Packaging Corp of America (PKG) 2014 Q4 法說會逐字稿

Thank you for joining Packaging Corporation of America's fourth quarter and full year 2014 earnings results conference call. Your host today will be Mark Kowlzan, Chief Executive Officer of PCA. Upon conclusion of his narrative, there will be a question and answer session. I will now turn the conference call over to Mr. Kowlzan, and please proceed when you are ready.

Good morning and thank you for participating in Packaging Corporation of America's fourth-quarter and full-year earnings release conference call. I'm Mark Kowlzan, CEO of PCA. And with me on the call today is Paul Stecko, our Chairman; Tom Hassfurther, Executive Vice President who runs our packaging business; Judy Lassa, Senior Vice President who runs our white paper business; and Rick West, our Chief Financial Officer.

I'll begin the call with an overview of our fourth quarter and full year results and then turn the call over to Tom, Judy and Rick, who will provide further details. I'll wrap things up and then we would be glad to take questions.

Yesterday, we reported fourth quarter net income of $98 million or $1 per share. Fourth quarter net income included charges for the Boise integration and DeRidder mill restructuring of $16 million, or $0.16 per share, including cash charges of $13 million, or $0.13 per share, and non-cash charges of $3 million, or $0.03 per share. Excluding special items, fourth quarter 2014 net income was $114 million, or $1.16 per share compared to fourth quarter 2013 net income of $102 million or $1.05 per share and third quarter 2014 net income of $124 million, or $1.26 per share.

Fourth quarter net sales were $1.434 billion, compared to fourth quarter 2013 net sales of $1.264 billion, and third quarter 2014 net sales of $1.519 billion.

We also reported record full year earnings, excluding special items, of $459 million or $4.66 per share compared to 2013 earnings excluding special items, of $325 million or $3.33 per share. Net sales in 2014 were a record $5.9 billion compared to $3.7 billion in 2013. Full year earnings including special items were $393 million, or $3.99 per share, compared to 2013 earnings of $441 million or $4.52 per share.

Excluding special items, total company EBITDA in 2014 was $1.144 billion, compared to $751 million in 2013.

Details of special items for both fourth quarter and full year were included in the schedules that accompany the earnings press release.

Excluding special items, the $0.10 per share reduction in fourth quarter 2014 earnings compared to the third quarter of 2014, was driven primarily by higher annual mill outage costs, $0.07; lower white paper prices and mix, $0.03; a seasonally less rich mix in corrugated products, $0.03; lower corrugated product shipments with three less shipping days, $0.02; and higher wood costs, $0.02. These items were partially offset by higher containerboard volume driven primarily by the production on the D3 machine at the DeRidder, Louisiana mill, $0.04, and lower taxes, $0.04, related in part to the passage of the federal tax extenders package in December. In total, fourth-quarter results came in where we expected, except that white paper prices and mix were lower and taxes were better.

Looking at more details of our fourth quarter operations, packaging EBITDA, excluding special items, was $250 million on sales of $1.122 billion, which equates to a 22.3% margin. For the year, excluding special items, packaging EBITDA was $1.015 billion and sales were $4.54 billion which equates to a 22.4% margin.

Containerboard production in the fourth quarter was 927,000 tons, up 69,000 tons over the third quarter of this year. The higher production was primarily from the DeRidder number 3 machine which produced 58,000 tons during the quarter after starting up on October 17. As a result of the D3 production, we were able to reduce the outside purchases of containerboard which averaged about 17,000 tons per month through October down to 4,500 tons in December. In 2015, we plan to eliminate all purchases except for specialty grades that we do not produce.

During the quarter, we did increase our containerboard inventories by 45,000 tons. We need the additional inventory during the first half 2015 to help offset reduced production with four of our five containerboard mills down for their annual outages.

In the first quarter, our two largest mills, Counce and DeRidder will be down, and together these two outages will reduce production by about 40,000 tons. The Counce outage will continue into the second quarter, and we will also have our Tomahawk and Filer City medium mills down for their outages.

In addition, in the first quarter, there are two less mill production days than in the fourth quarter, with February being a 28-day month, So, that is an additional 20,000 tons less production, bringing our total lost production to about 60,000 tons. Fortunately, we will have the D3 machine available for the full quarter, so that, along with our other mills running well, should offset some of the lost production.

I'm now going to turn it over to Tom who will provide more details on PCA's containerboard and corrugated packaging sales and demand.

Thank you, Mark. Our corrugated products demand was strong and steady throughout the quarter. With a partial quarter of Boise shipments after the October 25, 2013 acquisition, corrugated product shipments were up 11% over the fourth quarter of last year. Excluding Boise, PCA's fourth-quarter shipments were up 5.4% in total and per work day with the same number of work days each year.

The acquisition of Crockett Packaging in April 2014 contributed about 1.5% of the shipments increase.

For the year, PCA's corrugated product shipments, excluding Boise, were up 4.7% in total and 4.3% per work day, with one more workday, and about 1% of the increase came from the acquisition of Crockett. Including Boise, PCA shipments for the year were up in total 25.5% and per work day 25%.

Prices for corrugated containers were essentially flat during the fourth quarter, but mix was seasonably weaker in the last half of the quarter, maybe a little more than normal as we are seeing some customers moving more of their display and other value-added business earlier in the year. Our outside sales of containerboard were up 5,000 tons compared to the third quarter, and down about 7,000 tons compared to the fourth quarter of last year, including Boise tons in both years.

Pricing for domestic containerboard sales was flat with the third quarter. Export prices were down a little in the quarter which reduced earnings by about $0.01.

Looking at current corrugated shipments data for the first 13 days of January, PCA bookings for corrugated products are up 5% over the same period last year, and shipments are up 7.4%, so we are off to a good start in the first quarter. I should note, however, for comparison purposes the shipment numbers are probably overstated by about 2%, because January 2 is not a recognized FBA shipping day, but about half of our box plants operated that day.

I will now turn it over to Judy Lassa who will discuss white papers.

Thank you, Tom. Our paper segment EBITDA in the fourth quarter of 2014 was $45 million on sales of $284 million, which equates to a 15.8% margin. Our white paper mills ran well, producing 287,000 tons in the fourth quarter. We did have our Jackson, Alabama mill down seven days in November for its annual maintenance outage, which reduced production by about 10,000 tons and increased operating costs.

Office paper shipments during the fourth quarter were down 6% compared to the fourth quarter of last year. During the past year, we elected to exit some business which reduced our shipments. Printing and converting and pressure-sensitive paper shipments were down 12,500 tons compared to last year's fourth quarter, driven by the International Falls, Minnesota machine closures in the fourth quarter of last year.

Industry publications reduced office paper prices by $10 per ton in November and an additional $5 per ton in December. The November price reduction did impact our fourth quarter office paper prices, our overall mix was unfavorable and we saw slightly lower prices for both printing and converting and pressure-sensitive papers.

Excluding special items, 2014 EBITDA was $186 million, up $53 million or 40% from 2013 full year EBITDA, which includes the periods owned by Boise and PCA. Sales were $1.2 billion in 2014.

I will now turn it over to Rick West.

Thank you, Judy. PCA generated cash from operations in the fourth quarter of $179 million, and for the year, $736 million. Capital expenditures in the fourth quarter were $165 million and for the year $420 million. Common stock dividends of $39 million, or $0.40 per share, were paid in the fourth quarter, and we made $78 million of cash tax payments.

Total debt reduction since the acquisition of Boise on October 25, 2013 is $300 million, and our long-term debt is now at $2.355 billion. We ended the quarter with $125 million in cash on hand.

As we normally do at the beginning of each year, PCA provides estimates for certain 2015 items. We expect total capital expenditures to be between $275 million to $300 million. DD&A is expected to be $345 million, up $5 million over 2014 recurring DD&A, which excludes accelerated depreciation for the DeRidder restructuring.

Pension expense is expected to be $30 million, up $5 million over 2014. We expect to make minimal cash pension payments. The combined federal and state effective and cash tax rate is expected to average about 35.5%.

Based on our current long-term debt, with current LIBOR rates, interest expense in 2015 would be about $90 million, and cash interest payments would be about $86 million, up $9 million over 2014.

Based on current planned annual maintenance outages at our mills, the total earnings impact of these outage, including lost production, direct cost increases associated with the outages, and repair costs during the outages, is expected to be $0.55 per share. The current estimated impact by quarter in 2015 is $0.13 per share in 1Q, $0.16 per share in 2Q, $0.08 per share in 3Q, and $0.18 per share in the fourth quarter of 2015.

In terms of MLPs, we do not have anything new to report on our MLPs deliberations, other than we are continuing our modeling and tax analysis efforts as we await action from the IRS on our request for a private letter ruling which was filed in November.

Before I turn it over to Mark, beginning with reporting our first quarter 2015 results in April, we will return to reporting our year-over-year results rather than sequentially quarter to quarter. We now have a full year's operation with Boise, which for comparison purposes will allow us to go back to our traditional method of reporting results.

I will now turn it back over to Mark.

Thank you, Rick. In summary, 2014 was a very successful transitional year for PCA with the integration of the Boise acquisition and the completion of the redesign, rebuild and startup of the DeRidder number 3 machine to produce containerboard.

All areas of the company worked hard to accomplish these objectives, and it shows in our reported results, with earnings per share up 40% and EBITDA up 52%, excluding special items.

As you know, we raised our synergy estimates after the Boise acquisition from $105 million at the time of the acquisition to $175 million on July 22, 2014, when we reported second-quarter earnings. During 2014, synergies of $100 million, or $0.65 per share, were realized. Over the next two years, we are now estimating that our total synergies will increase from $175 million to $200 million.

Looking ahead, our earnings in the first quarter our normally lower than the fourth quarter, and that is again the case this year. We expect lost containerboard production of about 60,000 tons and higher operating costs from annual maintenance downtime at our two largest containerboard mills, and two less production days compared to the fourth quarter. This will be essentially offset by lower amortization of annual outage repair costs.

Corrugated product shipments are expected to be seasonally lower, and white paper prices are expected to be lower with a full quarter's impact of published price decreases. Seasonally colder weather will increase wood, energy and chemical costs. In addition, labor and benefit costs will be higher with annual wage increases and timing-related benefit payments. These items will be partially offset by the higher production on the D3 paper machine and lower interest expense from an annual interest rebate on a portion of our debt.

Everything considered, we currently expect first quarter earnings of $1.07 per share to $1.10 per share.

With that, we would be happy to entertain any questions. But I must remind you, some of the statements we've made on the call constituted forward-looking statements. These 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 our annual report on Form 10-K on file with the SEC. The actual results could differ materially from those expressed in these forward-looking statements.

With that, operator, I'd like to open the call to questions. Thank you.

(Operator Instructions)

George Staphos from Bank of America.

Congratulations on the year and thanks for the detail. My general line of questioning is aimed at either trying to bridge into first quarter or look at year-on-year trends. The first question I had is, if we look at the impact of Boise, both in terms of synergies and the add from D3, is it possible to isolate how much EBITDA that contributed in fourth quarter and/or into the first quarter when we look back at prior-year period?

And, then, the second question I had, we remember first quarter last year there was significant weather-related issues for all the companies, yourself included. I think the number was around $0.06 a share that you had called out. I was wondering if we shouldn't be seeing more benefit of that in your year-on-year comparisons this year, and if there's anything that, from an operating standpoint, or market standpoint, has cropped up that's a little bit more of a headwind than you would have expected. Thank you.

George, I'll take a shot at those questions. Let me start first with looking at 1Q 2015 earnings guidance versus last year's first quarter at $1.08 per share. If we look at the things that should improve last year's first-quarter earnings of $1.08 per share compared to this year's first-quarter earnings, we do have additional synergies of $0.16 per share compared to last year's first quarter. That equates to about $100 million more.

We had $25 million annual run rate in the first quarter of last year, with all of the things we did immediately after the acquisition. We now have the additional $100 million in the first quarter of this year, so that adds $0.16 per share.

Secondly, if you look at our corrugated products growth for last year, and our mill productivity, that adds an additional $0.10 per share. So, a total of $0.26 per share compared to last year.

There's three items that offset that. The first item is that we do have higher annual outage costs in this year's first quarter compared to last year's first quarter of $0.07 per share. In last year's first quarter, we only had the Counce mill down, which was about 22,000 tons. In this year's first quarter, we have both the Counce and DeRidder mills down.

The DeRidder mill was not down last year, it was a year that we did not have an outage. This year is a more extended outage, and we do have some additional direct costs in buying purchased electricity, because we have the turbine down for a seven-year inspection, which does make the number higher. So, that's $0.07 per share off.

In addition to that, in normal inflation and other cost increases, after taking into account the positive impact of natural gas and some other what I would call deflationary items, the net of all the inflation is $0.10 per share year over year. So, that's a hit to earnings of $0.10 per share. Finally, in looking at price and mix compared to last year's first quarter, that's down about $0.10 per share and it's primarily in export containerboard and white papers.

Now, in terms of the bad weather last year, if I recall correctly, we did say some of that showed up in the first quarter, some of it showed up in the second quarter. In terms of this year, one of the reasons that we give the range of $1.07 to $1.10, is the factor of weather, not knowing what will occur for the remainder of the quarter. So, that's what is represented in the range.

That's basically year-over-year a layout of our earnings. As Mark said earlier in relation to your other question with Boise contribution to PCA's earnings, and I will just say for the full year, he said we did realize $100 million of synergies plus the EBITDA that we purchased. So, they were a major part of our increase in earnings year over year.

Thank you, Rick. Very helpful.

Mark Weintraub from Buckingham Research.

In following up a little bit more on that, and trying to understand, so, the additional $0.07 outage, you had previously mentioned that in total there is $0.55 for all outages this year. Was that a similar apples-to-apples number being used there? It says the outage, the $0.07 you were talking about, does that include lost production that's not included in the $0.55, all outages numbers you had talked about previously?

It's a comparative number for all periods in the first quarter of last year. Our total outage costs was about $0.07 per share and this year it's about $0.135 per share. And that does include all three components.

In the press release, we did say, in looking at 3Q to 4Q, when you take into account all of the items that make up the difference in the 60,000 tons, which includes the outages plus the two days of less production driven by February, that's really offset by the lower repair cost amortization, which does go from the fourth quarter, from $0.14 to zero. So, you are getting a $0.14 positive. But, that's going from 4Q to 1Q.

But in terms of the overall impact for the year, with the DeRidder outage, we're going from a total annual outage cost in 2014 of about $0.48 per share, to about $0.55, as I said earlier, for 2015. And all of that is being driven by the DeRidder outage in the first quarter of the additional $0.06. So, we are absorbing that entire increase in the first quarter.

And, Mark, as Rick said earlier, the reason for that big difference is we had no annual outage at DeRidder last year. And we have an extra one and it's now our largest mill.

Okay. That's very helpful. And just a quick follow-up, if I could. On the synergies, I think you indicated that you're at about $125 million run rate expect for this quarter. The target is now for $200 million. Can you give us a sense of the timeline for when you would expect to get to the $200 million run rate?

Mark, we anticipating over the next two years, 2015, 2016, we should achieve that. Again, as the year rolled on last year we continued to discover new opportunities.

One example of that is the new turbine generator that we're installing currently at International Falls mill. That's an example of a high-return project that we've gone after very quickly to bring to the bottom line, reduce energy and efficiency of the mill.

Another one, Mark -- this is Paul Stecko -- that we can mention, and Mark and his people have done some outstanding work at DeRidder, which is the pulp limited mill. We are out of pulping capacity there. That's why we purchase OCC for D3.

But, we have come up with some very good ideas to debottleneck the pulp mill and get more pulp production. And we're making some changes, as a matter of fact. We will get some of that on this annual outage there, and a brown stock washing area. But that is a fairly good part of the reason we've increased the synergies, because of the additional pulp capacity we can bring on at a pulp limited mill.

Great. Thanks very much.

Chip Dillon of Vertical Research.

Could you talk about the DeRidder ramp-up? I know you started that in October and you usually take some time before you get the full benefit. I think you were saying you expect it to have a net benefit of about $60 million of EBITDA. And I know some of that is from the forgone purchases. So, could you tell us where we stand with that and how much more is left?

When we started up in October, we talked about the anticipated curve and at this point we are very pleased with where we are. We did realize about $0.04, I believe, on the fourth quarter of benefit from the production off that machine.

And as you'd expect during the start up period, startup curve, expenses, costs are going to be higher. So, that would impact the benefit. And, again, that would mean down initially. As time rolls on, your costs are reduced, your efficiencies are improved. And, again, we did take advantage of the time in the late November, early December to do a lot of great development, which we had not anticipated being able to take advantage of until later.

So, that was some of the costs that occurred. But, again, it helped us get ahead of the curve and prepare the machine to supply the necessary tons into our system. Again, with the numbers that we did lay out for the project, we still stand by the numbers and, again, I think you'll see that as the year goes on, that the machine has been performing well.

I think if you look at the machine performance on an efficiency basis, the DeRidder 3 machine is running as well as any other machine in our legacy system, so we are quite pleased. Again, with what Paul just said about the work we've been doing at the pulp mill, we've been able to free up more virgin capacity and that has allowed us to undertake the grade development sooner. So, we're very pleased, there. Again, we are still holding with the numbers.

Let me just add one thing. On the startup of a machine, this is a very difficult conversion. We are doing some things that haven't been done before. We are in, even for our own selves, in some uncharted regions.

We have had a few problems along the way, minor in nature, that will rectify during our outage at DeRidder in the first quarter. Mark said our efficiencies are very good, and they are. But we're not able to run that machine at full speed, yet, because of some modifications that we have to make, and we will make. So, we are being held back a little bit on top end in terms of making a lot more tons until we correct a few things.

But the good news is, we are excited about the potential of what this machine can do and what we found out in our grade development activities. Now, we've just got to make some modifications. That's the first point. And that will be completed by the end of the first quarter.

Secondly, on a startup, you had two types of startups. One is on production. Can you ramp this machine up from nothing to 1,000 tons a day. That's one objective.

But when you start up a new machine, you also experience higher costs for a lot of reasons. Everything's new and you are learning on the run. Once you get the machine up to a speed, and while you are doing that, you also have to work on a lot of things to reduce the cost of production.

So, we expect two things over the next three to six months on this machine. Production will go up and cost will come down. Those two together will drive the productivity to the kind of numbers that we think this machine is capable of. I just wanted to amplify a little on that point.

Got you. That's helpful. And then just one quick follow-up. We've seen in the last few months a number of other players, if you will, forward integrate into box plants, and that's been a strategy you guys have had. Could you, A, update us on where you see your integration level right now? And, secondly, do you feel you want to continue to move that up and is it getting more challenging to get attractive box plant assets given the competition for them out there?

Yes. Chip, with the startup of the DeRidder machine, we brought our integration level down from the low 90%s into the mid 80%s. And for full year, the integration would have been 90%. But, again, with the capacity that DeRidder 3 is delivering, again, we are back down into that mid 80% range.

So it presents an opportunity for Tom's side of the business to continue to grow. Tom, do you want to add to that?

I would just say that we continue to have a target that's 90%-plus in terms of our integration. So, we'll be looking, obviously, to continue to grow our business organically, and we'll take advantage of the acquisitions that present themselves when they come along.

Okay. Thank you.

Anthony Pettinari from Citigroup.

If I look at your EBITDA per ton in corrugated, it was significantly lower year over year. You indicated containerboard prices were mostly flat. You also talked about the DeRidder startup and some of the mill outage expenses. Paul, you reference getting out some of the kinks in DeRidder. As we go to 2Q, 3Q, assuming prices are flat, would you expect your EBITDA per ton in corrugated to get back to the level that it was for most of 2014?

As Tom said earlier, the biggest change in corrugated in the fourth quarter was mix. Tom elaborated, if you recall, on our last call, that we had a surprise and our mix was richer in the third quarter, and he speculated at that time that some of the people, in order to make sure they got all their product in time, were moving the display business and some of the high-end stuff earlier in the year.

That turned not to be the case because our real high-end business displays, et cetera, were less in the fourth quarter than we anticipated. For the full year, they were about where we thought. But they moved them earlier in the year.

We had one accounting change that affected the EBITDA margin, which will go away. But, Tom, do you want to comment on that mix thing first?

I would just say exactly basically what you said, Paul. When we were on the third-quarter call, if you recall, our mix was significantly better. A lot of that was due to the fact that our value-added business was up significantly. And we speculated at that time that many of our customers were moving those Christmas orders up, as an example, and that's just because, seasonally, this Christmas season and this push keeps moving up earlier and earlier in the year.

That held true to perform in the fourth quarter and that's why our mix was down a little bit on that value-added business. Now, you just see the Christmas season, as it evolves, it's I think much more oriented towards the big box and the department stores earlier in the year, and then as the year winds on, the Internet sales really pick up. That's the color I'd add.

Rick, do you want to comment on the accounting item?

Yes. Right now, with the integration of Boise, we're still operating on two different bases in terms of systems, and more so on the payroll system, their payroll system and our existing method for paying product. So, at the end of the year you try to look at everything to ensure that you have it in the proper bucket.

We had to move about $3 million of labor-related costs from the corporate segment back to the packaging segment in the fourth quarter. So, you took a full year's hit in the fourth quarter, whereas it should have been about $600,000, $700,000 per quarter versus the $3 million in the fourth quarter.

So, that $3 million also affected the margin in containerboard and that should've been spread across the year. So, the first three quarters were overstated just a touch and the fourth quarter caught it up.

Okay. That's very helpful detail. Then maybe just a follow on for Judy. You spoke about potentially exiting some white paper business. Is that continuing in 1Q, or is there any color you can give us around that?

No. I think it was just the changes that we made in 2014, and part of that was due to reshuffling our system with I Falls reconfiguration.

Okay. So that process is largely over.

Yes.

Okay. I will turn it over. Thank you.

Alex Ovshey from Goldman Sachs.

I wanted to go back to the earnings bridge on a year-over-year basis for the first quarter. You talked about $0.10 of higher costs with labor, other costs being partly offset by impacts of lower energy. Can you maybe elaborate a little bit more on some of the cost buckets that you're seeing that are inflationary? And maybe thinking about the full year, is that $0.10 something we can annualize and assume that there is $0.40 of cost inflation the business will see on an annual basis? Or is it a high $0.10 number in the first quarter and then potentially tapers off as we move through the year?

It's a couple of both. If you look at the first quarter, the is a couple of things that hit you all of a sudden compared to the fourth quarter. The first is that, for the most part, all of our salaried employees will see their annual wage increase on January 1. So, that's an immediate increase from fourth quarter to first quarter.

Also, the majority of our union contracts for all hourly employees move up in January. So, that's an immediate increase.

The third item that's an immediate increase from fourth order to first quarter is the fact that certain statutory benefits, such as FICA, are paid out earlier in the year, and they start back up in the first quarter and then they wind down. And then there are certain benefit-related payments that come in the first quarter and then they go down.

So, in terms of the labor inflation, there's a portion of it that winds down, there's a portion of it that's fixed, more so on the annual wage increases. That's probably the biggest item that you see in a negative inflation.

We've also had some in freight year over year. And everybody is aware of that, the continuing problems with rail and truck availability that's driving up the cost and, to a large extent, offsetting the positive benefits of lower diesel prices.

You do get a really good benefit in natural gas. We do burn more natural gas than we used to, with the addition of the white paper mills and the DeRidder mill. So that is a benefit.

But if you think about it on an overall standpoint, it's very difficult. You can predict, to some extent, the inflation for annual wages, which are generally 2.5%, 3%. Your other benefits, primarily medical, you are aware of how much that goes up every year. But in total you have to realize that when you look at our cost of goods sold and our SG&A, excluding depreciation, and you can take it right off the 2014 press release, it's about $4.5 billion.

So, you've got to put a percentage to that to what you think a lot of the factors will be, and I've talked about a few, but it is a large number. So, I can't predict the inflation to any great extent for the overall year. But there are certain things, of course, that we had last year, as you can by the year-over-year comparison for 1Q to 1Q. But that will be a number that we will have to overcome in 2015 by whatever we can do, and we have some positives going into 2015.

I would add to that, we don't give full-year forecasts, we give quarter-over-quarter forecasts. Rick did say that we've taken more of a hit in labor this quarter than we will the other quarters. But coming up with an inflation number for the year, it's anybody's guess.

We've got roughly $4.5 billion. If we have 1% inflation overall, that's $45 million. If you have 2% inflation, that $90 million. My guess is it's going to be in the 1% to 2% range. Where, I really don't know. And we kind of sneak up on that quarter by quarter.

Okay. That's fair. Just on D3, now that it's running, can you update us on what you expect the operating capacity of that machine to be on a full-year basis -- not necessarily production, but just what the stated capacity would be and whether it's changed since the last time there was an update? And, then, what's the expected fiber furnish for the facility? What percentage of it is virgin versus OCC based?

When we announced the project, we said, I believe, it was going to be a 355,000 ton a year type project, and that's what we're looking at right now. The fiber furnish, again the opportunities we have, depending on whether we choose to make medium or liners, we can utilize the OCC plant and we can go 100% recycled fiber all the way up to a blend of, say, 70% virgin and 30% OCC.

So, we have a tremendous amount of flexibility on the machine. And with the work coming up a month from now on the pulp mill, we will enhance that capability and ensure that we have that mix of 70/30 if we choose to make liner on the machine.

Okay, great. That's actually very helpful. Thank you.

Philip Ng from Jefferies.

A quick question on prices on the export front. Have you seen it stabilize a bit? I know in the trade press's publications, it seems like it has taken much of a decline. Have you seen a further decline in January?

And then on (inaudible) can you talk about what your thoughts are on pricing? Are you starting to see it stabilize in Q1?

Phil, at this time, I will take the first question on export prices. They came down a touch and they basically have stayed there. We don't speculate going forward on what we expect prices to do. But, that's all I can tell you, is that that's where it is at this point.

Judy, do you want to take the other question?

White paper prices going forward, again, we don't forecast where prices are going. As Judy mentioned, trade publications, which we're tied to, dropped the prices, $10 in November, $5 in December.

[$10 in November and then $5 December] (corrected by company after the call).

Yes, I said it backwards, I'm sorry. We only got a partial quarter hit on that. We'll get the entire quarter hit in the first quarter. And where white paper prices are going are going to depend on a lot of things.

The economy -- is it going to get a little more robust with all the cash available that you are saving on gasoline? That a positive. Where are imports going to go in terms of up or down, in that regard. So, it's something that remains to be seen and we're not offering any forward price estimates at this point.

Okay. And I appreciate the color you provided earlier about your 1Q guidance, with 1Q seeing a larger than normal hit with the maintenance expense and some inflation. How should we think about the $0.06 hit on maintenance in 1Q being spread out in a more favorable fashion in the remaining quarters? Is it pretty evenly spread out or is it more 2Q-centric?

I gave the numbers. We took the year-over-year increase totally in the first quarter. When I gave the numbers for the $0.55 per share in 2015, the overall cost of outages in the first quarter is $0.13 per share. The overall cost for outages in the second quarter that we see is $0.16 per share because we've got additional time at Counce, Tomahawk, Filer City, and we begin to amortize repair costs.

In the third quarter it goes down all the way down to $0.08 per share because we essentially have very little downtime in the third quarter. In the fourth quarter it goes up dramatically because there are outages, as well as the full recognition of repair costs. So, it goes up to $0.18 per share. So, in terms of the increase year over year, it is all in the first quarter.

Okay. That's helpful, Rick. And then just one last question, I don't know if you guys can talk about it, it's still pretty early. Any update on how we should be thinking anti-dumping case as relates to white paper and how is that going to impact you in a positive or negative way in the coming quarters?

Again, what you see in the press with the announcement of the case, it's in the hands of the government in terms of the Department of Commerce and International Trade Commission to go ahead and do their investigation. So, that's really all I want to say at this time.

Okay. Thanks, guys.

Debbie Jones from Deutsche Bank.

You did a pretty commendable job outpacing the industry in the corrugated demand growth. I was just wondering, out of the Boise acquisition, should we continue to see PKG outpace into 3 in 2015? Or do you think you will be more normalized with the industry trend?

Debbie, we would expect to grow our business just like we've always grown our business, both organically and through acquisition. I think it'd be pretty obvious that we will continue to outpace the industry, or that certainly is our expectation.

This is Paul Stecko, Debbie. To add to that, that's our goal, a goal different than performance. So, they only performance data is, we are up a bunch the first half of January, and so we are off to a good start. The rest of the year we hope to continue that trend. Two-thirds of a month's data doesn't make a trend, yet, but we are off to a good start.

Okay. Thank you. I think it makes sense year to date, even better. But I'm just wondering, looking out, what you are hearing from your customers, seems relatively positive. But that's helpful.

They keep telling us they like us. So, that's all about I can tell you, there.

All right, that's good to hear. I'm also wondering if anything has changed over the last three months to impact your thoughts on capital allocation, dividend, share buybacks, or your debt paydown, the goals you've already stated?

No. We do have the positives of having our debt refinancing done that took us out of the way and takes away some of the urgency to pay down debt. And our balance sheet is in very good shape. So, we'll continue to look to return cash to shareholders, whether it be dividends or whether it be share repurchases. And we think we are in a very good position going into 2015 to do that with lower capital expenditures as I said earlier today. We'll be looking at that as the year progresses.

Yes. We'll still pay some debt off but we won't pay as much as we originally thought, and that hasn't changed.

Okay. Thank you very much. Good luck in the quarter.

Chris Manuel from Wells Fargo Securities.

The first question I wanted to ask was, as we look at the new DeRidder machine, 355,000 tons, let's call it roughly a ton a day, it looks like you were a bit below that in the 4Q.

No, a ton a day is not right. You got to carry three zeros.

Okay, I apologize. Where I'm going with this, when you look at your per day rate, it looked a bit light in 4Q, where you were running. However, you've talked about getting some of the improvements and some of the different elements, experience running a machine and some of the other costs out, and et cetera. As you are running it today, are you close to rated run rate on the machine, or are you still running a bit below?

Again, when we talked on the earnings call in October we said we expected to make about 50,000 tons. We made 58,000 tons, so we exceeded the start-up curve period for the 4Q.

And then, again, as we ran the machine and learned about the capabilities of the machine, in order to produce some of the liner grades that we had not expected to produce until later, we did run slower and we were taking advantage of the virgin crafts fiber which became available. Again, identifying opportunities on how to utilize that virgin craft.

So, again, for 4Q we actually exceeded the curve expectations on tons per day. And then, again, with the current mix of linerboard and medium being produced on the machine, we are still going according to the curve. And we will take advantage, as Paul said, with the shutdown coming up a month from now, with some modifications and some equipment that we are installing that will better enable us to take advantage of the craft fiber. Then, theoretically, move the speed up and move the productivity up to a higher level.

For the quarter, Mark just said we made 58,000 tons. You divide that by the number of days we ran, you get about 600 tons a day of the 1,000. And we move that up over the quarter. So 600 was the average, we all obviously exited the year at a higher number than that, if you average six higher. We started out at zero.

We're not at the 1,000 and we need to do a little bit of work on the machine. We will get up to the 1,000. But we're fairly close.

Okay. That's helpful. My second question was -- and, Rick, thank you much for running through the bridge on a quarter-over-quarter basis for how we think about that. The one element that I was unclear about or wanted to get a little more color on was when you think about your volume assumptions, you talked about thus far this quarter you were up mid single digits, upper single digits depending on how you looked at your extra day, thus far. Where would that fit within the bridge? It would seem as though -- or have you baked that in somewhere and I just wasn't aware of it -- a higher volume performance?

When we do a bridge year over year, we bridge it representative of what we've been able to accomplish. Even when we go from 1Q 2014 to 1Q 2015, we're basically expecting the same type of growth, as Tom said in this call, and what we've experienced historically. So, we have built that number into our first-quarter number year over year.

Okay. You are already embedding a up somewhat low mid single-digit number in there. I'm with you, then. Okay, thank you.

Absolutely, because that's the only way you can do it looking over year over year, is to how did you do last year and what are you envisioning for your growth this year to help offset the inflation that normally occurs.

Thank you.

Scott Gaffner from Barclays.

Just going back to a prior question on your growth versus the market. As you continue to grow, you get to be more of a proxy for the entire market, I would think. Historically, my understanding is you've grown through going after some highly profitable niche business. My question is more centered on, how long do you think that can last? Is there still plenty of that highly profitable niche-type business out there for you to go after? Is this a couple of years until you get to be more like average, or do you think there's a longer runway than that?

Scott, this is Tom. I think one of the ways to answer that is to take a look back first and to look at our performance. We've got a long track record of growing the business certainly more than the industry has.

We've done it in a lot of different ways and I'm not going to disclose all those best-kept secrets, if you're on a call. But I can tell you that our expectation is that we will continue to do that. We see plenty of opportunities to do that. We position ourselves in a way with our customer and with the type of customers and the type of products we produce, it's been very good to us. And we continue to see those opportunities.

This is Paul Stecko. I would add to what he said. We are selective in the type of business we want to pursue. And we can be selective because we're only 10% of the market. It's not like we are 50% or 60% of the market. We still have the other 90% of the market that we can be selective in. So, we've got a lot of room to grow.

If we increased our volume by 50% more -- now, it took us roughly a decade to increase 50%, going from about 6.5% to 10%, that's a 50% increase. If we increased another 50%, that would only take us to a 15% market share. So, we've got a lot of runway. When we get to a much bigger number, I think that question may come into play, but that's going to be quite a way out.

Fair enough. And then on the demand trends within the quarter, I don't know if I missed that or not, but can you talk about how things -- you talked about the mix shifting as the quarter went on, but how were the sequential sales trends within the corrugated market throughout the fourth quarter?

The fourth quarter was very good and demand was strong and steady, as I mentioned. I also shared with you what the bookings looked like so far in the first quarter, which were up 5% over the same period last year, and shipments are about 7.4%, which probably will equate to something closer to about 5.5%, once we compare actual days. So, we're off to a very good start.

Right. But no meaningful difference, say, October, November, December of the fourth quarter, in any one month?

No. Pretty steady.

Okay. And then just last question, you did mention e-commerce really picking up late in the quarter and taking the growth mantle, taking over for the display business. Any idea now how much e-commerce represents of the total business? Is this enough now to really move the needle within the Company?

We don't really break that out and talk about exactly what portion e-commerce is. And, quite frankly, it's still a hard number to get your arms around because a lot of customers do both. They are in both segments, so it's tougher to get your arms around.

But, I don't think there's any question that the needle does get moved now on e-commerce. That's become a growth area, certainly, for the industry.

Great. Thanks for all the color.

Al Kabili from Macquarie.

I wanted to just clarify the year-over-year headwind on the price mix of $0.10 per share that I think Rick mentioned in the first quarter. If I think about paper prices, they were trending up early last year. And, so, the year-over-year variance, I wouldn't think, is too much on the paper price side. On the export side, clearly dollar prices are down. But fortunately you expert a lot less than most so I wouldn't think that's hugely material. I'm struggling a little bit with what drives that large of a $0.10 price mix hit year over year.

Judy, do want to take white papers?

Again, we are up year over year. But, as Paul mentioned before, in Q1 we do have some headwinds with the publication prices dropping.

As you recall, last year there were announcements but it took the trade publications forever to recognize them. They all didn't go up in January. It took through into the second quarter before they got fully realized, and both of them didn't get totally realized, anyway.

So, there's a lag. And prices then went up and now they've fallen back. So, it's a timing issue. You didn't get that price increase effective all January 1. Most of it was not in the first quarter, in terms of realization. So, that's one.

And, of course, export prices have fallen, as you mentioned. And then the trade publications moved the price of medium down over the year, I think $20 on the West Coast and $10 in the East, so that affected us, too. That's basically the major movers that changed it.

Okay. Because the point on the pricing, the year-over-year variance, because there was the lag, that's what I was trying to get at, that wouldn't be so much of a negative year-over-year variance because of the lag. If anything, it may even be slightly positive. Medium is a small factor, open-market medium prices for you.

I'm Just struggling. Is it mostly mix that's driving that year-over-year headwind? Is there something going on with mix that we are not appreciating? And do you see this type of a headwind? I know you don't give guidance, but do you see this headwind continuing throughout the remainder of the year, as well?

I will let Judy take the mix question. But on price, the price is down year over year for the reason I just went through. We didn't get most of the price until the second quarter. Then, it went up and then down.

So, our prices December over December were down compared to last year. So, it's a negative because of the timing on when it went through. Judy, you might talk about mix.

On the white paper side of things, we do have a mix issue in first quarter in addition to the publications moving. We actually, if you look at our office in our [PNC], we actually are ahead and there's just a mix with pressure sensitive and pulp that are making it lower.

Okay. All right. And on the containerboard side, is there any notable mix change year over year where we are assuming in 1Q, or is mostly the mix is on the paper side?

Just a slight variance in mix for us on the containerboard, corrugated side in Q1. But the two best quarters for mix and containers were in the second and third quarters. And the two weakest were the third and the fourth. But year over year we expect it to be about the same.

Okay. All right. Thank you for that. Just final follow-up question for me, Rick, just on total outage expense, in totality, I believe the $0.55 will be pretty similar to 2014. So, it's just a matter of the timing of the total maintenance outage expenses when it hits in the quarter? Is that fair? Maybe it's up $0.03, $0.04 year over year in total.

No, I said it was up about $0.07 year over year. And it's all in the first quarter that we have the additional hit because of DeRidder. In terms of the outages year over year, in last year, in the first quarter, we had $0.07. This year, we have $0.13.

Last year in the second quarter, we had about $0.11. This year we have $0.16. Last year in the third quarter, we had $0.12. This year, we have $0.08. Last year we had $0.18 in the fourth quarter, this year we have $0.18 in the fourth quarter.

So, the $0.06 per share increase, $0.06 to $0.07, is in the first quarter. And then you have some shifts in the third quarter, with the third quarter this year being lower based upon the timing of when the outages occur.

Okay. Got it. That's what I was trying to get it. That helps a bunch. I appreciate it. Good luck the rest of the year, here. Thanks.

Mark Wilde from Bank of Montreal.

(inaudible) side of your business. We have had a lot of currency movements including some pretty big ones in Latin America.

I'm sorry, Mark, we missed the first part of your question. Could you repeat that?

Yes, Mark, I'm just curious about the impact of FX on both sides of your business. And particularly FX down in Latin America and places like Columbia and elsewhere.

Mark, the strong dollar obviously is impactive to us. That does affect some of our decisions relative to our export business, and will impact the margin somewhat, as we've talked about.

But I would say, Mark, that some of the regions of the world that have been more impacted than others, where export prices are the lowest, we don't participate in those regions. And it's even getting worse in those regions because of the strong dollar. You are very perceptive in that regard.

Okay. The second question I had, can you talk about wood costs and wood supply issues in any of your markets where it looks like it might be an issue?

Mark, when you look back at 2014 with the wet summer we had in the upper Midwest, the unrelenting rain through the Minnesota-Wisconsin area, impacted us, particularly at Tomahawk, through the fall. The winter wood build that normally would have taken place didn't occur. So, that's been one particular area that wood cost has definitely impacted us.

And then the Southeast, the southern Georgia, the Panhandle region, we had a wetter fall and that impacted the ability to move some wood in. So, that area, along with pellet plant activity, again, just the ongoing demand on the wood basket. But the moisture in the fall definitely impacted us in the Southeast and the upper Midwest. And we're just starting now to recover -- with the better winter conditions, now, we are just starting to recover and see better logging conditions.

Okay. The last question I had, Mark, if you look at these machine conversions that have been done into containerboard over the last few years, it seems like the track record has been pretty checkered. And I wondered what kind of lessons you guys have learned from doing D3.

I agree with your comment and have said before in the last few years, you can convert anything, it's a matter of how much capital you're willing to spend and also the knowledge that you put into it. We have a unique set of capabilities and we identified the necessary capital to achieve what we needed. We are doing some unique things on the machine that others don't have the capability to do and/or choose to spend the money on. Part of it, again, is just our in-house expertise and being able to take advantage of a unique situation at DeRidder.

And obviously, Mark, we don't want to share that technology with competitors. So, that's why we're tight-lipped about that. We think we know how to do some neat things and we want to keep it to ourselves.

Okay. Fair enough. Thanks.

Okay. With that, operator, thank you for participating in the call and we'll look forward to talking with you in April. Have a good day. Bye-bye.

This does conclude today's conference call. Thank you for your participation. You may now disconnect.