Packaging Corp. ends Q2 with $370 million cash, accelerates capital program

By Lisa Kerner

Charlotte, N.C., July 17 - Packaging Corp. of America ended its second quarter with "$370 million of cash on hand, up $102 million from the end of the first quarter," said financial officer Rick West during the company's second-quarter earnings conference call on Wednesday.

When asked about the excess cash, chief executive officer Mark W. Kowlzan said it was "hard to justify share repurchases in last six months" based on the market. However, going into the third quarter, PCA plans to make a $35 million pension plan contribution and a $31 million federal tax payment.

"Based on our strong cash flow and cash position, we are accelerating about $25 million of high-return capital projects from 2014 into the second half of 2013," Kowlzan said on the call. The projects are in PCA's corrugated products plants where additional capacity is needed to support growth.

Executive chairman Paul Stecko commented that the company expects its strong cash flow generation to continue in the second half of the year. He said it made sense to increase the dividend in the second quarter to use some of the excess cash.

"We know we have a lot of cash and we know we have to do something with it," said Stecko. While PCA can consider share buybacks and dividends, "it's a moving target."

"We will probably do some of each. When and how much depends on a lot of things," Stecko said.

According to West, in the second quarter, PCA generated cash from operations of $187 million and paid dividends totaling about $31 million.

"Our total long-term debt outstanding at the end of the quarter, excluding capital leases, was $796 million. As of June 30, 2013, our diluted shares outstanding were 97.7 million shares," West said.

Furthering commenting on PCA's results, Kowlzan said "Net sales were a record $800 million, up 12% from the second quarter of 2012 net sales of $712 million."

Year-to-date net sales were also up 12%, at $1.56 billion.

"We had an outstanding quarter in all aspects of our operations, with record earnings driven by higher prices for containerboard and corrugated products and higher corrugated product volume," Kowlzan said.

Second-quarter 2013 net income was $64 million, or $0.66 per share, which included a one-time, non-cash charge of $5 million after tax, or $0.05 per share, for pension plan changes.

"We expect third-quarter earnings to be about $0.88 per share," said Kowlzan.

Packaging Corp. of America is a Lake Forest, Ill.-based manufacturer of containerboard and packaging.

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