Business conditions improve in Q2, says Packaging Corp

By Rory Harrington

- Last updated on GMT

Related tags Recession

Packaging Corporation of America (PCA) said business conditions had “improved significantly” during Q2 as it posted results yesterday showing net income had more than trebled to $109m.

Higher-than-expected sales volumes, less market downtime and lower operating cost all contributed to the positive assessment delivered by PCA CEO Paul Stecko. Corrugated product shipment had climbed 10 per cent, with outside containerboard sales up 20 per cent compared to the previous three months

Tax credit boost

However, the US giant revealed the bulk of its income boost came from an $80m alternative fuel mixture tax credit received for the period December 13, 2008 to June 30, 2009.

Underlying figures demonstrated that while conditions may have become less harsh compared to Q1, the effects of the global economic recession are still being keenly felt. Excluding the tax credit, PCA confirmed y-o-y net income had fallen $6m to $29m. This was driven by “the downturn in the economy which lowered containerboard and corrugated products volume and increased downtime, as well as by higher costs for labor and benefits and lower prices”​, said a company statement. These costs were, however, off-set partially by lower costs for recycled fiber, transportation, and energy.

Year-on-year results down

Nets sales for the second quarter fell from $616m in the same period 12 months earlier to $549m. Year-to-date net sales were $1.06 billion compared to $1.19 billion in 2008, said PCA.

While Q2 figures showed an improvement over Q1, year-on-year results for the quarter were not as encouraging. Corrugated products shipments were down 6.3% per workday and 7.8% in total, and outside sales of containerboard were down about 30,000 tons compared to last year’s second quarter, PCA confirmed. Containerboard production was 555,000 tons after taking approximately 60,000 tons of annual maintenance outage and market-related downtime. PCA’s June ending containerboard inventory was about 2,000 tons below the end of the first quarter.

Business conditions recover in Q2

Company chief Stecko said: “Business conditions improved significantly during the quarter with higher than expected sales volumes, less market-related mill downtime, and lower operating costs.

“Compared to the first quarter, our corrugated products shipments were up 10%, or 40,000 tons, and outside sales of containerboard were up 20%, or 16,000 tons. Energy costs were also significantly lower than expected driven by operating efficiencies and lower prices. PCA’s containerboard inventory fell during the quarter, and industry inventories were at their lowest June ending level in almost 30 years.”

Looking ahead Stecko said sales volumes were forecast to rise but sluggish demand would mean “some market-related mill downtime is still likely”. Prices are expected to be lower as a result changes in prices for containerboard, and recycled fiber costs are expected to be significantly higher, said the company.

Related topics Processing & Packaging

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