Packaging Corp of America (PKG) 2005 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Packaging Corporation of America First Quarter 2005 Earnings Conference Call. (Caller Instructions.) As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Paul Stecko, Chairman and CEO. Sir, you may begin.

Thank you, and good morning and welcome to Packaging Corporation of America's First Quarter Earnings Release Conference Call. Sorry for the slight delay. We did have a backlog of calls and I wanted to let everybody get on the line. With me on today's call, as usual, is Rick West, our CFO, Bill Sweeney, who runs our corrugated products business, and Mark Kowlzan, who runs our mill system. Again, I want to first start by thanking you for participating in the call. And after the presentation, as always, we'll be glad to answer any questions that you have. So let me get right at it.

Today, we're reporting first quarter net income of $13 million, or 12 cents per share, compared to first quarter 2004 net loss of $7 million, or 6 cents a share. Net sales were $489 million, and that's up 13 percent compared to last year's first quarter of $431 million. The improvement in earnings compared to last year's first quarter was driven by higher pricing and also volume for both containerboard and corrugated products, which improved earnings by about 26 cents a share. These earnings improvement items were partially offset by higher fiber, energy, transportation, labor, and medical costs. And I'll give you some more specific details on these in just a moment.

In the first quarter, we continued to see very strong corrugated products volume growth, and PCA's volume was up 5.7 percent per workday compared to last year's first quarter volume, which was also a record quarter for us. In addition, volume was strong each month, setting new records for each month in the quarter volume-wise.

Our mill operations got off to a pretty difficult start in January with several unplanned outages. These outages included two complete mill-wide power failures, one at Filer City and one at Tomahawk. One of these failures was caused when a transformer, which is owned and operated by a public utility that supplies electricity to the mill, actually exploded. And the other outage resulted from the failure of an underground waterline that caused some subsequent flooding in a mill electrical center and took down the entire Tomahawk Mill. We also experienced unscheduled recovery boiler outages, one at Valdosta and one at Counce, from tube leaks, which resulted in higher energy and chemical costs. So January was a pretty tough month for us.

The good news is our mills did bounce back from this adversity in February and March. And despite our annual maintenance outages at Counce and Valdosta, we had extremely good mill production in both months. This was driven in large part by the extraordinarily good startups we had following the annual outages, and that's always a crapshoot. So with the great startups, our mills really had a pretty good first quarter.

Mill production was up almost 19,000 tons, or 3.4 percent over last year's first quarter, to 565,000 tons. And this was important in the face of strong corrugated products demand that we experienced, and it allowed us to maintain our year-end inventory levels as we now enter the seasonally stronger part of the year.

As I mentioned earlier, our corrugated products business continues to set new volume records with shipments up 5.7 percent over last year's first quarter, compared to industry volume, which also continued to improve, and was up 1 percent for the quarter. Our volume growth was also pretty consistent, up 6.2 percent in January, 6 percent in February, and up 5.2 percent in March. Our volume was particularly strong the last half of March, over 8 percent higher than in the first half of March, and this is a bigger difference than we normally see first half over second half. And we're off to a very good start in April. So I think as you can see, things have gone well volume-wise.

Our number one paper machine at Counce was down an additional four days this year compared to last year's maintenance outage to make modifications that will allow us to produce lightweight grades on this machine. We had it down an additional two days in April to fine-tune some of our adjusting. And we have now successfully run 35-pound on that machine, a grade that we could not make before. This will now allow us to move more of our heavyweight grades to Valdosta, where we have our lowest wood cost, and we'll concentrate almost exclusively on lightweights at Counce.

The major concern during the second quarter was the continued increase in energy prices, particularly fuel oil and fuel-related products. Prices for natural gas were up 9 percent per million BTUs. Oil was up 23 percent. And diesel fuel, the key driver of transportation cost increases, was up 30 percent compared to the first quarter of 2004. These price increases have impacted PCA's costs in several areas and in several different ways. The cost to get wood and recycle fiber to our mills has gone up. As a result, higher energy costs to produce steam and electricity, obviously, and significantly higher transportation costs for containerboard and corrugated products, which on average were up 11 percent compared to last year. So a pretty big increase.

We estimate that higher transportation costs alone impacted our first quarter earnings by about 2.5 cents per share compared to last year. Fortunately for PCA, on the energy side, over 70 percent of our purchased fuels in our mills are from bark and coal, which together were up only about 1 percent in cost. For the quarter, our overall purchased energy costs, including our box plants, which unfortunately can't burn bark or coal, were up a little less than 1.5 cents per share over last year's first quarter.

Recycled fiber costs were up about $6 a ton and wood costs were up about $2 a ton compared to last year, reducing earnings by about 2 cents a share compared to last year. And as I mentioned earlier, some of the fiber cost increase is related to higher diesel prices, which drove the cost to transfer fiber to the mill up. Labor costs, which includes certain benefits costs, such as medical and relocation expenses, were up 3 cents per share over last year's first quarter. This increase is somewhat higher than normal since we lost money in the first quarter of last year, and therefore, had no earned bonus expense to accrue in the first quarter of 2004. And obviously, we made money this first quarter and we accrued money for our bonus pool.

Finally, Southern Timber Venture, our timberlands joint venture, which we have a 31.33 percent ownership interest, declared a first quarter dividend which contributed about 1 cent per share to our earnings.

Turning to cash utilization, our capital expenditures were $37 million for the quarter. We also made several normal beginning of the year cash payments, including our semi-annual interest payment of $15 million, ending the quarter with cash-on-hand of $180 million. Our long-term debt remained at $695 million. And at quarter-end, the average interest expense rate on all of our debt was 4.6 percent with about 80 percent of that debt fixed at an average rate of 4.9 percent.

One final point that I would like to make that I think is pretty important is that besides being a significant cost problem, transportation is also a problem from a service standpoint with the extended rail shipment times and the limited truck availabilities at some locations. As a result, and I think I've talked about this before, we have found it necessary and advisable to run our system with about 10 percent more inventory than we did before these transportation difficulties began with the economic upturn. With a little more inventory, this helps us reduce transportation costs and reduce inventory-related inefficiencies in our box plants. But more importantly than the cost side, it helps us ensure that we can provide adequate service to our customers, including our own box plants.

That's it for operations. And I'd like to now conclude with a brief outlook for the second quarter. First, we do expect to see the normal seasonal improvement in volume, and our mix will also continue to improve seasonally. Pulp & Paper Week did not pick up the announced April containerboard price increase in its latest edition. This to us is very disappointing and, from my perspective, hard to understand, especially with industry demand up 2.4 percent on a per workday basis in March and the fact that the industry inventory is now set at just under 2.65 million tons. This, in my opinion, is a pretty tight inventory level, especially considering today's transportation difficulties, both on the rail and the truck side.

We do anticipate some improvement in containerboard and corrugated products pricing during the second quarter from our previously announced price increases. But with the publications involved, the exact timing is obviously hard to predict. Purchased energy costs should be lower in the second quarter due to lower energy consumption as we enter the warmer months. However, it is likely that any improvement in this area could be offset by continued higher transportation costs as summer driving season usually increases gasoline and diesel price.

On April 12, 2005, last week to be specific, our Southern Timber Venture declared a special second quarter dividend related to the sale of the final portion of the STV woodlands in Alabama, Tennessee, and Mississippi. This dividend will contribute about 6 cents a share to our second quarter earnings. And as you may recall, STV also paid a special dividend of 16 cents a share to PCA in last year's fourth quarter related to the first portion of these woodlands.

Considering all of these items, including the STV dividend, we would expect earnings to be about 28 to 30 cents per share in the second quarter.

With that, we would be happy to entertain any questions. But as always, I must remind you that some of the statements we have made on this call constituted forward-looking statements. These statements are based on current expectations of the Company and do involve inherent risks and uncertainties, including those identified as risk factors in our Annual Report on Form 10-K on file with the SEC. Actual results could differ materially from those expressed in these forward-looking statements.

And with that, I would ask the operator to open up the phones and we would be glad to take your questions.

Thank you. (Caller Instructions.) Our first question comes from Rick Skidmore with Goldman Sachs. Your question, please.

Yes. Hi. Good morning. This is Bob Trout, actually, sitting in for Rick. And I just wanted to delve in a little more deeply on the energy cost side. I know you mentioned that it could probably go down a bit going into the summer months. But I just wanted to ask what you are seeing kind of specifically with regard to various sources, specifically coal. Are you going to be paying market prices going forward or do you have contracts in place?

Sure. What I said was I made no forecast on prices for the second quarter. I said our cost would go down because our consumption would go down. So just a point of clarification, we burn--we use less energy when the climate increases in temperature. With regard to coal, we burn coal at three mills, Counce, Tomahawk, and Filer City. And we've got to give our purchasing people a lot of credit. Last year, they felt that coal prices could go up. And although we had contracts through 2006, we reopened those contracts, paid a little more money in 2004, and extended those contracts at good prices through 2007.

So at our two bigger, biggest mills, Counce and Tomahawk, we've got contracts at basically last year's prices through 2007. So I feel pretty good about that. Our Filer contract for coal runs through the end of 2005. And it's kind of an interesting situation there. You can't take coal by boat because Lake Michigan that far north freezes over. So basically, we've got a--we have enough coal in that contract to get us through April 1st of 2006, and we have done little coal hedging for next year until we negotiate a new contract. So that contract is still open. But at least through 2007, I feel pretty good about where we are on coal prices.

Okay. Thank you very much.

Thank you. Our next question comes from George Staphos with Banc of America Securities. Your question, please.

Thanks. Hi, guys. Good morning.

Hi, George.

Paul, a couple of questions. First of all, the early problems from an operations standpoint at the couple of mills--the averages. What did that cost you in the quarter did you say?

Well it's hard to quantify because we made a lot of it up. But it's probably--when we ended January and--it was--[indiscernible] was lower than a snake's belly, as they say. And it's the first really bad month we've had in five years. And so, I wasn't too concerned. If you can only have one bad month in five years, that's pretty good. But we were probably two to three cents behind our forecast at the end of January, and we made it up by good operations.

Okay. Thank you.

And I don't know if that put more pressure on people to have an essentially perfect startup. I have never--I've been in this business 25 years. Never had perfect startups after annual outages until this year. And maybe there's a cause and effect there. I don't know. So the best way to answer that question is we thought we could have been 2 to 3 cents behind, and the only way we could make it up was flawless execution on [indiscernible] and we did it.

Gotcha. Paul, I guess on energy you gave us a little bit of seasonal guidance. If you adjust for seasonality, are any of your major cost factors trending more favorably than you've seen in the last several quarters? And specifically, what's your outlook to the extent that you can comment on the fiber costs the next couple of quarters?

Well, I would say the one that is not trending very well, and I think I made the point on the call, is transportation. I mean it's--we're up 11 percent. That is a big number.

But is anything helping you out?

I would say there's no--there's nothing that's helping, but recycled fiber isn't hurting anymore. It's basically flat and there's some speculation it could slide a few bucks, although nobody is bold enough to predict that. And the other thing on fiber that you have to bear in mind, a rough rule of thumb is that if you look at the cost of delivered wood to a mill, it's about a third, a third, and a third. A third stumpage, a third freight, and a third cutting it and all of that stuff. And so the freight portion of wood cost is also hurting the wood because if you're paying $30 for wood--they pick a round number a ton, it's $10 stumpage, $10 freight, $10 labor and all that and stuff, and profit for the guy that's cutting it. So that also drives it. But again, what historically has moved wood cost in our part of the world has been what's the weather done. And if you get a lot of bad weather you can have short-term spikes in wood cost. But we don't--other than that, actually wood's behaving okay. I mean, it's going up, but it's not going up by double-digit rates.

Gotcha. Paul, last question and I'll turn it over. Your guidance for the quarter. Does it assume full implementation of the containerboard increase at some point in the quarter? If you can be at least a little bit specific there.

Well, we think that prices could certainly go up. I mean inventories fell 84,000 tons in March. We're down 265. I mean that's in--very close to the historical number where we're pricing moves. And a little help from the economy, this thing could move as soon as May. And we've taken a guess. And the answer is no, it doesn't include a full quarter's worth of a price increase, because obviously Pulp & Paper didn't pick it up in May. We've taken an educated guess on when we think it will move and we have some of it in there, but I'm not revealing my guess.

Okay. Thanks, Paul.

Thank you. Our next question comes from Chip Dillon with Salomon Smith Barney.

Yes. Good morning, Paul. First question is on the timber joint venture. It's nice to see these dividends coming through. And I know that a lot of this must be because the JV is selling some of their land. How much more would you expect to see? And could you give us any rough idea, again, as to the amount and sort of how it would be spread out over time?

Yes, I can. But first of all, what I'd like to say is that we've been very pleased with our investment in STV from two points of view. One, the return has been very good. And secondly, STV has been a terrific pulp wood supplier to the mills. Dependable, good people to work with, and they have helped us from the supply side. So that thing's been a home run for us. We're down now with this last sale in the neighborhood of about--we started this venture with about a little less than 400,000 acres of woodlands. We're down less than 100,000 now. And most of the woodlands that are left, a good portion of them, fall in this HBU or "higher beneficial use" category. And so, what will happen now--and again, I can't speak for STV. I am a board member, but just a board member. But the plan would be that to sell as much land as the venture can for higher beneficial uses. That means smaller parcels, longer time to do it. And so I think the pace going forward will slow down. And it could be another two or three years, or even longer, before all that is sold.

So again, we should probably expect to see a couple of pennies maybe, or a penny or two every other quarter kind of thing going out over time?

I hope so.

Okay. And then, same question as--you had mentioned back in January that--a couple things about freight. I think you said one, it was your second biggest cost now I think after fiber, and secondly, you had said that the system is a lot different today than it was say in the years passed. I think you mentioned going from the Midwest to the Northeast by rail had gone up something like 50 percent from 14 days to 22 days--.

--Yes and that was from Valdosta Mill to--we don't have--to the East Coast.

Oh, I'm sorry. So that's South Newark. And so, would you say the absolute--the first question is, is it still true that freight's your biggest--your second biggest cost? And secondly, would you say that the shipping times have continued to be as challenging or has it loosened up any?

First, freight is our second biggest cost. Secondly, it has continued to get worse, but marginally worse. It got real bad real fast last year. And it's one of these things that gets exacerbated when you have real low inventories because you don't have flexibility and you demand more from the transportation system. When you demand less, it appears that they're doing better, but you've got to put that in perspective. You're demanding less and they're doing better on less, so if you give them something harder to do, they don't do it. That's one of the reasons that we save money by running with a little more inventory.

Part of the problems are--is if a customer gets a rush order and they need paper in three or four days. Well, you can--obviously, rail won't work. You can go to truck. But in some locations, if you've got--if it's not a good backhaul situation for trucks, you can get trucks, but you can't get a lot in a short period of time because you've got to find people that can--the backhauls. Or if you want to get those trucks, you can get them, but you've got to pay. And we've had some situations recently where--particularly on the west coast, where medium is very tight. So we've actually had some customers who needed paper pay some big premium freight to get it out there fast. And it's just the availability of trucks in some locations.

Gotcha. And the last question, Paul, is I've had somebody recently ask me about sort of when you look at the containerboard situation, the numbers in March look decent. The demand certainly could have been better. But I guess the concern this person had was on the inventory--I mean, on the export volumes, which it's nice to see us export a lot, but then, you also hear that the pricing is under pressure in the S4 [ph] markets. And do you think that's truly temporary or do you think that there's something more of a challenge there?

Well, let me answer that in two parts, Chips. Just to be as candid as I can with you, I was a little surprised actually at some of the reaction to the March numbers, which quite frankly surprised me. They were better than I thought. Up 2.4 percent. And as a matter of fact, when you first reported, you had predicted, and you hit it right on, inventory going down 86,000. But you also predicted that box shipments would be flat on an average week basis and they were up 2.4. I would've thought you would be as surprised as I am at 2.4. Now, I thought they'd be better than flat. But there really hasn't been much reaction that, hey, 2.4 is a pleasant surprise. I mean, that has not come across at all. And I can't understand a reason for that. Can you tell me?

Well, one last sort of follow-up on that is, do you think--when you think of the first quarter, you actually had two kind of penalties. You had in the sense that Easter was in March instead of April, but also, people have forgotten that we had 29 days in January the year before. Do you think that's going to--those two days, which would actually be almost, I don't know, 6 percent of the business days in the month. Do you think that's going to have enough of an--much of an impact in the second quarter? Are your--is that what perhaps is helping your April? And do you want to share maybe what your volume trends have been in April?

Yes. I don't know if it will help April. And my only point was that I was pleasantly surprised. I was looking--I look at our numbers. I try to--just like anybody else, guess. I thought volume could be up a percent or a percent and a half. And some people call me an optimist. So 2.4, I was a pretty happy camper. April is--we're off to a good start, but I've go to put that in perspective. Last April was the mother of all Aprils. We were up 10.7 percent. And we'd never had a month that good. That was the mother of all months. This year, after the first eight or nine days, we're a little over 2 percent above that 10.7 percent and that's a good start, because we've got an incredibly difficult comparable. And usually, again, we do better in the second half of the month than the first. So I feel pretty good about that start in April.

Gotcha. Okay. Well, thank you very much.

Thank you, Chip.

Thank you. Our next question comes from Claudia Shank with J. P. Morgan. Your question, please.

Hi. I was just hoping you could give us an update on the Filer City/Tomahawk split since Filer City is fully ramped up now. Any complications there?

I am proud to say that Filer City is--and Mark Kowlzan's proud to say--finally ramped up. We struggled with that machine for a while. We had clothing on it when started up with it. It was five years old. We wanted--we don't want to tear up clothing starting it up. We think we are there. We think that machine is dependable. And we are making the swap with Tomahawk number three.

And then, just a question on capital spending, which in the quarter was a little bit higher than I expected. I note maybe that has more to do with sort of annual maintenance projects. Can you just give us an update for your CapEx target for '05?

Yes. Our target remains at 110, and for the very reason you said. It is always higher in the first quarter because when you want to try to take advantage of that maintenance down time to do the high capital projects in that timeframe. So you'd normally spend more then for that very reason. So you've got it exactly right.

Thanks.

Thank you. Our next question comes from Edings Thibault from Morgan Stanley. You question, please.

Thanks, and good morning.

Good morning, Edings.

Just a question for you, Paul. I mean, have you had to--and it sounds like the answer may be yes. But are you having to respond to this rising freight situation by adjusting your price mechanisms? And what have you done in terms of focusing your sales force on trying to claw back some of these extraordinary freight costs?

Well, our vehicle to recover these costs, we announced a price increase effective in April. And we were very hopeful that that price increase would go through in April. Pulp & Paper didn't pick it up. And we remain optimistic that with industry dynamics the way they are that a price increase should occur. We hope it occurs. And that would be the primary vehicle to recover these costs. We have not instituted surcharges or things of that nature to this point.

Okay. And then, regarding these prices, I mean, just--you've always said we should look at the somewhere in between the shipping days basis and the actual days basis, which would put March up about 1 percent. As you look at either the way Pulp & Paper Week reports it, the way you price it to your customers, is the maintenance of that kind of 2 percent type number, that's obviously the critical number here. And I mean, inventories don't seem to help out the way we would have expected. I certainly was as surprised as you in terms of inventory trends being--inventories staying on trend and not really helping. So I guess the question is, what kind of demand do we need to see? And is demand really the critical component?

I do think demand is the critical component. I think as long as--I think that the quantity needs to continue to grow. And I think if that occurs, supply and demand is in very good balance. I mean, we're talking a hair trigger difference. I mean, just think about this. If inventories were 100,000 tons less, you'd be in the magic 2.5 range. And 100,000 tons in a system that produces 35 million tons, you're talking a difference in an operating rate of 3/10ths of 1 percent over a year. I mean, you can't call it that fine. I mean, the problem is that we could go from a very tight inventory situation if you had any blip up in demand. I don't think it's good for the industry to have what we had last summer in terms of shortages and inefficiencies because of transportation.

But, I mean, we're not talking big differences here in operating rates to just dry up what excess inventory there might be out there. It's a very small number in relation to the size of the manufacturing system in this country. Think about it. Roughly 100,000 tons in 35 million. That's a small number. But again, I think it's always the economy--growth in the economy is key to the business.

Right. And you've talked about your own inventory situation being higher--being 10 percent higher. Would you care to measure that in days relative to your sort of box line inventories? Where are they today? What would you have considered normalized levels?

Well, I'll give it to you in tons. We used to think that we could run this business with about 160,000 tons of inventory. And we now think that number is about 175,000. That's not a lot of paper. It's 15,000. But it's like gasoline. When you're near empty, that last gallon is worth a lot. And that's just all on the margins. You can say that 15,000 is not many tons. But if somebody is out of paper it is.

And then, one final question. Just looking at your own box--.

--And one other thing. We have made box plant acquisitions. And that's raised some of these targets a touch, too.

Would you say that--okay. But you've added about 5 percent of capacity on the box side. Is that a fair--?

What's that?

Would it be fair to say in terms of the major box plant acquisitions, particularly the one you made last year, that that would have added about sort of 5 percent of the total capacity?

Maybe 3.

Okay. So it's more like a net 7 percent gain?

Yes, probably.

Okay. And then, just we'd love to get your insights on the box strength. You guys were a lot stronger than the industry. Can you talk about why that may have been the case for your pockets of strength over the last quarter?

Well, I think it's a continuing trend. And it's a hard question to answer. I think we do a lot of things right. I think we have a track record of when we start doing business with somebody, there may be two or three suppliers. And we just think we do a better job. And over time, we tend to grow with existing customers, and we tend to retain existing customers. We tend not to lose as many as others. We may not attract--the growth is certainly not from attracting all new customers. It's growing and getting a bigger percent of the customers we do have. And we think that has been the foundation of which we have grown on.

The other thing that I'd point out, and I've shown slides to people, we continue to invest in our business. We're fortunate that we do not have a lot of debt. We pay down about as much debt as we want to. And so, even though our CapEx is only about 75 to 80 percent of depreciation, it's bimodal. We only invest about 60 percent of CapEx in the mills and that's to maintain the mills and do things to reduce fiber and energy costs as opposed to new--to increasing capacity, because we don't need anymore capacity. But in the box plants, we invest 100 percent of depreciation because we want to continue to grow that business.

And one of the things that has enabled us to grow is we continue to add new pieces of equipment, specialty equipment that allows us to attract new customers and better serve existing customers. So we're investing more in the box plants, say, as a percent of sales, than I think most of our competitors.

And just along that, as you guys switch to the new 35-pound production, what does that give you in terms of additional capacity on a board square foot basis, recognizing your--?

--Well, let me talk about--we're not switching. What we're doing, we run 35-pound at Valdosta now. And we run 35 at Counce now, but only on the one machine. Fiber costs are a lot lower at Valdosta than at Counce. If you look at where all the mills have shut down in the last five or six years, a lot of them are in that Valdosta, Georgia drain. And wood costs are lower there than Counce. So you obviously want to make more square feet where fiber is more expensive and more tons where fiber is cheap. And so, by moving heavyweights to Valdosta, its production will go up a little bit. The square feet will stay the same, but since it's a heavier weight, you'll make more tons there and you'll then use less fiber at Counce and make more lighter weight. So it's not any--it's really not having anything to do with the production rate. They'll come out about the same. It's that you'll use the most fiber where it's the most--where it's the least expensive. It's primarily a fiber cost savings.

Okay. Great. Thank you very much. Good luck with the quarter.

Thanks.

Thank you. Our next question comes from Mark Connelly with Credit Suisse First Boston. Your question, please.

Thank you. Paul, a couple of things. When you look at the downtime you took, etcetera, what does your practical operating rate for this quarter turn out to be? I mean, you're showing terrific volume gains, but if you look at what you could have produced versus what you did, I mean, how close to capacity are you?

Well, our operating rate for the quarter was 94 percent. And that's as much as we could have produced during the quarter, because the other 6 percent was related to our maintenance downtime. And so, we couldn't have--we made all we could make this quarter. And we were bimodal. In other words, we got a--tri-modal. We got a D grade-wise production in January and two A+s in February and March. And we graded out to a B, and that's about--we met our numbers. And we ended--we basically run to an inventory target. We know what inventory we need to run this business effectively. And we want our paper machines to try to stay as close to that inventory target as possible. And our goal was to come out of the first quarter flat with the end of the year, because we're going into the busy season. We are flat on inventory compared to the first of the year. So we got there--we didn't get there on the path that I thought we'd get there, but we got there.

Okay. Two more questions, Paul. When I talked to independents, and granted, they are a smaller part of the market, they are telling me that board is not especially hard to get. And they're, of course, getting squeezed pretty hard. Do you think that's part of the explanation for why Pulp & Paper Week is not putting the number up? Because none of the independents we talked to says that board has gotten tight.

All over the country or in the Northeast?

Northeast/Midwest.

Yes. Well, in the Northeast, let me say this. Our perspective on the market is West Coast is pretty tight. Midwest, pretty tight. The only place that we hear what you hear--and we do not sell very much paper into the Northeast. It's just the market. I mean, there's a lot of recycled stuff that moves there. And when people start talking about pricing, do they--are they comparing recycled with virgin or is it apples and apples, I don't know.

But your view--.

--I will say this. I have been at PCA 10 years. I've never heard any reports out of the Northeast in 10 years that board was tight.

But your view is that the Midwest is tight now?

Yes.

Interesting. Okay. One last question, Paul. I think you said, and correct me if I'm wrong, that Q--that this quarter includes 1 cent of dividend from the timber joint venture?

Yes. We got a normal dividend from--of STV to dispose of extra--I mean, extra cash was passed out to the shareholders.

Okay. It's just normal dividend purposes.

Yes.

Thank you.

Thank you. (Caller Instructions.) Our next question comes from Mark Wilde with Deutsche Bank. Your question, please.

Yes, Paul, I'd like to just talk a little more about the mills, because it seems like you really had a nice volume gain year-over-year with all of those problems in January. And I just wondered whether this 3.5 percent year-over-year--whether that's a realistic number for the full year this year?

I don't know. We would have to run extremely well to get there, but it's possible. I mean, we basically ran--and I'll tell you a story. This is unbelievable. We started up Valdosta after it shut down. And usually you have a lot of problems. The pulp's not exactly right. The draws are different on a paper machine. It's true. We ran six days without a break. I've been in this business 25 years. I've never heard of such a thing. We just had an unbelievable--yes, Mark Kowlzan--he's just--he's smiling. Here he put up his fingers. Three breaks all month. And that's just unbelievable. I mean, that machine is perfect. It was perfect. I mean, you can't run that way unless you have almost absolute perfection. Can we sustain that? No. But hopefully, we're going to do okay.

The other problem is we will begin to make more lightweights ourselves, because there's an up charge on 35-pound. So the more lightweights we can make, the more money we pocket instead of trading.

Okay. A couple of other questions. Can you just--your box volume was up more than your mill volume. Does that imply that you're really reducing outside sales? And would you particularly be trimming outside sales into any export business?

Our mill volume--what was that, Mark?

Well, I think you said the mill volume was up about 3.6 percent and the box volume was up about a little over 5.5.

Yes, 5.7 and 3.4.

So I'm just wondering whether you're pulling back from sales into the open market, including the exports.

We have pulled back. Our exports in March were pretty low, because we don't have the paper.

Okay. And then, the last question. I think there's still a little more land that you guys own outright. And I just--I wonder with what you're seeing in terms of the strength in the timber market and the nice returns you're getting in STV, whether you'd go back and look at selling the remaining land in the Company?

Well, we don't own much land. And the land we do own, we've got some HBU land--higher beneficial use. For example, we've got about a half a mile on the beach in Lake Michigan that is 400 or 500 acres up there. That's the first piece that comes to mind. We've got a piece here and there. But all in all, Mark, that doesn't amount to a big number. In the $10 to $20 million kind of range. Not a lot of land.

Okay. All right. So you're--other than kind of what we can see in that $10 to $20 million and what's left in STV, you're all done land-wise?

Yes.

Okay. Very good. Thanks.

Thank you. Our next question comes from Mark Weintraub from Buckingham Research. Your question, please.

Thanks. So I'm just trying to understanding with Pulp & Paper Week having not shown the price increase, and you've been out with an April box price increase. What are the mechanics on that? Do you go back out again for May or does the April increase stay in effect? How does that work?

We're looking at that right now. That's about all that I can say--exactly what our next move will be. And I can't get into that on this call.

Sure. Second, just a smaller follow-up question. On the STV land sales, do the supply agreements that had been in place, do they carry over after the lands have been sold, or are there any changes?

There were slight changes, but minor in nature and basically they carried over as they were. And that was very important to us. I would not have done--well, my vote would have been against it. But we would not have done them without the type of supply agreement that we had in place. And Southern Timber Venture could not sell that land unless we agreed to a new supply agreement. Or they could have sold it with the old supply agreement, but they couldn't sell it with a new supply agreement. But we did make a few modifications that I think benefited both parties.

Okay. Thank you.

Thank you. There are no further questions. Mr. Stecko, you may proceed with any closing remarks.

Well, thank you for participating in the call. And now, hopefully, this economy will continue to improve. And I look forward to talking to you next quarter. Thank you much.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone have a great day.