Packaging Corporation of America (PKG), the third-largest producer of containerboard products and a leading producer of uncoated freesheet (UFS) paper in North America, reported solid second quarter 2024 results, beating expectations on strong volumes despite a mixed macroeconomic backdrop.
The company reported net income of $199 million, or $2.21 per diluted share, in Q2 2024, compared to $209 million, or $2.31 per diluted share, in the prior-year quarter. Excluding special items, net income was $199 million, or $2.20 per diluted share, in Q2 2024, compared to $209 million, or $2.31 per diluted share, in Q2 2023.
Annual net income for 2023 was $765.2 million, while annual revenue reached $7.8 billion. The company generated annual operating cash flow of $1.32 billion and annual free cash flow of $842.8 million.
In the second quarter, net sales increased 6.3% year-over-year to $2.08 billion, beating the Zacks Consensus Estimate of $2.03 billion. The top-line growth was driven by higher volumes in both the Packaging and Paper segments, partially offset by lower prices and mix.
Packaging Segment Performance
The Packaging segment, which accounts for the majority of PKG's business, reported sales of $1.91 billion in Q2 2024, up 6.6% year-over-year and above the company's estimate of $1.84 billion. Total corrugated product shipments grew 9.2% year-over-year, exceeding the company's expectation of 1.2% volume growth. Packaging segment EBITDA, excluding special items, was $400 million in Q2 2024 compared to $405 million in the prior-year quarter.The strong demand in the Packaging segment continued through the second quarter, leading to a new all-time containerboard production record to service the corrugated products and containerboard demand. Packaging segment prices and mix moved higher from the first quarter as the company continued to implement announced price increases, though they remained below target levels. The company was able to build some inventory ahead of the busy second half.
Paper Segment Performance
The Paper segment reported sales of $150 million in Q2 2024, up 5.1% year-over-year and above the company's estimate of $133 million. Segment volume rose 12% from the prior-year quarter, offsetting a 2.2% negative pricing/mix impact. Paper segment EBITDA, excluding special items, was $31 million in Q2 2024 compared to $39 million in the year-ago quarter.While the company is implementing recently announced paper price increases, the published decrease in index prices earlier this year and its impact on certain customer contracts initially delayed the timing of realizing the increases. Overall, average prices and mix were essentially flat with the first quarter 2024 levels but down 5.6% versus the second quarter of 2023.
Liquidity
PKG generated $278 million in cash from operations during the quarter and $33 million in free cash flow. The company ended the quarter with a cash balance, including marketable securities, of approximately $800 million and liquidity of $1.1 billion.The company increased its full-year 2024 capital expenditure guidance from a range of $470-$490 million to $670-$690 million. The increase is primarily attributable to additional high-return, profitable growth and mix enhancement opportunities within its box plants, as well as a new greenfield box plant in Phoenix, Arizona.
Outlook
Looking ahead to the third quarter, PKG expects prices and mix to move higher in both the Packaging and Paper segments as the company continues to implement previously announced increases, along with higher containerboard export prices. Corrugated products shipments are expected to remain strong, potentially setting a new third quarter record, while Paper segment volumes are expected to be slightly lower due to timing of back-to-school business.Operating and converting costs are projected to be higher, primarily due to seasonal factors, while scheduled maintenance outage expenses are expected to be slightly lower. Considering these factors, the company provided Q3 2024 earnings guidance of $2.45 per share.