Packaging Corporation of America (NYSE:PKG) Q2 2024 Earnings Call Transcript

Packaging Corporation of America (NYSE:PKG) Q2 2024 Earnings Call Transcript July 24, 2024

Operator: Good morning. Thank you for joining Packaging Corporation of America’s Second Quarter 2024 Earnings Results Conference Call. Your host today will be Mark Kowlzan, Chairman and Chief Executive Officer of PCA. Upon conclusion of his narrative, there will be a Q&A session. I will now turn the conference over to Mr. Kowlzan. Please proceed when you are ready.

Mark Kowlzan: Good morning, everyone and thank you for participating in Packaging Corporation of America’s second quarter 2024 earnings release conference call. Again, I’m Mark Kowlzan, Chairman and CEO of Packaging Corporation of America. And with me on the call today is Tom Hassfurther, Executive Vice President, who runs the Packaging business; and Bob Mundy, our Chief Financial Officer. I’ll begin the call with an overview of the second quarter results. And then I’ll be turning the call over to Tom and Bob, who’ll provide further details. And then I’ll wrap things up and we’ll be glad to take questions. Yesterday, we reported second quarter net income of $199 million or $2.21 per share. Excluding special items, second quarter 2024 net income was $199 million or $2.20 per share compared to the second quarter 2023 net income of $209 million or $2.31 per share.

Second quarter net sales were $2.1 billion in 2024 and $2 billion in 2023. Total company EBITDA for the second quarter excluding special items, was $404 million in 2024 and $418 million in 2023. The details of special items for both the second quarter of ’24 and 2023 were included in the schedules that accompanied the earnings press release. Excluding special items, the $0.11 per share decrease in second quarter 2024 earnings compared to the second quarter of 2023 was driven primarily by lower prices and mix in our Packaging segment for $0.87 and Paper segment $0.07. Even with our constant focus on minimizing inflationary cost increases, operating costs were higher by $0.31 per share. This was particularly in the areas of recycled fiber and inflation-driven increases on labor and benefits, outside service expenses, repair and operating material costs, rents, property taxes and insurance.

We also had higher depreciation expense of $0.03 and a higher tax rate of $0.03. These items were partially offset by higher volume in the Packaging segment for $0.94 and Paper segment $0.07, lower other converting costs, $0.07, lower freight and logistics expenses, $0.06 and lower interest expense, $0.06. Looking at the Packaging business. EBITDA, excluding special items in the second quarter of 2024 of $400 million with sales of $1.9 billion resulted in a margin of 21% versus last year’s EBITDA of $405 million and sales of $1.8 billion or a 23% margin. The strong market conditions in our Packaging segment continued in the second quarter. This drove a new all-time containerboard production record that was necessary in order to service the corrugated products and containerboard demand.

Also, Packaging segment prices and mix moved higher from the first quarter levels as we continue to implement our announced price increases. Although still below target levels, we were able to build some inventory ahead of what we expect to be a very busy second half of the year. In our mills and corrugated products facilities, employees remain focused on efficient and cost-effective operations from thousands of initiatives as well as implementing the benefits and improvements from our capital spending strategy. I’ll now turn it over to Tom, who will provide further details on the containerboard sales and corrugated business in general.

Tom Hassfurther: Thanks, Mark. Along with the record-setting containerboard production that Mark mentioned, corrugated products demand strengthened throughout the quarter and ended with a new shipments per day record for the month of June. In fact, we were just 0.1% away from our all-time second quarter total shipments record. Shipments per day were up 9.2% over last year’s second quarter and total shipments with 1 additional shipping day were up 10.9%. Outside sales volume of containerboard was 42,000 tons above last year’s second quarter and 35,000 tons above the first quarter of 2024. Segment prices and mix moved higher as we continue to implement our price increases from February which was negatively impacted by the late fourth quarter 2023 decrease reported by the RISI publication along with the more recent increase in June.

Domestic containerboard and corrugated products prices and mix together were up $0.09 per share compared to the first quarter of 2024. However, they were $0.84 per share below the second quarter of 2023. Export containerboard prices were up $0.03 per share versus the first quarter and down $0.03 per share compared to the second quarter of 2023. Finally, some of you may have seen news about an investment we made in the Phoenix, Arizona area. In order to serve a growing market and to grow with our existing customers, we are in the process of replacing our current Phoenix corrugated products plant with a modern state-of-the-art facility. Like many of our strategic projects, the Phoenix project improves the capacity, technology and equipment in the plant gets us aligned properly in the right marketplaces addresses the needs of our customers so that we both grow profitably and improves the efficiencies and cost within our system.

I’ll now turn it back to Mark.

Mark Kowlzan: Thanks, Tom. Looking at our Paper segment. EBITDA, excluding special items in the second quarter was $31 million with sales of $150 million or a 20.4% margin compared to the second quarter of 2023 EBITDA of $39 million and sales of $143 million or a 27.2% margin. Paper segment prices and mix as well as volume came in as expected. And as we mentioned last quarter, although we are implementing our recently announced paper price increases, the published decrease in index prices earlier this year and how that impacts contract triggers with certain customers would initially delay the timing of realizing the increases. Overall, average prices and mix were essentially flat with the first quarter 2024 levels and down 5.6% versus the second quarter of 2023.

Market conditions versus last year were solid with volume up 12% versus the second quarter of 2023 driven somewhat by the timing of seasonal back-to-school business. Volume was 8% below the first quarter of 2024, impacted by the scheduled maintenance outage at the International Falls, Minnesota mill as well as exceptionally strong volume in the first quarter. Similar to the comments I made regarding the packaging business, employees in the Paper business remain focused on very efficient and cost-effective operations and executed the outage International Falls very well and slightly below our cost estimates. I’ll now turn it over to Bob.

Bob Mundy: Thanks, Mark. Cash provided by operations during the quarter totaled $278 million and free cash flow was $33 million. The primary payments of cash during the quarter included capital expenditures of $245 million, dividend payments of $112 million, cash taxes of $100 million and interest payments of $37 million. Excluding the invested cash proceeds from the bond transaction we’ll use to retire the $400 million bond that matures in September. Our quarter end cash balance, including marketable securities was approximately $800 million with liquidity of $1.1 billion. We mentioned on last quarter’s call that today we would provide an update on our capital spending guidance. We are revising our full year guidance from a range of $470 million to $490 million to a range of $670 million to $690 million.

The increase is primarily attributable to additional high-return, profitable growth and mix enhancement opportunities within our box plants as well as the new greenfield box plant in Phoenix that Tom spoke of. Spending for these projects fits in very well with our expected cash flow and balanced approach towards cash allocation in order to grow profitably our company and maximize returns to our shareholders. I’ll now turn it back over to Mark.

Mark Kowlzan: Thank you, Bob. Looking ahead, as we move from the second quarter into the third quarter, prices and mix in both our Packaging and Paper segments will move higher as we continue to implement previously announced increases along with higher containerboard export prices. Although there is one less shipping day for the corrugated business, we expect shipments per day to continue to strengthen, potentially setting a new third quarter record. We also expect higher containerboard volume. With current containerboard inventory below our target levels, we will also attempt to build some inventory ahead of the scheduled maintenance outage at our DeRidder Mill in October. Paper volume will be slightly lower primarily due to timing of back-to-school business that was received in the second quarter.

Operating and converting costs should be higher primarily due to seasonal electricity usage and prices and slightly higher recycled fiber costs with scheduled outage expense expected to be slightly lower. Considering these items, we expect third quarter earnings of $2.45 per share. With that, we’d be happy to entertain any questions but I must remind you that some of the statements we’ve made on the call today constitute forward-looking statements. These statements are based on current estimates, expectations and projections of the company and do 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 which is on file with the SEC. Actual results could differ materially from those expressed in the forward-looking statements.

And with that, Alan, I’d like to open up the call for questions, please.

Q&A Session

Operator: [Operator Instructions] Our first question comes from George Staphos of Bank of America Securities.

George Staphos: I guess the first question I had gentlemen, is on costs. So you highlighted the $0.31 year-on-year negative variance in operating costs, converting costs were a little bit lower by $0.07. So the net of that was still a negative $0.24. If I look at the first quarter year-on-year, you were still seeing positives, I think kind of netting those 2 that you showed last quarter was $0.15. So almost like a $0.40 swing in 1 quarter in terms of comparisons, along with OCC — gentlemen, what was the biggest factor in terms of costs that you’ve been trying to manage around? And what’s the outlook? You said higher operating costs into the third quarter. There’s a way to size what’s happening in the third quarter on those factors. And then, I had a couple of follow-ons.

Bob Mundy: Yes, George, this is Bob. I think what you’re seeing is year-over-year in the second quarter, we ran Wallula full in the second quarter, whereas last year, they ran only 1 month of the quarter. And of course, as you know, Wallula is our highest cost mills. So it was a big mill mix impact that affected cost plus, I think, the year-over-year on energy and like you said, OCC, that was higher in the second quarter than it was in the first. And I think that will pretty much close that gap when you look at it that way. And then going from the second to the third, I think you’ll see, your other question. We didn’t mention a lot in the guidance relative to cost because it should be fairly stable, up slightly, like we said for OCC and more electrical usage in rates. But other than that, it should be fairly — maybe chemical is up a little bit but not as much sequential movement as we’ve seen in the past.

George Staphos: Just holding at a very, very high level.

Mark Kowlzan: Yes.

Bob Mundy: Yes. Yes, exactly.

George Staphos: Understood. Secondly, jumping around a bit. Can you talk a little bit about bookings and billings as you normally do early in the quarter? And how — kind of what the exit rate was or the momentum out of 2Q?

Tom Hassfurther: George, this is Tom. Yes, bookings remain very robust. Bookings and billings both remain very robust. Through 12 days, we’re up 12.5% so far in July. So an incredibly good start to the quarter. We had a very good start to last quarter. We exited at a higher rate and we’re continuing that higher rate as you see going into the third quarter.

George Staphos: Okay. My last one and I’ll turn it over and related to sort of the volume outlook. Can you talk at all as to how your mix of business may have changed, if at all, now versus a year or 2 years ago. And frankly, the question that is behind the question, PKG’s always seemingly done better than the industry over the years but the gap is quite stark when you look at it relative to still the macro data that’s out there. So what do you attribute what’s been very, very strong growth for PKG relative to a very mixed outlook where we look around the rest of consumer packaging? And how is mix changing. And can you talk a little bit about external sales which look like they’re up? Is that a factor here in terms of what’s happening with your revenue base?

Tom Hassfurther: Thanks, George. Now I’ll address what I can, okay? And to give you as much color as I possibly can. What’s happening with our mix is, is that the growth the growth we see within our existing accounts and some of the new business that we brought on is primarily in the brown area. And if you look at what’s happening overall as we see it in the marketplace, some of that specialty business which would be graphics-oriented and some of those sorts of things have remained relatively stable, whereas the other growth has been primarily in brown. So from a mix standpoint, it’s a slight change. It’s not this big dramatic change or anything like that. But this is — our growth is a result of a team working incredibly well, performing at a very high level, remaining incredibly focused on the customer and aligning ourselves with the markets and the customers that we choose to do business with.

Operator: Our next question comes from Mike Roxland of Truist.

Mike Roxland: Congrats on another good quarter. Just wanted to get a sense of your 2Q guidance during 1Q, you mentioned your guidance to $2.07, you rounded up at $2.20. Wondering what occurred during the quarter relative to your expectations that drove the beat?

Mark Kowlzan: Well, again, Mike, volume was the big factor. Obviously, operational efficiencies but the big volume boost was the positive there.

Mike Roxland: Got it. Okay. So really a volume but also some of the cost efficiencies that you continue to pursue because now that you mentioned [indiscernible] markets for thousands of opportunities. A combination of those 2 really drove you at $0.13 fee relative to your initial expectations?

Mark Kowlzan: Yes. Exactly.

Mike Roxland: Got it. And then just quickly, I would love to get your thoughts around your competition which seems to be changing. And a lot of them that seem to be echoing the strategy that you’ve pursued for some time in terms of targeting smaller local talents, trying to get more value over volume. Do you have any concerns in terms of this companies pursuing a similar strategy? Do you think of making competition. But what do you think is that — what is sort of happening? And what are you doing to prepare if they become more aggressive and try to compete in your backyard.

Mark Kowlzan: Yes. Personally, I don’t have any concerns about that. People have talked about that for a number of years. But again, Tom, why don’t you weigh in on that also?

Tom Hassfurther: Well, Mike, I would just say, listen, I mean, we don’t really comment on our competition or what our competition is doing. We have our strategy, we go execute our strategy in the marketplace. And that is, as I’ve mentioned before, aligning with the right customers in the right segments. That’s what we try to do. And what our competition is working on or is doing at the moment is really their plan, their program. And so I’ve got very little to comment on that.

Operator: The next question comes from Mark Weintraub of Seaport Research Partners.

Mark Weintraub: So you mentioned Wallula negative mill mix impact. You’re also though ramping up Jackson and or have ramped it up. And can you kind of give us a sense as to how much of a positive impact that has perhaps already had? And is there more that’s likely to show up? And when would you expect it to be really operating at its highest levels of productivity, efficiency, cost position?

Mark Kowlzan: Jackson is delivering exactly what we needed to do. When we talked about this project 2 years ago, we said it was a 2,000 ton a day project, quite frankly, we’ve exceeded that. We’ve proven that the machine can run up with 2,400 tons a day which would be 800,000 ton a year run rate. Currently, for the last couple of months, we’ve been running in the 1,900 ton a day up to 2,000 tons a day area which is again what CAR promised but it’s all about running to demand. We make a lot of our specialty grades on that particular machine. And that machine is doing everything we need it to do right now. And the good news is that it will help us and be available to grow into the marketplace over the next year or 2 as we need the additional funds off that machine. But it’s performing quite well and it’s delivering everything that we needed to deliver on an earnings basis and a performance basis.

Mark Weintraub: And can you remind us, you had talked about EBITDA type contribution from Jackson. What’s — is there an updated thought or potential EBITDA contribution. Is there an updated thought now that you’ve seen that the scope of production could even be higher than what was originally expected.

Mark Kowlzan: Again, I think, Mark, it’s delivering what we’ve talked about for the last 1.5 years to 2 years in terms of the model. But as I said, there’s upside opportunity with the incremental tons that will feed into the converting system over the future. There’s about a 400 ton a day opportunity as we go forward which is say 100-plus-thousand tons a year over the next couple of years as we feed that through. So that will be upside in EBITDA. But right now, it’s delivering what our models told us it would deliver. And I think what some of you analysts have been modeling.

Mark Weintraub: Got you. And then on the increased CapEx, is there any — a little bit more color in terms of the types of returns you might expect on this increased capital spend?

Mark Kowlzan: We don’t get into the exact returns. Obviously, we have a history of high-return projects as a need project that Tom mentioned down in Arizona. We’ve been looking at an opportunity and a solution for a couple of years to move out of some older inefficient operating facilities. And so that’s come about. We’ve also been aggressively pursuing some converting installations in new corrugators. And so all I’ll say is these are very high return, great opportunities in line with our historical capital spend.

Mark Weintraub: Okay. And then it sounds like a mix of cost and increased capacity. Is that fair?

Mark Kowlzan: Yes. Let me — I will point out, people that are wondering, if you went back 10 years ago, you could build a full line plant for probably $80 million, $90 million. The cost to build a full line state-of-the-art plant now has significantly increased and in some cases, starting to approach double what it was 10 years ago. Just to put things in perspective about what it costs to engage in this world that we’re living in now.

Mark Weintraub: Right. And is that the size of plant similar? Is that still like an $80,000 type throughput? Or what type of throughputs are you talking about with the — this new plant.

Mark Kowlzan: This plant down in Arizona when we’re done with it will be a couple of billion square feet a year opportunity for us.

Mark Weintraub: Okay. Great. And then lastly. So, obviously, we got pricing in February and PPW, got it in June. Undoubtedly, that’s helping the third quarter. Is there much that you would expect of the increases that have already been reflected in PPW to show up in 4Q and beyond? Maybe could you help us start to quantify how to frame it?

Tom Hassfurther: Mark, this is Tom. I’ll just tell you that our increase that we’re going through right now will roll through as it usually does for PCA over a 90-day period. So we’ll see — we’ll begin to see the — most of the results of that towards the end of the third quarter and certainly realized in the fourth quarter. One of the confusing things and as I mentioned in my comments, relative to the first $40 is a lot of that was offset by the $20 that was announced late last year and — because it didn’t trigger in a lot of contracts. So that kind of hurt us in the first half of the year. But now this $40, we’ll roll through it and it will roll through in the normal 90-day period and the non-contractual stuff will roll through in a 30- to 45-day period.

Operator: Our next question comes from Anthony Pettinari of Citi.

Anthony Pettinari: Just following up on Mark’s question. In terms of the kind of incremental $200 million on CapEx, is primarily all of that or the vast majority of that the Arizona project. And — yes, I guess that’s the first question.

Mark Kowlzan: No, that’s a piece of it. We’ve also — as the year progressed, we continue to identify ongoing opportunities at existing plants and it’s in the line of new corrugators, new converting lines. And so we, again, aggressively have pursued a lot of those opportunities. There is some spending in the mills that we also identified as immediate high return opportunity that we’ve deployed some of that extra capital into — and so it’s a mix across the board which, again, gives you a good opportunity and mitigates the risk of any 1 big project.

Anthony Pettinari: Got it. Got it. And in terms of sort of timeline for completion for Arizona and then obviously, you’re not giving CapEx guidance for ’25 but should we think directionally about CapEx maybe maintaining at these levels going forward, stepping down maybe in ’25. Are we kind of in a CapEx cycle? Or just any kind of color you could give there would be helpful.

Mark Kowlzan: Yes. As far as the level of spending as long as we have opportunities, we’re going to spend to the opportunities and we’ll call that out as we have to, we’ll give you an update in October for what the year is starting to finish up at. And then in January, we’ll clue you into 2025. But I think, again, we’ve got a history of delivering results and again, I think for the time being, we’re in this level of spending. But again, it’s immediate high return. It feeds into this tremendous growth that we’re seeing. And so we get immediate return for it. As far as the project down in Arizona, I think, Tom, we’re kind of looking at late next spring type early part of next year of getting that plant started up.

Tom Hassfurther: Early, probably late first quarter, early second quarter. Yes.

Anthony Pettinari: Got it. And I guess, last question. When you look at your end markets and really the strong volumes you’ve seen between consumer, industrials, durables, logistics, are there specific markets or customer set that is really driving that strength? Or has — where the strength of demand has surprised you maybe?

Tom Hassfurther: Anthony, I don’t think anything surprised us other than probably that the consumer end has held up a lot better than probably anybody had forecast. And the consumer themselves have held up a little bit better. Now that said, they may be spending more from credit card and cutting into their savings account a little bit but the consumers remain pretty damn healthy. I think durables have been a little less healthy only because housing starts have been down. And I think some of the remodeling and just — and actually getting supply has been a bit of a problem on the durable side. So — but overall, I mean, when we look at our mix, I mean, there’s minor adjustments back and forth. And like I said, on that specialty graphics side, that’s kind of flatlined quite a bit. But it’s still healthy and it’s still similar to a year ago.

Operator: The next question comes from Gabe Hajde of Wells Fargo.

Gabe Hajde: Hopefully, a couple of quick ones. One is kind of based on run rate production or I’m going to call it, directionally 5 million tons of capacity. You mentioned, I think you’re at all 43,000 tons, I think, of year-over-year increased sales to outside or non-integrated tons. Are you at about 90% integrated at this point? And then on that, call it, 500,000 tons that you’re not, to the extent that you do integrate it, should we be thinking about maybe $200 a ton of incremental profit that you realize when you internalize that? And yes, that’s the question.

Mark Kowlzan: I think again, the number we’re using internally is about a 95% integration. And as far as the value to us, I think you’re in the ballpark. Bob, you got any comments?

Bob Mundy: I think it’s maybe a little more than that, Gabe but — yes.

Gabe Hajde: Okay. And then we’ve got some new legislation regulation in the EU and I appreciate you’re not in Europe. But just to the extent that it impacts kind of maybe global trade flows or implied values of virgin assets here in the U.S. do you see that putting maybe incremental upward tension on OCC over time as people look to use more in their furnish, or does that not even come into your thought process because you’re focused on the U.S.

Mark Kowlzan: I’m very familiar with what you’re talking about. We’ve been paying attention to that at AF&PA for the last year. Again, I think that’s the Europeans now realizing some of the unintended consequences of trying to do the right thing. And I think now that the election cycles have been completed in Europe. I think the reality is they’re going to have to revisit that whole legislation and understand what the impact is. At the end of the day [indiscernible] passed to have fiber; and so they will resolve that matter. And so I’m personally from PCA’s perspective, I’m not real concerned about it right now.

Gabe Hajde: Okay. And last one, just on capital. Even with the increased spending, our model kind of has you guys still at 1x levered. You’ve always obviously taken a balanced approach with the dividend and share repurchase being a little bit more opportunistic. Anything changed either on the M&A front or a different perspective on capital as you look out over the next, I don’t know, 12 months to return cash or value to shareholders?

Mark Kowlzan: Everything remains the same. We look at all opportunities, whether it’s acquisitions, capital spending opportunities, dividend, share buyback, whatever makes sense at any given time, we’re in a great position to be able to take advantage about anything that comes along. So nothing’s changed. But we also, again, on the capital side, we have the organization that can quickly execute and take advantage of the ideas that currently come about and the needs that we have to work with our customers.

Operator: The next question comes from Phil Ng of Jefferies.

Philip Ng: Congrats on another strong quarter. I guess the way you guys characterized demand for your major end markets, consumer hanging in there and durable goods still a little squishy. It doesn’t exactly line up to the acceleration of box volumes you’ve seen, call it, the last 2, 3 quarters. So my question is, are you starting to see customers restock — are these the customers you’re aligned, just growing faster or just the investments you’ve made really allowed you to take share in a more meaningful fashion just because it seems to be lining up a little different from some of the macro data we see currently.

Tom Hassfurther: Phil, this is Tom. I would — I’m going to go back again just to reemphasize the fact that we have a particular strategy, our go-to-market strategy is a particular one. It’s — we try to align with the right customers. And by that, I mean, the customers that we see that are going to grow going forward. And we work very closely with them to help make us both very successful in the long run and those have proven to be very beneficial to us. We have shied away from some of the other ones that are very seasonal or perhaps a little more jargon [ph] in terms of their demand and fall over periods of time. So this has been a long, long-term strategy that we’ve had and we continue to execute very well on that. I think there’s been a lot of discussion about the capital spend.

And that’s been a long-term strategy of PCA has been consistently capital spend where the opportunities present themselves. Our financial flexibility allows us to do that sort of thing. And those — and then consequently, we can take advantage of the opportunities when they present themselves with the marketplace. So that’s really — that really describes this best what we’re seeing in the marketplace. And I know that some of our growth may not be consistent with what you might see in a macro trend. But I think when you dig deep and you see certain industries or certain segments, you’ll see significantly more growth in some of those than you might in others.

Philip Ng: Are you seeing any restocking from your customers at this point?

Tom Hassfurther: Restocking. Our customers typically are keeping a what I would consider to be a very conservative inventory. We got through that whole destocking process quite some time ago now. And they’re holding their — they replenished some inventory but I would term it to be a on the historically lower side of inventory is what they’re holding right now.

Philip Ng: Okay, that’s helpful. And then the step-up in CapEx, Mark [ph] you’re not comfortable telling us how the ramp-up curve on CapEx is. But can you give us a little color in terms of the EBITDA contribution ramp up? I mean some of these are smaller, as you pointed out. So should we start seeing some of that benefit this year? Or is it more of a 2025 event? I know the Arizona facility is going to come up sometime in spring but there’s start-up costs associated with that. So how should we kind of think about the investments you’re making in terms of the ramp-up curve.

Mark Kowlzan: Some of these projects we’re doing currently in the box plants with some of the converting lines and corrugators. You’ll see benefits this year and then we’ll benefit going forward into next year. So without quantifying that, these are, again, very, very immediate quick return opportunities. And again, some of the longer-term projects like the project down in Arizona will be next year. But we currently have a portfolio of activity going on in the box plant. So we’ve been executing on an ongoing basis all year. And as the year rolled on, we observed more opportunities and we were able to take advantage of that. And so there’s always somewhat of a lag but it’s always in terms of months, not years.

Philip Ng: Super. How are you thinking about build versus buy at this point? I mean a lot of your private competitors have added a lot of capacity in recent years, very low-cost mills but not much of the book of business. Are there any opportunities on the acquisition front potentially out there?

Mark Kowlzan: I don’t want to comment about that. Again, that’s — there’s always opportunities and we’ll take advantage of opportunities when we need to take advantage of them. But I don’t want to speculate on anything.

Operator: [Operator Instructions] The next question comes from Charlie Muir-Sands of BNP Paribas.

Charlie Muir-Sands: Just two, please. Firstly, on the new Arizona box plant, you said the capacity of the new site would be 2 billion square feet per annum. Can you just tell us what kind of upgrade that is or what’s the capacity of the existing site that you’re closing? And then secondly, just on back on the competitive landscape. I appreciate you don’t like to talk about individual competitors but it does seem to be a sort of a general trend towards pushing price a bit more — is that something that you are tempted or able to follow? Or are you more inclined towards gaining market share and driving operating leverage?

Mark Kowlzan: On your second part there, we’re not going to talk about price. But on your first part of your question, we’re going to more than double the capacity down in Arizona. Tom, do you want to give a few more details on that?

Tom Hassfurther: Yes, there’s not a lot to talk about other than the fact that we are clearly out of capacity in that marketplace. We’re not able to service the customers locally like we’d like to, we’re having to pull from a lot of different plants and most of the plants are quite far away in the L.A. region or something like that in order to service that market. And that’s not sustainable long term. So with the opportunities we have and with the customers that we have in that marketplace, they’ve indicated that we need to do significantly different things which we will do. And that will give us some — obviously, some great opportunities in that region.

Mark Kowlzan: And if you look back at our portfolio of opportunities over the last 6 years, in general, we’ve taken a lot of these older plants that needed to be recapitalized. And we’ve increased productivity on a unit labor hour basis. We tripled quadrupled the productivity coming out of these plants and cut costs and done it with a lot less labor hours. So it’s again, the plant in Arizona will be a really big opportunity for us to take care of that whole region.

Operator: Mr. Kowlzan, I see there are no more questions. Do you have any closing comments?

Mark Kowlzan: Alan, thank you. And again, everybody that participated. I want to thank you for joining us today and look forward to talking with you in October to review the third quarter call. Have a nice day. Bye, bye.

Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.