Mark Kowlzan - CEO Rick West - CFO Tom Hassfurther - EVP Judy Lassa - SVP Paul Stecko - Chairman.

Anthony Pettinari – Citigroup Chip Dillon - Vertical Research Partners George Staphos - Bank of America Merrill Lynch Philip Ng - Jefferies Mark Weintraub - Buckingham Research Alex Ovshey - Goldman Sachs Mark Connelly - Credit Agricole Securities Debbie Jones - Deutsche Bank Chris Manuel - Wells Fargo Scott Gaffner - Barclays Al Kabili - Macquarie.

Thank you for joining Packaging Corporation of America’s First Quarter 2014 Earnings Results Conference Call. Your host today will be Mark Kowlzan, Chief Executive Officer of PCA. Upon the conclusion of his narrative there will be a Q&A session. I will now turn the conference call over to Mr. Kowlzan and please proceed when you’re ready..

Thank you. 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, our Chairman; Tom Hassfurther, Executive Vice President who runs our Packaging business; Judy Lassa, Senior Vice President who runs our White papers business; and Rick West, our Chief Financial Officer.

Thanks for participating in this morning’s call and after the presentation we’ll be glad to take any questions. Yesterday we reported first quarter net income of $90 million or $0.92 per share.

Reported net income included after tax special item charges of $16 million or $0.16 per share including the approval cost of settlement of the antitrust class action lawsuit for $0.11. The Boise integration cost for $0.03 and non-cash charges related to the DeRidder restructuring of $0.02.

Excluding these special items net income was a record $106 million or $1.08 per share compared to the first quarter of 2013 net income of $62 million or $0.64 per share. Net sales were record $1.4 billion in the first quarter compared to $755 million last year.

The $0.44 per share increase in earnings excluding special items was driven the acquisition of Boise which adds $0.35 per share of earnings and also by the improvement in PCA's earnings of $0.09 per share.

The increase in PCA’s earnings was from the improved pricing mix of $0.21 lower medical and pension workers’ compensation cost $0.03, partially offset by higher cost for labor of $0.04, energy $0.04, freight $0.02, repairs $0.02 and other items $0.04.

The details of these special items in the first quarter were included in the schedule that accompanies our earnings press release. We had an outstanding quarter driven by strong operations, improved pricing mix and the Boise acquisition which was 48% accretive PCA’s first quarter earnings.

The integration of Boise with PCA’s operations is ahead of schedule resulting in synergies being realized faster than we originally had expected. Extreme weather conditions did impact several of our mills and box plants driving up the prices of paper, fuels, electricity, freight and also increase in fuel consumption.

Significant snow falls and icy conditions also resulted in 23 of our box plants has been shut down from 1 to 6.5 days.

In total we estimate the extreme weather conditions equated to about $0.09 per share of which $0.06 per share was recognized in the first quarter and $0.03 per share was capitalized in inventory and will reduce the second quarter earnings and the higher cost inventory sold.

The $0.06 per share and earnings reduction in the first quarter was about $0.03 per share more than what we had included in our earnings guidance. On the positive side medical and workers’ compensation cost were abnormally low, $0.02 per share lower than last year and $0.02 per share lower than in our guidance forecast.

Lower interest expenses and taxes taken together were $0.02 per share better than forecasted. The lower interest cost was from an interest rebate and the lower tax rate was from a true up of state taxes owned with changes in tax laws.

Other positives were better pricing mix, strong operations and synergy realization which in total exceeded our forecast by about $0.04 per share. Looking at more details of the operations in our packaging segment, the first quarter EBITDA excluding special items was $244 million on sales of $1.97 billion.

Box shipments were up 31% over the first quarter of last year and up 29% per work day with one additional work day in the first quarter 2014. Excluding Boise, PCA’s corrugated products shipments were up 3.4% in total and up 1.8% per work day.

The 1.8% increase in PCA shipments per work day is against the tough comp with PCA’s first quarter 2013 shipments up 7.1% over prior year 2012. Both domestic containerboard and export sales demand remain strong in first quarter.

With our strong internal demand we had fewer tons available to supply in these markets so we reduced our shipments by 12000 tons compared to last year’s first quarter.

Our containerboard mills produced 821,000 tons running extremely well and setting productivity records at our Counce, Tennessee and Valdosta, Georgia linerboard mills and the Tomahawk, Wisconsin medium mill.

One synergy we have achieved that has scheduled driving Counce and Valdosta’s production records is shifting some of the lightweight linerboard from Counce and Valdosta to our more productive at lower cost lightweight machine at DeRidder. Counce and Valdosta are now made in heavyweight rates that were previously made at DeRidder.

This is a synergy we want to achieve early in the integration process and everyone working on this did an outstanding job. We also completed the annual maintenance at our Counce, Tennessee linerboard mill in March which resulted in reduced production of about 22,000 tons.

PCA ended the quarter with a total containerboard inventories down 4000 tons compared to the end of the first quarter of 2013 including both Boise and PCA inventories.

In the second quarter we will have our Tomahawk, Wisconsin medium mills down eight days in May for it's annual maintenance outage which will result in reduced production of about 13,000 tons.

Our integration level in the first quarter was just over 90%, that’s near total containerboard demand PCA purchased 42,000 tons containerboard from the outside market during the first quarter.

Pricing for containerboard remains essentially steady with the fourth quarter, pricing for corrugated products was up a bit mainly as a result of a few contracts that reset prices annually and we did have a richer mix than we expected during the quarter.

Looking at our paper segment, first quarter EBITDA excluding special items was $40 million on sales of 309 million, office paper shipments were up 5.5% or 10,000 tons compared to last year’s first quarter and up 1% compared to the fourth quarter.

Printing and converted papers and pressure sensitive paper shipments were down about 20,000 tons as a result of our capacity rationalization and international falls in last year’s fourth quarter.

White paper’s price has improved during the first quarter as a result previously announced price increases for office papers and printing and converting rates. Also in February we announced a 5% increase of pressure sensitive papers effective April 1, 2014.

We ended the quarter with our total white paper’s inventories down 25,000 tons compared to the end of first quarter 2013.

During the second quarter, our Wallula, Washington and International Falls, Minnesota white paper mills will be down because of their annual maintenance outages which are expected to result and reduced production of about 15,000 tons so our white paper mills will have to run extremely well.

Looking at cost our energy cost particularly natural gas went up significantly in the first quarter driven by higher demand with cold weather and low inventories. So far the second quarter we have not seen natural gas prices go down that much with the current NYMEX futures down only about 6% compared to the first quarter average.

Electricity rates were also up and we see the rates going seasonally higher in the second quarter with warmer weather particularly at the Southern Mills. And now I will turn it over to Rick West, our CFO who will provide more details related to the financials..

In the first quarter PCA generated cash from operations of a 149 million, capital expenditures for the first quarter were 51 million. Common stock dividends of 39 million were paid in the first quarter or $0.40 per share. We did not repurchase any shares of PCA company stock during the first quarter.

Cash tax payments of 2 million were made during the first quarter and we ended the quarter with a 186 million in cash. We paid off 66 million of long term debt during the quarter making our total debt reduction since the acquisition a 175 million. With the debt pay down our long term debt is now at 2.482 billion.

We have finalized setting for total capital spend, we expect 2014 capital expenditures of about 400 million which includes the DeRidder conversion project, with expected spending of a 100 million in 2014. Finally I want to provide you with some information for our scheduled annual mill outages in 2014.

As Mark said earlier in the call we had our Counce down in the first quarter for it's annual outage and we have three additional mills scheduled to be down in the second quarter. Our plans are to have one mill down in the third quarter and two mills down in the fourth quarter for their annual maintenance outages.

We amortized the repair cost associated with each outage over the remainder of the year after the outage is completed. Well we don’t give an annual earnings forecast we do give full estimates for items that can be unusual or timing related and this is the case here.

Based on our 2014 schedule the total earnings impact for each quarter for mill maintenance outages including the higher operating cost, production loss impact and amortization of repair cost was $0.07 per share in the first quarter and is estimated to be $0.10 per share in the second quarter and $0.10 per share in the third quarter and $0.24 per share in the fourth quarter.

The significant increase in the fourth quarter is driven for the most part by the cumulative effect of amortizing remaining repair cost for all shutdowns that occurred during the year including the fourth quarter. I will now turn it back over to Mark..

Thank you Rick. Before I move to the second quarter outlook I want to comment briefly on the DeRidder conversion project. On March 26, we announced plans to convert the number three news print machine at DeRidder to produce 355,000 tons annually of lightweight linerboard and corrugated medium and exit the news print business.

The D3 machine will continue to produce news print appreciate customers through mid-September, 2014 at which time it will be shut down and converted to containerboard production with an anticipated startup by November 1, 2014.

The total capital cost for converting D3 is about $115 million with $15 million having being spent in 2013 and a 100 million to be spent in 2014. Approximately a 100,000 tons of low cost conversion fiber will become available for containerboard production but do see in mind our higher cost recycled fiber required.

The D3 conversion project is expected to be produce an after tax discounted cash flow return of 30% to 35%. Without D3 we estimate that our outside purchase of containerboard in 2015 would be about 250,000 tons.

D3 also allows us to return some funds to our long term customers we export market where for the past several years we had to withdraw some funds so that we can meet our internal domestic demand. So you can see that our times with the D3 conversion is pretty good.

Let’s wrap it up with our second quarter outlook, we expect higher sales volume in corrugated products and higher prices in white papers and lower fuel consumption with warmer weather.

With three of our mills down for their annual outages in second quarter compared to only one in the first quarter we expect higher increase cost particularly in amortization of annual outage repair cost and lower production compared to the first quarter.

As I said earlier on the call we also expect our medical and workers’ compensation claim to increase to a more normal level and electricity rates are expected to go up with normal seasonal rate increases. Finally we will recognize the remaining $0.03 per share impact and extreme weather in the first quarter and we expect the higher tax rate.

Considering these items we currently expect second quarter earnings of about a $1.10 per share. With that we will be happy to entertain questions but I must remind you that some of the statements we have made on the call constituted forward-looking statements.

The statements were 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 on file with the SEC.

The actual results could differ materially from those expressed in these forward-looking statements. With that operator I would like to open the call to questions please..

(Operator Instructions). Your first question comes from the line of Anthony Pettinari with Citigroup..

First off I was wondering if you could speak to the trends you’re seeing in April on both the corrugated side and if possible the white paper side?.

Yes the trends in April are very solid, we have got a number of booking days now. We’re up very nicely.

I think some of that is a result of the carryover from the first quarter where we had some weather related issues which probably cost us about a percent in our total shipments, so we have had some catch up there and everything looks pretty positive going into the second quarter.

We also be up about the 3.6% we estimated this stage for a 10 days of data for April..

Well it has been definitely pretty lumpy in Q4 and Q1 and with price increase going on and weather related issues and such. We’re looking at market demand be more closer to the normal levels in the lower digit of reduction in uncoated freesheet.

I think the underlying fundamentals for demand has not materially changed but expect to see more normal conditions in second quarter..

Judy given the closures that Boise completed prior to the acquisition can you remind us what your mix now between cut size, offsets and other grades?.

In the majority of the closure was around pressure sensitive but a heavier weight grades and we also are -- other business partners at this point and would have gone down a little bit on printing and converting grades..

So cut size is as a percentage…?.

It's not impacted by the closures..

Okay so that at this point is the vast majority of your volumes?.

Correct..

Okay. And then maybe just a follow-up question for Rick, you referenced medical and worker compensation costs that were abnormally low and also the interest rebate I think that helped you out a bit in the quarter.

Can you just give a little bit more color on those two impacts?.

Well the answer is rebate is something we receive annually from one of our lenders that -- its not guarantee but it normally occurs and this was our first time we received and it's in the first quarter. So that’s probably about a 0.5% [ph] of the share.

If you look at the medical and workers’ comp cost you know generally they run a certain level and in the first quarter they were probably about $0.02 per share lower than we expected and what would even be a norm and they answer me from our standpoint you know we don’t know if that was just the fact a catch-up in year-end certain things not being processed by the outside claims agency or could it have been some particular items that people postpone till the next quarter in order to even going to the hospital with an extreme weather.

It's really something we can’t judge but I would say that we do expect it to go up in the second quarter to a more normal level especially for the medical. Workers’ comp it's a function of your safety and what happens with ongoing cases. But more so the medical we think will go up more in second quarter..

Your next question comes from the line of Chip Dillon with Vertical Research Partners. .

Thanks Rick by the way for the detail on the way the maintenance cost will flow through the year, I just was wondering if you could give us an idea of how much of the swing this is versus what we have seen in the past.

I know you haven't called it out but looks like it's really a $0.14 jump from the middle quarters to the fourth quarter, what would be more kind of roughly typical in past year’s when you were a smaller company?.

I would say Chip that it would have been more from a third to a fourth maybe a $0.04 per share -- $0.03 or $0.04 and it really was a function on the outages.

The difference between the outages now and the outages that we had in the past we would take primarily our two southern mills down in the first quarter and our two northern mills in the second quarter whereas now we’re taking more with the I-Falls mills and the other mills spread over the year just because of a being able to schedule and get the work done with our internal staff and also manage it.

From a standpoint of overall it's probably about as you would expect outages in the past would have been a total impact maybe $0.25 a year per share, now with four more mills it's about double just about what you would expect..

And then basically update on the CapEx, when we look at the future years and of course things can change obviously but based on your footprint and what it looks like today, what is sort of a good range to use for CapEx in ’15 and beyond?.

I think if you look at it and of course it can depend upon if we have additional strategy projects but I would say once the DeRidder is completed and some of the synergy capital that we have identified and once the Boiler MACT of course is completed you would be looking at a number of around 250 million and then of course if there is a strategic project that really add value, we would have entertained those projects and it would go up from there..

And last question you mentioned that you were out buying board in the market to supplement your needs in the box plants in certain areas. I was just wondering what your experience has been so far with some of the purely recycled news print conversions out there especially in Georgia, Oregon and Ontario..

The answer is there is some good 100% recycled product out there and there are some stuff that essentially will not run at least in our system and I don’t want to point out any of this stuff that doesn’t run on this call and I don’t want to downgrade any, people that are making it but there is a wide variety out there.

Some of the stuff is pretty bad, obviously the stuff we’re buying is not but we really can’t comment further than that..

Your next question comes from the line of George Staphos with Bank of America Security..

First question just more of a housekeeping question guys, with Boise now in the mix could you mention to us how much OCC or how much recycle is of your overall tonnage and we can do the math but I’m assuming with D3 will that go up a few percentage points if you can give us some specific numbers on that, that will be helpful..

Probably today if you know what we take back in from our box plants and be okay we’re around 15% and after the conversion it's going to be about 19%, so just under 20% after the process is completed..

Next question I had just staying on paper capacity and production, you know when D3 comes, you could be over 300,000 tons to you, it adds as you said much needed capacity. If you continue growing at the rate you would expect which I realize is a little bit of a subject to question.

You obviously have your own internal forecast, when do you think that you might start running up against capacity limitations again? Would that be two years out? Three years out? Can you give us any kind of view on that and overall the related question, as you continue to grow looking at the historical data you can see it improve your profit per ton and your return on capital, do you expect that your returns and profits will at least be maintained as you grow into the future? Thanks guys..

George that’s a hard question to answer because what we will do going forward obviously we’re bringing on 355,000 tons and it won't come on immediately we will ramp it up from startup through 2015 and you can do the math yourself and we have been growing at 6% a year.

So you got to make an assumption what we grow with that and we grow less, we grow more and you get to a number that could be anywhere from 2, 3, 4, 5 years depending on what you assume as a growth assumption but the big wildcard then is that we also have a lot of tons that we will be selling into the export market that if we need those tons we can bring them back home as we have done in the last three years and so we could probably extend that time period to 3 - 4 years if we choose not to participate that all in the export market, that’s unlikely because quite frankly as you know we have had the position.

The world is going to eventually run-out of recycled fiber and virgin fiber producers are going to be very advantage particularly in the export market. So we will keep our place in the export market, it may prove five years from now to be a very good place to be doing business and that could change the number.

So there is a lot of simple answer to your question, but I think I’ve got you into at least the right church, you got to figure out pew we’re in, okay?.

Your next question comes from the line of Philip Ng with Jefferies..

In terms of the Boise integration it seems like it's ahead of schedule, can you talk about if you had any new updates in terms of timing and your targets overall?.

Again on a run-rate basis we’re about 15 million annualized which is $0.08 to $0.09 a share but we had anticipated that over the next couple of years we got a $175 million opportunity on synergies going forward..

And then can you give us a little bit more color on the D3 ramp? It's coming online in Q4, do you expect it to have a negative or positive contribution from the early get go and how is that going to scale up overtime?.

We expect come online and it should have a positive contribution immediately You know we would ramp up the tons into the system. We do have a home for the production.

We’re buying stuff in the open market and the other thing that’s occurring of course is that it's replacing news print which will go down so we pick up a 100,000 tons of fiber, a very low cost fiber that is really earned no return now because we’re basically roughly breakeven in news print but we will see this into containerboard we have good margins in containerboard so we are going to pick up hefty margin on that first 100,000 of virgin fiber and then a positive margin on a recycled fiber also..

And what are your longer term plans for D2, do you plan currently shutting it down or temporarily mothballing it?.

Well the machine has been done for a few years now and so again that’s just the future opportunity down the road. Years from now that would be presenting itself, it's not even in the plans now.

For long term it's in the building that you just got a paper machine but you are basically talking about putting in a completely new machine and then you’ve to put in a massive investment in the pulp mill to supply that machine fiber and that is one of those situations, when the world runs out of OCC in five years making it 10 years that could be a greenfield site for another machine but you’re talking 500 million, 600 million, 700 million investment to do something like that..

And any thoughts on the West Coast drought [ph] from an impact standpoint?.

I’m not sure what you mean by that question..

Do you expect to have a meaningful impact to demand with the West Coast drought [ph]?.

Yes there are some impact there is no question about it with the AG business out there.

Not a large footprint for us fortunately but I think that those plants that are very, very focused on that Central Valley there are going to have some impact just based on the mere fact that they can’t get water in there and the crops are going to be significantly lower but it will be concentrated just for that area..

Just to build on what Tom said, we’re big players in the Florida AG business. We’re not that big of a player in the California AG business at least at this point..

Your next question comes from the line of Mark Weintraub with Buckingham Research. .

You had mentioned that you felt the weather maybe had hurt the first quarter your box shipments to the tune of about 1% which I think would suggest that adjusting to that maybe you’re kind of a 2.5% - 3% type of year-over-year for the legacy business growth, is that in a kind of normal growing market, is that a reasonable expectation go forward or can we start seeing is it potential that we’re going to be back at the 6% type of growth rates that we had been seeing previously and maybe if you can give a little color on how we should thing about that?.

Well the main color we will give you is red, we don’t give growth rates forecast that’s proprietary. We don’t want to share that with our competitors.

That said, over the last four years we have been growing at 6% a year which makes each year even more difficult because the comp is very high and so you would expect that we will probably grow a little -- we would grow less than 6% because it's hard to sustain 6% a year forever and so and the 6% growth that we had included acquisitions of box plants as you recall and that will also affect the number.

So with acquisitions could it be 6%? Yes. Without them could it be 6%? Very doubtful..

I think in the past you’ve given some indications on the acquisitions were -- was it 1% to 2%? I forgot..

Yes last few years we made a fair number of acquisitions so it was the 2%, that’s a pretty big number..

And then just last, was last year, was it -- did you’ve a disproportionately strong first quarter last year?.

Last year I believe we were up 7.2% on a per work day basis last year. So we had a very tough comparable for this year and this year of course we were up 1.8% on a per work day basis. So, that’s against the industry that it was down about 1.6% if I recall.

So that spread is about normal for us in terms of the industry and again it was a very, very tough comparable so to the first point [ph] depending on the quarter we’re going to have some of those very high comparables..

Your next question comes from the line of Alex Ovshey with Goldman Sachs..

Looking at the customs data for the quarter, I appreciate it. It looks like there has been a significant jump in imports of white paper into North America.

Can you talk whether that’s having much impact on your business?.

You know imports out there, we’re not going to stop them from coming in. They are another option in our customers’ portfolio and so our focus is more about continue to offer a solid value proposition through this entire supply chain and we have a roadmap logistics and network and maybe we can exceed on service, that’s really our position..

Let me amplify on that a little bit, we were up 5.5% in cut size and cut size is our main business, it's a biggest segment of our uncoated white. It's where we bring some unique capabilities to marketplace in terms of logistics and sales support and customer service.

It's something that is about supplier such as export really can’t compete on total value in our opinion and so we are putting a lot of our eggs in the basket and to cut size is where we want to make our place in the market because what we can offer others can’t and others include exports and exports because of 40 week or 13 week supply chain to get the stuff here.

It's stuff to compete on service. So our strategy is built primarily around cut size and being the best supplier in total value which includes prices, one element but a lot of other things. I think that’s a very important differences especially when you want to compare what we do versus exports..

And then would you be able to say how much of the cut size price increase you’ve been able to implement? I mean looking at the indices of, it seems like so far they have only recognized 30 on your business that’s more open market.

Can you just talk about how you have been able to perform there on the pricing side?.

So on the first increase we realized majority of the amounts increase on our non-indexed business.

As you mentioned we do have business price with index and those that only moved about $30 through the end of quarter but we do expect to see those indices go higher and we just saw pulp paper just moved this week and then on the second increase we’re just about there talking to our customers now and so that’s one still in progress and so we’re not in a position to comment about that one yet..

Just a clarification, you say majority is that 50 or is that 60 or somewhere in between that 50 to 60?.

Majority of it is increase [ph]. .

Your next question comes from the line of Mark Connelly with Credit Agricole Securities..

Two questions Mark, the shift of heavy weight accounts on Valdosta from DeRidder obviously there is always optimization when you had a new mill. I’m just curious whether that was a productivity or a fiber decision, are you deep bottle necking.

I’m just curious, who wins the most or what drove that decision?.

It was considered both opportunities for fiber and taking advantage of what the big machine DeRidder can do but also the transportation component of that and where containerboard is going so we’re able to take advantage of again the fiber base and transportation logistics and the capability of the DeRidder machine to shift some of the light weight side of that and number one machine primarily at Counce and the machine at Valdosta..

Yes as said in another way, we’re pulp limited at DeRidder and we’re not pulp limited in Valdosta and Counce.

So you want to make as much light weight as DeRidder as you can because you will make more square feet with the same number of tons and so that’s what we’re doing and as you pointed as it helps our -- it maximizes our fiber balance and then from a productivity point of view the DeRidder is a much better light weight machine than Counce number one.

We can’t make light weight on Counce number two and Valdosta. So this is a triple, this is the hat-trick of optimization we get three benefits..

And just one maybe harder question, if you think about the weather impact that you saw you mentioned some box plants lost some days.

Did we see a mix shift that might have affected your average revenue per ton and may we see that shift back in Q2?.

Mark I would say that the mix shift I mean we had a little bit better mix, our price was affected by the mix which I don’t think is significantly going to change going forward but also we had a, we did have a very large account whose price increase went into effect the first of the year which had an impact on the quarter..

Your next question comes from the line of Debbie Jones with Deutsche Bank..

Beyond the weather, I’m wondering if you noticed any specific differences in the regional demand trends you can comment, either positive or negative, just changes in, box is targeted for e-commerce or things like that?.

Well from a regional demand standpoint it's very hard to look back on this quarter and say there is any significant trends because you had three areas of the country which were dramatically impacted by weather that is the Mid-West, the North-East and the South-East, that’s what the primary impact was for PCA which by the way also were the largest footprint of box plants.

So it's very difficult to draw any conclusions from the first quarter other than saying where are we now? Now as the weather settled down and that sort of thing and I think we’re back to much more normal demand trends really across the country with the exception of the one small pocket we talked about out there in California regarding AG..

And then on the AG question that you got earlier, can you just remind us if you don’t have as much exposure to what the outcome might be for California, what are your end markets over on the West Coast that you can point to?.

Well we’re primarily industrial market on the West Coast..

Your next question comes from the line of Chris Manuel with Wells Fargo..

Just a couple of follow-up questions here first, could you comment maybe a bit on export pricing.

Have you seen any movement up or downward with what you’re realizing in the export markets?.

Export markets in the fourth quarter drifted down a little bit, they have since stabled that primarily Western Europe and Latin America I’m talking about, China is an example, Japan, you know they have been very stable. So on an overall basis I would say that things are pretty stable..

And then with respect to some of the weather issues as they played out -- thank you very much for the color on quantifying or trying to give your best guesses there as to how that flows but is your anticipation that some of that potential I guess made up as year goes on or some of that is permanently lost? What’s your guy tell you that how that may or may not translate through?.

I think you’ve got some is going to get made up but some is going to be lost.

I mean you know when you just have people in their houses with these conditions and I have been able to get out shop and do some of the normal things that they do, you’re going to lose some of that but it's again it's I think we will return to trends that the economy trends that you know we forecast primarily for the year and by the end of the year we will be pretty close to those numbers..

Just to add to that on the cost side, Mark mentioned earlier that natural gas prices have not dropped dramatically even with warmer weather and part of the reason for that inventories are very low.

So another affect that we might see is that we expect natural gas prices to eventually drop but it may take more time than we think because inventories are so low right now and that’s going to affect results at least in the second quarter a little bit..

One last topic I wanted to mention, any additional requirements that you’ve or investments you will need to make to comply with Boiler MACT..

Nothing identified at this point. So we’re actually well on our way to engaging work that’s had been identified two years ago, so again no new capital..

Your next question comes from the line of Scott Gaffner with Barclays..

Just a couple of quick follow-ups here, just on the ramp up of DeRidder what sort of timeframe are we talking about to get from starting machine to fully rated capacity? I mean is it 3 months, 6 months and is the period shorter simply because you’re not having to qualify these tons with outside customers..

We’re anticipating 3, 6 months to bring the machine upto full productivity and on the question of qualifying, you know we will certainly even with our own plants make sure that we are using in terms to qualify producing what they expect out of us. So, 3 to 6 months is a good timeline..

Okay and then just looking at your shipments versus the industry, I think you said you were up 1.8% in the quarter and we are up close to 6% last year.

I just wondered if there was anything that you’ve seen as far as competitive response in the industry, you did mention that you had a box plant acquisition but I just didn’t know if there was any competitive response that you’ve seen is around other players going after the same business that you’re going after now.

Anything you could point out?.

I don’t think there is any changes, I mean we basically have been up pacing the industry by us, a given amount for the last 10 years and I don’t think there is always pockets where there is competition, there has always business moves and gains but as we have said many times our biggest source of demand comes from existing customers, giving more of their business either is if they grow or again it's the things we provide in terms of service and technical features and quality instead of maybe splitting an account 50-50.

Overtime we will get more and more that customers’ business because we do a very good job. So that still remains the biggest source of growth, growing with existing customers..

Okay and then just last question maybe for Rick, it looks like you changed your inventory accounting here on the start of 2014.

Was there any meaningful impact old versus new on the first quarter meaning if you would use the old accounting methodology would these numbers have been higher or lower in the first quarter?.

No there would be no meaningful impact to the bottom-line earnings for the change to eliminate (indiscernible)..

Your next question comes from the line of Al Kabili with Macquarie..

I guess question to Judy, is it possible for you to just give us the average maybe sequential change in price realization in the paper business sequentially in dollars per ton?.

I think I gave, I talked to you about kind of what we realized and can’t bring it down any further than that..

And then I guess to follow-up I guess maybe a broader question either for Mark or for Paul and as you’re growing faster than the industry and continue to do so, what’s your bigger size now with Boise? Do you’ve to start to think about more of the impact on the broader industry and what impact that has as your growing factor or as you’re growing or are you still or you’re far away from that in terms of relative size to that meaningfully impacting your thinking and strategy there..

The only people we worry about impacting is our customers. We are here to serve our customers, we will grow whatever we have to grow to service them and they are really the only ones that matter in our way of thinking..

Rick thanks for the detail on the maintenance schedule, is that now a more normalized with Boise is that a more normalized way to be thinking about it on an annual basis or is there more less maintenance this year than would be typical going forward with Boise?.

I think it's a pretty typical amount for maintenance, but it could change depending upon when you schedule your outages throughout the year.

So I can’t say that it will be the same impact for quarter and I think that’s something that we will have to provide each year as we schedule our outages but in totality for the year it's a pretty representative number. .

And then finally and that you’ve highlighted some of the costs, you didn’t mention too much on the wood side and I was wondering if you’re seeing any seasonal relief right now on your wood cost, or how you’re thinking about that into the second quarter so far?.

You know just think about what happened in the South-East, starting at the end of September last year the entire South-East range that are right through the winter into the spring. We haven't seen much relief there but through the mid-South and the towards Louisiana, Texas area that’s normalized.

So it's gotten better, it's not compared to what was going this winter, it's not as bad. So, pricing has seen some relief..

And then final question is just on your leverage is pretty healthy shape as far as the balance sheet goes, how should we be thinking about, how you’re thinking about prioritizing cash flow going forward between additional deleveraging versus buybacks versus the dividend, how should we be thinking going forward on that?.

Our answer has -- its same as last quarter, our number one priority for cash is to pay down $1 billion of debt in the next three years, we think that is important value creator for our shareholders. If there is excess cash above that we would probably book a dividend increase before share buyback at this point..

(Operator Instructions). You do have a follow-up question from the line of George Staphos with Bank of America Security..

I just want to come back to an earlier question Paul and I think you’re saying earlier that ultimately expect most of your growth as you’ve said in the past to be with your existing customers.

So would it be fair to say then that if it's with your existing customers holding price constant obviously because we can’t talk about future pricing that you would expect your margin and your return to be basically be inline or better overtime with historical trends as you grow in the future, that’s question number one.

Question number two, Hexacomb, you used to own when as part of Tenneco you had experience with it, what experience have you had in utilizing in your mix right now and with your customers, any observations with that so far and then lastly can you remind us what’s the Boiler MACT CapEx outlay over the next several years.

Thanks and good luck in the quarter..

On the Boiler MACT I believe we had said it was around 25 million. And with regard Hexacomb, we did own Hexacomb, PCA did through ’99 when we separated from Tenneco. We were sold to private equity firm Madison Dearborn.

Hexacomb remained Tenneco’s further protective packaging business, it's subsequently got sold, it subsequently got resold to Boise and when we acquired Boise we got it back.

It's got a very nice natural synergy with us and that we have 80 box plants so we were potential sales people for that product and so it gives us a lot more possibilities than Boise would have in growing the business and secondly it's a grade that uses very lightweight paper, 30 pounds or less and with the DeRidder 3 conversion we have got a really great place to make paper for Hexacomb it will run very well.

So that’s another synergy. So Hexacomb is probably a better fit for us than anybody else in the country and so we’re glad to have it, the question is on, where we’re going with margins that’s been pricing and that’s between up in our customers and that’s not something that we wanted to get into on this call..

Your next question comes from the line of Chris Manuel with Wells Fargo..

Just one quick follow-up, I appreciate that you don’t want to talk about what your plans or how you may grow above or beyond or different things within the industry but as you look at fundamentals and components today what do you anticipate out of the containerboard shipments for the balance of the year, not necessarily box shipments but containerboard shipments.

Do you think that fundamentals and such today support getting back to a 0.4 or so give or take 0.1 or 0.2 of containerboard shipment growth or do you think that we’re kind of still stuck in this flattish environment for the next 6 months, 12 months, 18 months..

I would just say that we hope to get back to a level of growth and GDP growth that is healthier than where we have been. We certainly can’t predict that that’s going to be the case. I don’t think any economist is out there predicting any dooms doom or going backwards necessarily.

I think that there is a most predictions kind of show a ramp up through the year. We would like to think the same thing is going occur. I’m sure customers feel the same way. But I would like to also add regarding this whole regarding this whole growth strategy. Our growth strategy is not changed by a stretched imagination.

We talked about strategic capital being directed towards areas where we have either capacity constraints or proven demand from a customer base. We will continue to acquire when the opportunities present themselves and as Paul went into great detail about the value proposition that we have and we provide our existing customers.

So we will continue to grow on that platform..

And then last question I had was when you look at how you did this quarter, you again outpaced the markets a bit.

Was that pretty uniform across the whole network of box plants? Was that more weighted towards what you’ve done historically with some of the legacy Packaging Corp plants or how did the -- was there much differential with how that’s on the home [ph]..

Well you will always find some differential regionally depending on demand trends and that sort of stuff by region but for the most part I mean I just consider it to be for the end of quarter..

Mr. Kowlzan I see that there are no more questions.

Do you have any closing comments?.

Yes. Thank you for joining us today. We look forward to talking with you in July with the second quarter numbers. Have a good day..

Again thank you for your participation. This concludes today’s call. You may now disconnect..