Packaging Corporation of America (PKG) Q1 2013 Earnings Report, Transcript and Summary

Thank you for joining Packaging Corporation of America's First Quarter 2013 Results Earnings Conference Call. Your host for today will be Mark Kowlzan, Chief Executive Office for PCA. Upon conclusion of his narrative, there will be a Q&A session. I will now turn the conference over to Mr. Kowlzan, and please proceed when you are ready.

Good morning, and welcome to Packaging Corporation of America's First Quarter Earnings Release Conference Call. I'm Mark Kowlzan, CEO of PCA, and with me on the call today is Paul Stecko, Executive Chairman of PCA; Tom Hassfurther, Executive Vice President, who runs our Corrugated business; and Rick West, PCA's Chief Financial Officer. Thanks for participating in this morning's call and after the presentation, I will be glad to take any questions. Yesterday, we reported record first quarter net income of $61 million or $0.62 per share compared to adjusted net income, excluding special items in the first quarter of 2012, of $41 million or $0.42 per share. The $0.20 per share increase in earnings, excluding 2012's special items, was driven by higher Containerboard and Corrugated Products prices and mix of $0.23 per share, increased sales volume of $0.05 per share and lower recycled fiber costs of $0.01 per share. These items were partially offset by higher costs including labor and benefits of $0.06 per share; workers' compensation of $0.01 per share; energy, $0.01 per share; and transportation, $0.01 per share. Net sales were a record $755 million, up 12% compared to the first quarter of 2012 net sales of $671 million. We had a very strong quarter in all aspects of our operations with higher pricing and strong volume driving all-time records for sales, corrugated product shipments and earnings per share. Corrugated products demand was stronger than we expected throughout the quarter, and our price and mix was also better than forecasted. The stronger than expected volume, price and mix drove our earnings higher than our January guidance by about $0.06 per share. Looking at more details of the operations, our Corrugated product shipments per workday were up 7.1% with 2 less workdays than last year's first quarter, and total…

Thank you, Mark. In the first quarter, PCA generated cash from operations, before working capital changes, of $128 million. Working capital increased by $32 million, driven by beginning of the year payments, including incentive bonuses, increased receivable levels and other seasonal changes resulting in net cash generated, after working capital changes, of $96 million. Historically, the first quarter is our lowest cost cash generation quarter with several beginning of the year payments. We expect our cash generation to be significantly higher for the remainder of the year with our fourth quarter being the highest cash-generating quarter. Capital expenditures were $27 million during the quarter. We take no quarterly common stock dividends in the first quarter as a result of paying our normal January dividend payment in December 2012. We repurchased 121,000 shares of PCA's stock in the first quarter for $5 million, or an average of $42.47 per share. As of March 31, 2013, our diluted shares outstanding were 97.4 million shares. At quarter end, we had $268 million cash on hand and our total long-term debt, excluding capital leases, is $790 million. During the first quarter, cash tax payments of $4 million were made and we used $7 million of fuel tax credits. On April 15, we also used $32 million in tax credits to fully offset our scheduled federal tax payment. We currently have estimated remaining fuel tax credits of $37 million, which will be used to offset future tax payments. However, the final amount of the available fuel tax credits and the final cash tax rate is contingent upon the conclusion of the IRS audit, currently underway. With that, I will turn it back over to Mark.

Thank you, Rick. Looking ahead, we expect seasonally stronger volume and higher prices in the second quarter. However, the majority of the earnings benefit from price increases will not be realized until the third quarter, when April containerboard price increase pass-through to corrugated products is completed. Also, as I've said earlier, most of our annual mill maintenance this year will occur in the second quarter with outages at 3 of our 4 mills. We expect these outages to reduce our containerboard production by 30,000 tons in the second quarter compared to 7,000 tons of lost production from maintenance downtime in the first quarter. The 23,000 tons of additional lost production, along with higher repair and operating costs from these outages, is expected to reduce earnings by $0.08 per share compared to the first quarter. We also expect higher transportation, recycled fiber and purchased electricity costs. Considering these items, we currently expect second quarter earnings of about $0.62 a 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 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. And with that, operator, I'd like to open the call to questions.

[Operator Instructions] Our first question comes from Marc Weintraub from Buckingham.

Mark, is it fair to say that the higher transport recycled and purchased electricity -- might that be order magnitude $0.03 to $0.04, 2Q v 1Q?

Yes, but $0.01 per piece is a good number, Mark.

Okay. Excellent. And then on use of cash, clearly -- particularly, one, as this price increase gets implemented, you're going to be generating a lot of excess cash even relative to where you're dividend payout is currently. Are you comfortable building your cash balance? Or if you don't find bolt-ons, et cetera, would you look to, more aggressively, return cash to shareholders?

Short-term, we're comfortable, Mark. And again, that's something that we discussed, I think, on every board meeting, so -- currently, we're going to stay with our strategy, but short-term, we're comfortable. And Paul, you want to add any comments on that?

No, I think you said exactly right. We're building cash here. It's a little faster rate than what we think is optimum. Quite frankly, we felt that with the macroeconomics worldwide that the stock market might have corrected in the first quarter and that would be a good buying opportunity, their buy back shares, that didn't happen. I mean, we're not unhappy that didn't happen not because the stock performed well, but we can't wait for that forever. And so short-term, we're okay. Long-term, we know we have to do something. And it's the normal vehicles in terms of dividends, share buybacks, very high-return capital projects.

That's very helpful. And lastly, one quick one, can you give us an update on what's happening with export pricing, containerboard pricing?

Yes, Mark. This is Tom Hassfurther. Yes, export pricing continues to go up. It goes up differently than what it does domestically. As we've talked about before, there's smaller increments, but it does continue to go up.

Our next question comes from Anthony Pettinari from Citigroup.

You discussed stronger-than-expected corrugated demand in the quarter. And I was wondering if you could give any color on that. People have talked about housing recovery, e-commerce and online shopping, return-to-manufacturing activity as being drivers. Are -- were any of those meaningful drivers in the quarter? And what kind of color can you give us on kind of the improved demand you saw?

Again, just recapping when we talked in January, we started out the quarter in saying that bookings were 4.5%, and we felt comfortable that we had a good quarter starting. I think, specifically, and I'm going to let Tom add some color, but, well, we saw a strong volume across-the-board. Again, much, much stronger than what we expected. But Tom, won't you add some specifics to that?

Yes, I would agree that interestingly enough, and the good news is that the volume did come from numerous areas and it wasn't concentrated, just in a particular industry or particular business. And I think, really for PCA, I think most of it is a result of our strategic capital that we've invested, the outstanding acquisitions that we've made. And basically, it's our value proposition that we have out there. Most of the growth was organic and from existing customers. The other thing I might add is, is that we had a very unusual March this year in terms of 20 workdays versus the norm, which would be closer to 22 workdays. And so on a per workday basis, it looks like March was very high. But overall, it was level with the previous March. Now, those numbers will reverse in April, because April in the second quarter is typically a 20-day month, that will be a 22-day month this year. So our demand will be up maybe 1% or so in total, but on a per workday -- or I'm sorry, in total, but on a per workday basis, it will come up to about 10%. So it's just a little unusual what went on the first, third quarter versus what we'll have on the second quarter.

Okay. That's helpful. And just to be clear, so for the first 3 weeks of April, on a per week -- per workday basis, can you repeat what you're seeing?

To start out on these first 13 days and top bookings and billings. Bookings were up 4.7%. Billings always lag -- were at 1% increase in -- and we always see this as the month closes out, the bookings and billings close the gap and billings catch up to the bookings. And so again, we're right at that 4.7%, round up, 5% for the first 13 days on bookings orders.

But up 1 on billings -- this is Paul Stecko. And you got to be careful of that number because last year, it's a very tough comparable. We were up 4% in April -- excuse me, we were up 8.4% in April, so it's a tough comparable. And as Tom Hassfurther was pointing out, we're up about 1% on a per workday month-to-date, but with 2 more days, up 1% translates into up 10% for the month in total volume. So it could be a very, very strong quarter. Bookings are indicating that we may do better than that because as Mark said, we're up 5% of bookings, but that seems like a pretty hard number to sustain the rest of the month. We'll have to see. And I don't think we'll sustain that rate for the month, or I mean, the numbers get real big.

Our next question comes from Chip Dillon from Vertical Research Partners.

The revenue number you guys put up, at least for -- versus our model was quite impressive, and I think you mentioned the box demand was particularly strong. Could you -- and I know last year, your integration level, I believe, was 83%. Could you tell us what the -- as you look at the integration level was in the first quarter, and are you seeing your mix of boxes change, at least on the revenue side where you're getting -- you're selling the more of a value-added product?

On the first question, integration, we're right at 84.5%, 85% for the first quarter. And so again, we continue to improve that integration level per our plan. The next part of the question, again, we've specifically stated, we did see a richer mix in this first quarter, more so than we had expected to see in our product, so -- Tom, you want to add any color to that?

Well, Chip, I would just say that if you do more of the hard to do, you're going to get paid more for that. And that's kind of what we've set out to do a long time ago, and we continue to take on those challenges and try to do it in the most cost-effective manner. So I think that's one of the keys that drives are up.

Yes, and I guess the other point, Chip, on integration, that's one of our main goals. Get that integration level up because we make money, not only on the board we sell, we also make money in the box plants as opposed to just selling paper on the outside. And what makes getting the integration level up a little more difficult is we continue to improve the productivity in the mills. We were up 6,000 tons over our last year's first quarter. So you got to sell those 6,000 each and you haven't moved the integration level at all. So it's a steeper slope when you have to offset high productivity, and it's a high-class problem, I'll admit, but that makes getting the integration level up more difficult.

Got you. And then can you talk a little bit about your wood costs? And maybe as you look out, it would seem like the -- in the upper Midwest that you're seeing, I think, wood costs come down as lumber production picks up. And would you expect to see that as chip productions higher, or on the other hand, do you think your wood costs are going to hedge up as we go through the year?

Chip, in general, across-the-board, we're flat. Regionally, we see some movement up and down a little bit. Obviously, earlier this winter, we saw some activity in the Counce region with the wet weather. In general, nationwide, up north, as you just referred to, what we started seeing a year ago the increased activity in the sawmill business and that did bring more chips to the marketplace. And so the net effect, again, on our pricing was pretty flat. We've seen a little bit of movement in the Southeastern region as far as pine pricing, not as high as indicated in some of the periodicals and publications. But we're seeing some of the weather effect and also some of the dimensional lumber in the pine market increasing. But again in general, we're pretty flat across-the-board.

Got you. And then just the last question. Paul, I know your contract as Executive Chairman struck a few years ago. I think it expires on June 30. Could you let us know what your plans or the company's plans might be going forward?

Yes, but not today. That's something that obviously has to be answered in the next couple of months, so we have a board meeting in early May. And at the appropriate time, we'll give everybody an update on that situation. But it's premature to answer that question now.

Our next question comes from George Staphos from Bank of America Securities.

I'm wondering if you could get into the impact of outages this second quarter versus last year's second quarter. Now, this year you mentioned it's going to be $0.08 penalizing sequentially. If I'm not mistaken, last year, the impact was only $0.03 or so in terms of the sequential negative. This year, you said -- I think there's 30,000 tons of production that you're losing. Last year -- I want to say that the lost production was in the range of 20,000 tons or so, if you could confirm that. And then just give us a bit more color in terms of why this year's second quarter has that much more of an EPS impact, it'd be appreciated. And also Mark, do you have a goal for inventory regeneration or build this quarter that you could share with us?

I'm going to let Rick handle the first part of that, and then we'll talk about the inventory.

George, you're correct in your numbers, but I would point out 3 things, just as far as the maintenance outages and components of costs. You have basically 3 costs: the cost of the production losses; the costs of the operations being down, start up, shut down, conflicts in the traditional fuel cost while you're down and operating, continuing to operate the middle parts of it; and then the third part is the amortization of repair job costs. And what happened this year in the first quarter, we had a very abnormally low repair job amortization cost as a result of the Counce outage being in the last week of March. Basically, the repair job amortization cost in the first quarter was only $0.002. Now when you go into the second quarter, that number goes up to about $0.04. So that's really the big difference. This year, it's just the additional production losses compared to last year plus the amortization of repair jobs. If you look it in total for the first quarter, annual outages impacted us about $0.02 a share. In the second quarter, we expected to impact this $0.10 per share, thus, being the $0.08 difference, made up of the 2 components I talked about -- or 3 components. For the most part, the additional production losses, plus the additional repair job amortization, plus, to a lesser extent, operating costs. Now when you go to the third quarter, we do not have any production losses nor we have the incremental operating costs. You only have the repair job amortization. And with the timing from the second to the third quarter, that's probably less than 0.5% increase. So you're going to -- the pickup from the second to the third quarter from the annual outage impact is you get a $0.06 per share improvement going from the second quarter to the third quarter. So that's basically the math why it changes and why this year is so much, I would say, higher going from the first to the second, is both the timing of the outages and the repair job amortization is the big item.

Rick, that's great. I appreciate all the detail on that. On the inventory bill, do you have a goal that you'd like to hit for the second quarter that you can share with us?

George, we never really specifically quantify the goal. Obviously, we talked about our increased -- the number going up for the first quarter, that was our desire. And this being a heavy shutdown period, actually, you can assume that the inventory would be a draw down for, with that being said, a lot of that depends on how well the mill is run through the shutdown period and after the shutdown period. And also on export demand and export sales, so with that, but we never disclose the absolute inventory targets.

Understood. I guess the last 2 questions I'll ask them in sequence and turn it over. One, from the demand trends that you saw, Tom, any signs that maybe customers are trying to get ahead of the price increase in April and that's why demand was a little bit better than expected? And then back to cost marketing, you saw 6% increase in cost this quarter in aggregate, certainly you delineated what those factors were. Should we anticipate that this is going to be the run rate, if you will, on cost performance for the company over the intermediate term?

This is Tom, I'll take the first question. As far as demand trends, we're trying to -- or seeing if customers were trying to perhaps beat the increase by ordering early, I would say, no. The demand was very steady throughout the quarter. And as I mentioned, on the per work day basis, March jumps significantly but it's because of a 20-day month. So with that, I'll turn it over to Mark or Rick, and let you handle that second.

In terms of the cost, George, if you look at the labor, what we said, 3 was from manual wage increases, 2 was from benefits and 1 was from variable based incentives. I would say on the first one, the $0.03 per share, you're probably going to get that every quarter going forward. The second one, on the incentives, that's going to drop off a little bit in the second quarter because as we said earlier, we pay a lot of our statutory based in...

Let me just direct it, when you said incentives, you meant benefits?

Benefits, excuse me. In benefits, they do drop off in the second quarter because of the FICA and other statutories that we'd reach certain levels for certain employees and we'd stop deducting. So that will possibly -- could go down. As far as the variable based incentives though, it depends on our final payout for the year. So I can't give you an answer on that. And the other items, we put into our forecast higher electricity for the second quarter, that's more driven by summer rate or rate increases. So that's hard to tell for the remainder of the year. And of course, recycled fiber and transportation, it depends on the price for recycled fiber and for the transportation diesel prices.

And the only think I'd add, George, this is Paul, on incentives. Our incentives are tied to the level of profitability and so there's a performance factor here. The more we make, the higher incentives go, the less they make, the lower they go. So obviously, they may go up, but consider that good news because that means we're doing very, very well. And that's the number you'd like to see go up, rather than down, because there's a huge leverage on that number and so we're hoping that number goes up because we're hoping to do even better.

Our next question comes from Mark Wilde from Deutsche Bank.

Tom, I wondered if you can talk a little more about that mix improvement that you saw. Is that kind of one-time thing? Or is there kind of just structurally a continuing trend in your mix moving up?

Well, I'd say, Mark, there's a couple of things: I mean, one, is obviously we have -- we do have some seasonal mix changes with regard to the display and graphic side of the business. Those hit at various times and March is typically one of those times when it begins to ramp up. I would say in addition, I think that with the targeted customers we've had, the things we do for those customers, the value we add and some of the things we do and in addition to, I will call the normal course of business for those customers, that has proved to be -- it does pay better. And that does help improve our mix. We just have to carry out through the year.

You've talked in the past about the interest in acquiring boxed plants. I'm just curious about what you're doing in terms of organic expansion and your converting capacity.

Well, the organic side of the business was -- the organic expansion and growth in our business was primarily driven by our strategic capital investments that we made, which were driven around a particular customer base. And as we pointed out before, these were primarily in facilities that we were out of capacity. We needed additional capacity to be able to grow with our customer base and we've done that and those have obviously paid nice dividends.

Yes. And are you actually adding any new facilities?

No, we're not adding new facilities at this point in time. We will continue to do our strategic capital investments, but we'll continue to take advantage of opportunities as they present themselves. But if we need to rebuild, go new, consolidate, whatever, we consider all the above.

Mark, the thing that I'd add and just amplify on the point that Tom made, we spent $40 million a year 2 years ago, $40 million last year, to complete this internal growth project. And we did add a new plant in Reading, Pennsylvania, which is doing very, very well. That was in a market where we needed capacity. And the returns have been very good, obviously, that's reflected in our numbers. And one of the reasons for that and the real advantage of internal growth, is that you may put a new piece of equipment in or a bigger piece of equipment. But based -- all the overhead is already amortized across your existing customer base. So those incremental tons of box business you bring in there, carry not only the normal profit, there's no overhead to observe. So the incremental profit levels are very good on these internal growth projects and we continue to look for more opportunities to do that. But our policy has been doing in regions where you know you have business and you need it, don't be speculative and just do it, we don't do it that way.

Yes. Okay, all right. Now last question I had is, Rick, can you just remind us, when we look into the fourth quarter, about how much should we assume for that Filer City outage?

It's a little premature right now, Mark, to give that number. They're still trying to determine the scope for the Filer City outage. It's basically about a 5- to 7-day outage and you can calculate the tons. And then there'll be the repair job cost that will have to be amortized in the fourth quarter because you have to amortize all the cost after you have the outage. But at this point, we'll be able to give you a better update when we have the second quarter earnings call in July.

The next question comes from Scott Gaffner from Barclays.

I just wanted to talk a little bit about the potential for productivity and capacity creep in 2013. I think on the last call, we talked about it may be moderating back down to something closer to 1% the production in the first quarter can go a bit better than what we were expecting. Is there potential that capacity creep in 2013 could be greater than that 1%?

I think the 1% is a number we're comfortable with, and I think that's a realistic number. That's a good number. There's a lot of activity around that, but the 1% is a number that we believe is realistic.

Okay. And going back to the capital allocation share repurchase question at the beginning, you're producing a significant amount of free cash flow here. If predictions around the industry are correct, you're going to continue to produce that free cash flow and potentially this chair has never pull back. I mean, at what point do we sort of move to a more normalized repurchase focus rather than waiting for the shares to pull back?

Well, as I said, this is Paul Stecko, as I said earlier on the call, we can only wait so long. And we're getting close to have and make a call on it because we cannot let the cash continue to build. And quite frankly, if the stock keeps moving up and we keep generating cash, that not only puts pressure on us to increase our share buyback, but to raise the dividend also because we do have some desire to continue to have a good yield. And it's great because the share price goes up, but that puts pressure on your yield. So the only way to fix that problem is to increase the dividend. And that's the kind of thing we're chewing on right now.

Okay. I appreciate that. And just lastly, when we look at your energy cost, specifically in the mill system, I think you mentioned higher coal prices earlier. What's sort of the mix now coal versus natural gas on the energy side?

Coal is -- I don't have that exact percentage, but it's very small amount right now. We burned a lot of natural gas over the last 1.5 year, so we can get back with you on the specifics.

Next question, Phil Gresh from JPMorgan. Phil M. Gresh - JP Morgan Chase & Co, Research Division: A couple of quick questions. First one is, the recent trade press has talked a lot about box customers putting more business out to bid [ph] here with the second price increase. So I guess I just have 2 questions on that. The first is are you seeing this at all and perhaps with some of the larger customers actually coming to you as an alternative supplier even more than normal in the last month or 2? And then the flip side of that question is with all this talk, do you have any concerns as to whether actually the full 30 per ton can get pass through to the back side?

Phil, it's Tom, I'll take that real quick. With regard to bids, the truth has always been the tranches. And you'll have some -- some will bid, many will not. The bids that are out there right now, most are in the, what I would call, the normal course of doing business. It's more timing than it is than anything else. Over all, I would say there's nothing really unusual with regard to what's going on in the bids. The speculating on the amount of the increase and that sort of stuff, when it comes to boxes, I mean, we don't do that kind of speculation so I can't really go there. Phil M. Gresh - JP Morgan Chase & Co, Research Division: Okay, fair enough. Then I guess just in terms of the actual number in the guidance for the second quarter, Rick, are you expecting some portion of the price increase on the box side in the second quarter? And is it fair to say that the full run rate of your expectation would kind of be in there by the July timeframe?

I will only comment as to what we said in our press release and we did say that we expected higher prices in the second quarter, but the majority of the earnings benefit, as we said, would be from price increases, will be in the third quarter when our April container board price increase pass through to corrugated products is completed. So we did do have some of the price increase in there in the second quarter, but as we said earlier, the majority will be in the third quarter.

Next question comes from Mark Connelly from CLSA. Mark W. Connelly - Credit Agricole Securities (USA) Inc., Research Division: Mark, you talked a lot about the improvement in mix from targeted customers. Can you tell us which part of your customer base is really showing you the best improvement right now? And second, a broader question, looking back over the years, your mix has always been quite different from the major producers. Is it getting more different these days based on both your behavior and the behavior of the major producers? Are you moving further away than where you normally would've thought of yourself?

Again, the first part of your question, we've seen improvement across the board. And yet if you look at our customer base in terms of national account type business, our top 30 accounts still account for roughly 30% of our business, that being the national account type of customers. And then the other 2/3 is the local accounts. We've grown with both the local accounts and the national accounts footprint. Tom, do you want to add anything to that?

Yes. I would say, Mark, with regards to the mix I mean and in comparison to the rest of the industry, I can't really compare with the rest of the industry. I just know we do what we do and we do it well. And we pursue our targets, and that's what they do. It's proving to be good for PCA.

Next question from Al Ovshey from Goldman Sachs.

When you look at the $0.23 benefit in the year-over-year basis from price and mix, is there a way to parse out what the benefit was from improved mix?

Yes, there is. We rarely do that because it's hard to completely know a separate price and mix because they may buy different items. We may sell a thousand items to somebody and they may buy more of the higher priced items as opposed to something high-end graphics versus a plain brown box. So we take a guess at it and -- but the safest thing for us to do when we report it is to combine the 2 because we know the combined number is totally accurate. And if we break it in 2, there's some uncertainty around both numbers, so we do have an internal estimate of the difference and it's probably close, but we don't break them apart.

Okay, I understand. And then if you think about your outlook for demand and the fact that we're entering a seasonally strong part, most demand inventories are pretty lean, you have the potential maintenance downtime scheduled for the quarter. Are you concerned that you may not be able to fully meet all the customer commitments that you have for the second quarter?

We planned on that fact. And we also commented previously that we would move our export tonnage down to accommodate our domestic business. And so again, right now, we're not concerned. We plan on getting through this quarter and taking care of our customer base. And again, we will utilize the -- and rationalize the export side of the equation.

And I guess, Mark, used a very important word, plan. We could have built more inventory in the first quarter but we will have had to cut off some export customers. And we are dependable supplier so we told our customers, yes, you're going to get what we promised you in the first quarter. You may only get this much in the second quarter. If we have more productivity, then we put in our plan, we may be able to get you some more tons in the second quarter, but you ought to plan on this number for the second quarter. And so we made a decision to make sure we met all of our commitments in the first quarter and gave customers some notice so they can do some planning in the export. Because that is our bellows, that's where we can swing on our export tonnage. And we're hoping that productivity is better than we forecast, although, we have aggressive forecast. And what our customers knew a quarter in advance, what they could expect in the second quarter.

Next question is from Steve Chercover from D.A. Davidson. Steven Chercover - D.A. Davidson & Co., Research Division: Just a couple of quick ones. In January, you projected both higher OCC and higher virgin fiber and we know that OCC turned out to be a $0.01 tailwind. How much did the higher virgin fiber expectation factor into your Q1 guidance?

It was a minimal amount. This is Rick West. Going from into our first quarter, we don't break down every item, but it was not a great amount because we didn't think the weather would continue, but we were looking at the first quarter as basically a risk more so to our guidance with the wood cost continuing throughout the quarter. And we just want to make it clear when we gave the first quarter guidance, that that wasn't risk guidance. So not a substantial change from what was in the guidance, but more so a risk. When we started up the first part of January, we were suffering some very, very bad weather in that Counce area. It put some tremendous pressure on the wind basket in the Counce region and then by the latter part of January, the weather turned and improved and so, again, that risk factor was taken off the table. Steven Chercover - D.A. Davidson & Co., Research Division: Got you. And then the second one, it sounds like your inventories are verging on being too low. Is that why the transportation costs go up because you're really moving from mill to mill? Because it seems like, otherwise, oil and gas prices are on the decline.

It's a combination. Primarily, though, diesel rates move up and down. But sure, quarter-to-quarter, we can move tonnage from plant to plant as need be. And as an example right now, we've got some transportation packed up in the Michigan area, with the flooding going on. And specifically, we're moving some tonnage out of rail into truck right now, with some of the rail lines being underwater up in Michigan for the next few weeks. So there's various activities but diesel fuel is usually the big driver.

Next question comes from Al Kabili from Macquarie.

Just a question on the, boy, the volume outperformance, you never seem to cease to amaze on the outperformance versus the industry. And I would have guessed that it's probably more than you would have thought last year. Do you think that this level of outperformance from what you can see thus far, would be sustainable throughout the remainder of the year?

That's something we don't want to comment on from a forward point of view. Again, we stick to our plan and again, we've been very pleased with the outcome of our strategic efforts over the last 3 years in the boxed plants and the mills. So other than that, we really can't comment.

Yes. But I will add one further comment on the volume expectations for the fourth quarter. It was strong stronger than we thought. Just driven by the macro economics, what you read in the paper, what's going on, what's going on in Washington? Is there going to be a drag on the economy, et cetera, et cetera. And you do factor some conservatism into your estimates, and the economy is trudging along better than we -- the papers will lead you to believe and I think that also translated into some better volume for us.

Okay, that's great. And it sounds like, on a related question, I mean, I think it sounds like from the commentary, you're still thinking $50 million of investment for strategic investments in the boxed plants or acquisitions, do I have that right, that's still the number you're thinking this year? And if you continue to kind of grow at this rate, does that number need to go up?

The first part, the number is still accurate. We're still looking at that type of spend on boxed plant side. And again, we reserve the ability for Tom. If he comes forth with some great opportunities on acquisitions, we can discuss that matter with the board in a real time manner. At the same time, from a specific customer base opportunity, organic growth opportunity, we have the ability to support capital and growth in that manner, so, but the $50 million is still on plan right now.

Okay, final question, it's just with the April price hike. What are you hearing from customers in terms of light weighting? Are you hearing any accelerated appetite or desire for light weighting, given on the back of the second price hike now in 7 months?

That light weighting, that's not even in the equation. We don't hear that in our discussions. Tom, do you want to add anything to that?

That's absolutely correct, Mark.

Next question comes from Philip Ng from Jefferies & Company. Philip Ng - Jefferies & Company, Inc., Research Division: A longer-term question, you guys have done a phenomenal job, outpacing the market from a gross standpoint on very consistent basis for some time now. But your mills are running very full-out right now and its creep capacity is closer to 1%. It would seem like you have to potentially stunt your growth down the road. I'm just curious, do you have any other growth projects in place that could de-bottleneck some container board capacity down the road?

Two parts to that question. Obviously, we'd lend in the commentary the ability to rationalize our export business where we need to supply the domestic piece of the business. And then it's a matter of capital. We stated this before, on various calls, how much investment do you need to make and are you willing to make for a ton of production. And so that's always on the table. And that opportunity always exist.

Okay, and just to add to that, we stated very clearly 2 years ago, our #1 priority is to increase our integration level from the low 80s to the low 90s. And we're working on that and we're not there yet, so we are not going to lose sight of that goal. And so in terms of de-bottlenecking mills, if the return was really attractive, yes, we've got some opportunities but that's not going to get in the way of our integration level goal. Philip Ng - Jefferies & Company, Inc., Research Division: Okay, that's helpful. And then from a growth versus M&A, at least on the bolt-on side, how quickly did it take for you to bring on some of these organic projects just because we're getting close to the midpoint and you've obviously laid out, set forth $50 million give or take for some of these projects.

Well, again, we said this on prior calls, both on the box plants and the mills, we always maintain a portfolio of opportunities. And we visit that during various times of the year, we look at the current opportunities and update that list and talk to the various group managements on where they see their needs and opportunities. So we always have a portfolio that can be acted upon very quickly and then brought to bear. Philip Ng - Jefferies & Company, Inc., Research Division: And I guess just one last final question. Q1, you guys kind of mentioned how mix was better than expected, part of that was seasonal. Should we expect some of that mix benefit you saw in Q1 fade over the course of the year?

Tom, do you want to comment?

Well, I think basically the part of the mix did improve. There's a part that's going to be pretty steady, they will continue throughout the year. And then there's a part that is seasonal. And as Paul alluded to earlier, it's very difficult to really break all those out and to be able to determine exactly what's what. But I think you've got a portion that will continue and you've got certainly a reasonable portion that is mix related.

Next question comes from Mark Wilde from Deutsche Bank.

Just 1 follow up here. If you look back over the last 15 years to when the company was LBOed, it just seems like the business has become more stable, kind of across the economic cycle. I just wonder if that's leading you to make any changes and how you think about managing the business or how you think about the right capital structure for the business?

Yes, Mark, let me take that. You bring up a very, very interesting point and that is what's going to happen. Let's look a decade in advance. And I kid Mark and Tom a little bit. You guys, this next decade is going to be a lot better than the one that I had in 2000 until 2010, because corrugated growth is obviously stagnated for that decade, but we're very optimistic about the next decade. If the U.S. is going to get out of its employment dilemma, it's unemployment dilemma, I should say, the huge deficits. We think the only way that can happen is better economic growth in the U.S. Some rebirth to manufacturing and there's anecdotal evidence that, that's going on all over. And if we're right, that bodes well for the next decade in corrugated, then that will modify some of the things that you need to do going forward. And we're also strong believers in the fact that if China continues to grow, the world is going to run out of recycled fiber and we like our position of being a virgin producer. That bodes well for us, both domestically and internationally. And so a lot has changed in those, it's not quite 15 years, but it's getting up there. And we think it's for the better for the industry. So that will make some changes. And that's one of the things that Mark and Tom recognized, spend a lot of time talking about. Not so much the short term, but where we're going to be at the end of the next decade. Not that we have specific plans we like where we are, but there's some issues that we have to plan for and deal with. But our feeling is the next decade, for not only us, the entire industry is going to be a lot better in the decade, from when we went private in '99 to 2009. That was a tough decade.

Would you agree that it does seem like the business has become a bit more stable across the cycle?

Absolutely.

[Operator Instructions]

With there being no more questions, I'd like to thank everybody for joining us on the call, and look forward to seeing you on the second quarter call, and thank you.

Ladies and gentlemen, thank you for participating in this conference. This concludes the program, you may now disconnect, and have a wonderful day.