,000,000,000 I'll now turn it back to Mark.

Speaker 1

Thanks, Bob. Looking ahead as we move from the second and into the third quarter, In our Packaging segment, although there is one less shipping day for the corrugated business, we expect shipments per day to improve versus the 2nd quarter. However, prices will be lower as a result of previously published domestic containerboard price decreases along with slightly lower export prices. We expect seasonally stronger volumes in our paper segment from back to school shipments, although prices are expected to trend lower based on the recent the higher recycled fiber prices and seasonal energy cost. Scheduled outage expenses will be higher by approximately $0.06 per driven by the scheduled maintenance outage at International Falls, Minnesota.

Speaker 1

Finally, we estimate that our depreciation expense and tax rate to be slightly higher as well. Considering these items, we expect the 3rd quarter earnings of $1.88 per share. With that, we'd be happy to entertain any questions, but I must remind you that some of the statements we've made on the call constituted forward looking statements. Statements were based on current estimates, expectations and projections of the company and involve inherent risks and uncertainties, including the direction of the economy and those identified as risk factors in the annual report on Form 10 ks and on file with the SEC. The actual results could differ materially from those expressed and the forward looking statements.

Speaker 1

And with that, Jamie, I'd like to open the call up for questions, please.

Operator

Ladies and gentlemen, at this time, we'll begin the question and answer session. Our first question today comes from George Staphos from Bank of America Securities. Please go ahead with your question.

Speaker 4

Hi, everyone. Good morning. Thanks for the details and congratulations on the operating performance in the quarter. Mark, Bob, Tom, my first question, the excellent from our vantage point operating performance in 2Q, I guess, the $0.34 or so And lower operating costs. How much of that is embedded in your Q3 guidance?

Speaker 4

Is there any chance Within reasonable probabilities that you could, given all the efforts that your employees have underway, find further Efficiencies and benefits such that there might be some upside tilt to your guidance. So have us think about how operations might be able to benefit and what's baked into your Q3 guidance?

Speaker 1

George, as we always do, we continue to focus 3 65 days a year, continuous improvement, operational excellence. One thing We commented on last year as we were moving into 2023 and we are winding down a lot of the major capital projects. We're going to take the approximately 150 engineers and technology personnel in our corporate technology group And really let them focus now on unit operations optimization and Really work with the box plants and mills on a lot of the new equipment quite frankly that have been installed in the last couple of years, But really take that to a new level of performance and execution and that's paid off for us this year as you can see. So my answer is we will continue in that effort. Nothing is guaranteed, but we do obviously perform quite well in general And I would expect to see similar results going forward.

Speaker 1

Tom, Bob, from your perspective Yes, Mark, it's Bob, George, I'll say

Speaker 3

that from the operating cost perspective, we'll hold on to the performance we had in the second Quarter, if you just assume that production volume in the mills is similar to the second, maybe up a little bit, we'll see. Yes, we think our cost per ton stays relatively flat. So to be able to hold on to that, even though we know OCC prices will be higher. If you just take the average, they moved up from the end of the second quarter and they Apply that across the Q3, they're up like 12% or 14%. So we'll overcome that plus we have the seasonal electricity rates That hit you as well as some seasonal usage items.

Speaker 3

So in effect, we'll pretty much be offsetting that by continuing the excellent operating Cost performance in the mills and in the box plants.

Speaker 2

George, it's Tom. I would just add one last thing. It's very obvious That a lot of this extensive groundwork has taken place. And as our volume increases going forward, We're going to be able to take advantage of this cost position we're in and it will be quite dramatic, I think, Going forward as the business conditions change and get more positive.

Speaker 1

Okay. Very, very helpful. Please. George, let me add one thing. If you looked at our quarter and you looked at month by month, We are running in not just one mill, but most of the mill system, we're pushing 99% uptime Efficiency, operational efficiency in our mills, I mean that's unheard of in the industry.

Speaker 1

Month of June, we had most of the mills in that category. And we had 1 mill in particular that was basically 99.99% Uptime efficient. It had no paper breaks. And so We're in a level now. It's obviously not many of our competitors are there, That's what we strive to do every day and make it better and better.

Speaker 1

And so I'm confident we'll continue to see good results.

Speaker 4

It's a great rundown and obviously something we'll all try to continue to remember going forward. Two last ones for me and I'll turn it over. To some degree, kind of the obligatory, when we think about the 2Q index pricing changes, Roughly, roughly, how much of that is baked into your 3rd quarter guidance Percentagewise and what would be left in 4th quarter? And then Tom or Bob or Mark, back to The closures that you mentioned in corrugated in the design centers, I mean, it's kind of self explanatory, but what was If there was a common denominator, what were you looking to achieve with the whatever reconfiguration you were doing? Thank you guys.

Speaker 2

George, I'll take the closure piece and then I'll turn it over to Bob and he can comment on the pricing changes going forward. But On the closure side, listen, we have continuously tried to Make sure that we're right sized for the business and that we have very efficient operating methods. And Part of our whole capital investment has been around making sure that we're as efficient as we possibly can in the plants that make the most sense. So that's been an ongoing process. This is nothing really new.

Speaker 2

We're just announcing it because it took place in the quarter, but This is small facilities and it's consolidation and some things like that. So, that's it's kind of more than normal course of business for us.

Speaker 3

Bob? Yes. George, regarding the price, I guess a way to think about it is in the Q1 there were 2 Drops in prices that occurred during the quarter on the benchmark grade for $30 a ton and then the second and The impact of that is, as we say, it pretty much runs through over a 90 day period. So the bulk of that was reflected in our second quarter numbers. So if you think about what occurred in the second quarter where there was a $20 drop, and you sort of ratio that with What happened in the first with a $30 drop, you can sort of get the impact Of price in the Q3.

Speaker 3

Does that make sense?

Speaker 4

Yes, I guess so. I mean, I guess what I'd say ask is just how much again, not trying to be too precise, I know you can't be how much of residual would be left Of that and for the Q4, 5%, 30%.

Speaker 3

For the 4th quarter, most of it will be from the latest drop Will be in the 3rd and the impact will be like I said, if you sort of compare that to what happened in the first, we gave you the impact of I mean, yes, in the second quarter. And then so in the you would think in the if no other changes, the 4th should be you shouldn't see much of an impact if things sort of hang out where they are

Speaker 4

That's perfect. Thank you, Bob. I'll turn it over.

Speaker 1

Next question, please.

Operator

Our next question comes from Mark Weintraub from Seaport Research Partners. Please go ahead with your question.

Speaker 5

Thank you. First, 2nd quarter record cash flow from operations pretty interesting in this challenging environment. I mean one of the things obviously is your CapEx has been coming down after all those big projects. Can you sort of just update us on where your thoughts for CapEx for this year? And preliminarily, If the environment remains challenging, what type of CapEx you might bracket for next year?

Speaker 1

Yes. Mark, over a year ago, actually, we started getting people Thinking about the fact that the heavy projects were winding up, the big projects that we've been involved in over the last 10 years were really, really coming to fruition. And that 2023 would be a year that we wound that capital down in the $400,000,000 range. Last year, we were $824,000,000 of capital spending. And we'd again, we alerted everybody that this would be in that $400,000,000 level and that's where we are.

Speaker 1

I fully expect us to finish the year somewhere in that $400,000,000 area. And then We're already talking about the 2024 capital spending plan. And looking at our needs and the opportunities, We feel comfortable right now that the number will continue to be in that $400,000,000 area unless Some opportunity came along that was so outstanding that we felt compelled that we wanted to direct capital into that Opportunity. So we have that luxury right now, but I think for the benefit of running the business in the uncertain times we're in, $400,000,000 range is a good range to be in and it supports business improvement opportunities along with Maintenance capital spending within the mills and box plants.

Speaker 5

Great. And even at the $400,000,000 do you still have runway? I think you're referencing to still get some of these Operating improvements that we've been seeing in the last couple of quarters or does that start running out pretty quickly if the CapEx doesn't go higher?

Speaker 1

No, that's the beauty of it. We're continuing to execute every week on a number of opportunities within the box plants, New equipment installations, new equipment significant rebuilds on modifications on a lot of the production lines. So this is not stopping. The mills, as we talked about, we wound up most of the big Work at Wallula Mill last year in the wood yard work in the OCC plant, Jackson, Alabama, most of that work is wound up. We're just But again, we can do all of that and still keep the capital spending in this $400,000,000 range that provides us an opportunity to really just move forward as we look at what these Whether it's a customer driven opportunity or a cost takeout efficiency, energy efficiency, labor efficiency, We continue to see those opportunities.

Speaker 1

And where we are right now, I'd say, barring some big one off opportunity, Some $400,000,000 number keeps us moving forward with taking advantage of this, Bob.

Speaker 3

Yes. Just one other thing, Mark, is a lot of the operating cost improvement and things that you're seeing It's not necessarily capital related. It's just doing things within the process, Watching usage, watching your routines, behaviors, practices, improving upon where you've been before. And a lot of that is not There's a huge benefit of our operating cost is managed just by those things as well.

Speaker 1

Mark, over the last few years, we were doing hundreds of projects in our box plants and mills on an annual basis. Granted a lot of them are smaller projects, but literally we had our entire workforce Moving to make improvements in 100 and 100 of areas every year. And now that we've been able to slow this process down, we're able to take advantage of that. And now the personnel can really take a much closer look and a deeper dive in how is that equipment running. And from a unit operations effectiveness and efficiency, the operating personnel at the plants and the mills, The technology organization are now really stepping back and looking at all of the new converting lines, the projects at the mills and really assessing Are these projects doing what we expected them to do?

Speaker 1

And if not, how do we make it do what we expect it to do? And if They're optimizing and fine tuning and the benefits are what we've seen in the second quarter is a great example And we'll continue to do that.

Speaker 5

Appreciate that and I'd say it's certainly showing. Just one if I could Go back to the bridge from the second to third quarter, make sure that I understood. I mean, it sounded like There wasn't going to be any negative pickup in operating costs. And I guess you alluded to like a 0.06 Increase in maintenance outages. And so if we look at the $2.31 and we go to $1.88 that would seem to be Like a $0.37 other, if we take off the $0.06 for the maintenance.

Speaker 5

So is that primarily impact from price or are there other Variables to be conscious of when doing that bridge because it seems kind of high on the for a price number.

Speaker 3

Yes. No, I think you're pretty close, Mark. If you looked at those two items on the well, just look at the price and the outages, maybe it's a little bit What you were saying, but there's almost probably 90% of the delta right there. And then on the operating cost side, if you take in some of the other things that to offset the higher recycled fiber prices and the energy Costs that we spoke of, it's hopefully will be pretty close to a push. And so what you're left with are just A couple of cents here and there.

Speaker 3

We talked about depreciation. We put that in our release and that just has to do higher depreciation from the 2nd quarter just has to do with The timing of placing our assets in service based from our capital spending program, and we had some benefits in the 2nd quarter that won't repeat in the 3rd. On the tax side, there were just some favorable tax Items from the vesting of stock and performance units as well as some state tax law changes that gave us a benefit That don't repeat themselves. So those are the other few items that get you to that $0.43 change.

Speaker 5

Okay. Appreciate the color. Thank you.

Speaker 1

Next question please.

Operator

Our next question comes from Gabe Haid from Wells Fargo, please go ahead with your question.

Speaker 6

Hi, this is Alex on for Jay Pat. Thanks for taking the question here. I was hoping you could give me some color on the bookings in July and maybe have us trended in compared to June and May. And just thinking about the Q3 volume pickup, I was wondering if you can help parse out how much of that is seasonality in the underlying demand?

Speaker 2

Okay, Alex, this is Tom. Our bookings for July through about halfway through the month is Very robust, up 15%, which is great. Good start to the quarter. The other thing that we're seeing is I think that's pretty important and I want to point out is that a lot of our customers are telling us that some of this destocking is now over with their products and that's very important. So hopefully that will translate throughout the quarter And certainly going into the Q4, for some volume that is, what I would call more predictable.

Speaker 2

We still do I'll just go ahead and point this out right now. We do have some challenging segments still that we're dealing with, which Indicate some of our decline in volume. The Ag business, Florida had the worst citrus season they've had since the 30s or 40s. We had hurricanes down there, which completely wiped out some of the tomatoes and all the strawberries for a cycle. We've had flooding in Northern California, which has caused a lot of problems.

Speaker 2

They it's feast or famine there, I guess, in terms of moisture. But And then in Eastern Washington also, they had some pretty serious droughts. So that segment has going on and all those sorts of things and that slowed down dramatically. And now because of high interest rates, it's really slowed down housing starts. So that's been a drag on us as well as single use plastic products manufacturers.

Speaker 2

So those are the segments that have impacted us on a negative point. The ag will recover for sure. The ecom and the food and beverage, Those segments have held up significantly better. But I think the key takeaway here going into the second half of the year Is the fact that a lot of this destocking has now finally taken place and I think we'll have more predictability going forward relative to volume.

Speaker 6

Thanks. Okay. And I guess as a follow-up question, I'm just curious on your cost But aside, can you maybe talk about which side of the costs are still being pressured and maybe some cost buckets that are kind of coming down there?

Speaker 1

Again, you're always concerned about fiber costs and energy, transportation, especially on the rail. Rail rates continue to move up. So it's and then as we go through the 3rd into the 4th, We'll be getting into the seasonal cooler months and energy usage along with cost pressure from that usage. So wood cost is always a factor depending on weather conditions. So it's a continuing whole host of all your input in what's happening at any given time.

Speaker 6

Thanks. Okay. Yes, I'll turn it over. Thank you.

Speaker 1

Okay. Next question please.

Operator

Our next question comes from Phil Ngai from Jefferies. Please go ahead with your question.

Speaker 7

Good morning, Mark, Bob, Thomas, this is John Dunnigan on for Phil. I wanted to start off around the box shipments. I mean, you guys have lagged the last few quarters from the overall Market, which is generally surprising given your solid track record. Would you To that, more of a factor of the local customers, and then feeling more of the pinch that you've kind of called out prior?

Speaker 5

Or is it you're maybe seeing

Speaker 7

a little bit more pressure from customers on pricing and you're walking away from some of that business?

Speaker 2

John, this is Tom. I'll take this one. I would say that there are a couple of reasons Why our numbers look like they do? Number 1 is we had unbelievably tough comps from a year ago. And if you go back, I mean, we were significantly higher than the industry, even much higher than our normal trend.

Speaker 2

And I think that's because, as I mentioned even back then, The wide segment of business and wide swath of different businesses, whether they're local, national or what segments they're in, All were up significantly during the COVID period. And as I just mentioned a while ago, a number of those have come Down significantly. And I'm talking when I say significant, we haven't lost any of these customers, but we have some that are down 50 plus percent, Still at this rate just because there was so much demand during COVID and that demand has shrunk so significantly. So, those are the Those to me are the main reasons why it looks as if we're lagging the industry probably more so than And the numbers look so much different than they have in the past.

Speaker 7

Okay. That's helpful. And Just with the pricing that we've seen already come out, so they already realized $90 per ton On the containerboard side, are you seeing prices erode maybe a little bit quicker on the box side? Or are there anything generally in line with

Speaker 2

I'll be I got to temper this a little bit in terms of discussing this. But what we're seeing is no, I would say no way is the box trend Worse than the linerboard or medium trend. In fact, I would even say that Our observations and what we've heard from our customers, they've been quite surprised that of any liner border medium reductions that have taken place. And I would say on the box side, it's very much the same thing.

Speaker 7

Okay. That's very helpful. And if I could just squeeze one more in. The box demand progression in the second quarter seem to get worse from You had called out month to date on the last earnings call through the rest

Speaker 2

of the

Speaker 7

quarter. Could you kind of just give us a breakdown of Maybe what you were seeing during the quarter and then if things had weakened, was there any material economic downtime that you guys Took to kind of help offset that?

Speaker 1

Our volume was pretty much what we expected it to be with which was slightly improving. In June, quite frankly, was very strong. So we felt pretty good as the quarter moved through the months. And We saw that in June and we're continuing to see that in July. So I'm not sure.

Speaker 2

Yes. I would just add that we were up about 3% Q2 over Q1. And the trend line continues to look quite favorable. So we'll And the beauty of what we've done and what we talked about on the operating side is that we can flex now however we need to And to whatever the demands are and do it very cost effectively. Yes.

Speaker 2

And I'll

Speaker 3

just add that the economic downtime was Pretty much what we had anticipated it to be. So there was no change there from what we were assuming.

Speaker 7

Does that mean essentially flat in terms of a ton percentage quarter over quarter?

Speaker 3

On a per ton on a per day basis, it's up. Yes. It's up. So I think Tom made some comments about what he's seeing as far as trends now and so forth. So hopefully that means from a Total basis, even though there's one less day that could be something that some tailwind there that hopefully we can realize in our numbers.

Speaker 7

Apologies. To clarify what I meant was the economic downtime on a tons basis, you were saying there wasn't any change

Speaker 3

from Well, again, we'll have See, that's always a moving target, but I would say, in total, because we do have less scheduled outages as far from a ton perspective, so we get tons back from that in the 3rd versus the second. There's an additional day of in the mills, so you get another Day there, so there's another 15,000 tons or so. So and we'll just manage the economic downtime commensurate with that pickup

Speaker 2

that we're seeing from the Q2.

Speaker 7

Okay. Thank you very much. I'll turn it over.

Speaker 1

Thank you. Next question, please.

Operator

And our next question comes from Anthony Pettinari from Citi. Please go ahead with your question.

Speaker 8

Good morning.

Operator

Good morning, Anthony. Tom,

Speaker 8

Just following up on the July trends that you discussed, the 15% up 15%, is that Month over month or year over year? And then you talked about destocking maybe kind of running its course or maybe being closer to the end. In terms of your own inventories, I mean, you talked about inventories down 11,000 tons from 1Q. Just wondering where your inventories are broadly kind of relative to target levels or comfort levels. Yes.

Speaker 8

Those are my questions.

Speaker 2

Okay, Anthony. Relative to the July trends, let's the one thing, We've typically started out most quarters up quite a bit year over year. And that no different this quarter. But there's a little more predictability in these numbers than what we've had in the past. And I'm seeing our customers' Trends of order patterns starting to come more in line with where they had been prior to all this destocking and this big change from after COVID.

Speaker 2

So that's the best I can tell you about the July trends. I'm feeling better about these trends than in the past. And these numbers up, don't forget, I mean, when it's bookings, you're talking about not just in the month of July, you're talking about August, September, kind of out through the quarter. And so but again, these patterns seem to be much more predictable. Relative to the inventories, we didn't talk about export.

Speaker 2

Export is still a moving target. And It's certainly something that we're trying to get our arms around and it seems to change almost on a daily basis in this global demand. So I think we feel comfortable with where our inventories are. But again, we've got the ability to flex some depending on what the demand curves are.

Speaker 8

Okay. That's helpful. And the 15%, it was year over year, not month over month?

Operator

Yes. Yes.

Speaker 8

Great. And then I guess is there any way to frame kind of the financial impact of the Wallula curtailment and Understanding this is in line with matching supply to demand, any kind of just broader thoughts on that decision as we go through the year?

Speaker 1

As we were running through the Q1 and into the Q2, We were running the mills in many cases slowed back and just kind of throttling our way through demand. As we got into the springtime and we had our outages taking place, we were into the Wallula outage And we didn't see the improvement at that time back in April with demand. And so we quickly reassessed our position and realized that it was far better to take the 6 Mills that we currently have running and run them very, very efficiently. And then, in order to do that, you had to take Wallula and keep it down. So We had Wallula down for the annual outage, so we finished that work and decided to just temporarily idle that mill for The time being as we watch the demand situation.

Speaker 1

But by doing that, it allowed us to take the 6 other containerboard mills and really optimize them and speed them up to the optimum point on their production curve and take advantage of that. That's another part of the benefit we saw in the Q2 earnings.

Speaker 3

Yes, Anthony. And just to frame it up a little, it's more you take out the highest cost mill in our system and then You run your lower cost mills more full out. Even though there is a freight penalty from Wallula is the lowest cost from a freight perspective because of where it ships to. And so you will do have a freight Penalty by operating that way, but it's probably close to $15 a ton of benefit Operating that way versus, if we had tried to manage it across the entire system rather than isolating Wallula.

Speaker 8

Okay. That's very helpful. I'll turn it over.

Speaker 1

Next question, please.

Operator

And ladies and gentlemen, with that and showing no additional questions, I'd like to turn the floor back over to Mr. Koldan for any closing remarks.

Speaker 1

Again, thank you for joining us today on the call and look forward to talking to you when we wrap up our Q3 and have our call in October.

Operator

Have a good day. Thank you. And ladies and gentlemen, with that, we'll be wrapping up today's conference call and presentation. We thank you for joining. You may now disconnect.

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Earnings Conference Call
Packaging Co. of America Q2 2023
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