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Packaging Corp of America  (NYSE:PKG)
Q1 2019 Earnings Call
April 25, 2019, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Thank you for joining Packaging Corporation of America's First Quarter 2019 Earning Results Conference Call. Your host today will be Mark Kowlzan, Chief Executive Officer of PCA. (Operator Instructions)

I will now turn the conference call over to Mr. Kowlzan, and please proceed when you are ready.

Mark Kowlzan -- Chief Executive Officer

Good morning, and thank you for participating in Packaging Corporation of America's First Quarter 2019 Earnings Release Conference Call. I'm Mark Kowlzan, Chairman and CEO of PCA, 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 first quarter results, and then I'm going to turn the call over to Tom and Bob, who'll provide further details. I'll wrap things up, and then we'll be glad to take questions.

Yesterday, we reported first quarter net income of $186.8 million or $1.97 per share. First quarter net income included special items expenses of $0.01 per share related to the discontinuing paper operations associated with the conversion of the No. 3 machine at Wallula to linerboard. Excluding special items, first quarter 2019 net income was $187.3 million or $1.98 per share compared to the first quarter 2018 net income of $146.9 million or $1.55 per share.

First quarter net sales were $1.73 billion in 2019 and $1.69 billion in 2018. Total company EBITDA for the first quarter, excluding special items, was $371 million in 2019 and $322 million in 2018. Excluding special items, the $0.43 per share increase in first quarter 2019 earnings compared to the first quarter of 2018 was driven primarily by higher prices and mix of $0.37; and volumes, $0.27 in our Packaging segment; higher prices and mix in our Paper segment of $0.21; lower annual outage expenses, $0.02; and lower depreciation expense, $0.02.

These items were partially offset by lower volumes in our Paper segment primarily due to the exit from the paper business at Wallula of $0.13 and higher operating and converting costs totaling $0.27 per share. These higher costs were primarily due to inflation-related increases with wood fiber and chemical costs, labor and benefits expenses as well as indirect costs such as repair and operating materials, outside services and equipment and building rental expenses. In addition, we experienced significant weather-related challenges across the company from extremely cold temperatures and flooding that negatively impacted production, fiber, fuel and repair costs for the quarter by approximately $0.06 per share.

Results were $0.01 above the first quarter guidance of $1.97 per share primarily due to higher prices and mix in both our Packaging and Paper segments.

Looking at the Packaging business. EBITDA, excluding special items in the first quarter 2019 of $334 million with sales of $1.5 billion resulted in a margin of 22.6% versus last year's EBITDA of $308 million and sales of $1.4 billion or a 21.9% margin.

Our containerboard mills established a new first quarter volume record while running our system through demand and managing numerous weather-related challenges across the entire mill system. Our containerboard production allowed us to maintain our industry-leading integration rate by supplying the necessary containerboard to our box plants, which achieved a new all-time first quarter record for total box shipments as well as shipments per day. We ended the quarter with our inventories in good shape, and we continue to work through our scheduled maintenance outages and service our customer needs in a timely manner.

I'll now turn it over to Tom, who'll provide more details on containerboard sales and our corrugated business.

Thomas Hassfurther -- Senior Key Executive

Thanks, Mark. As Mark indicated, our corrugated products plants had record first quarter total box shipments as well as shipments per day, which were both up 0.7% compared to last year's first quarter. Outside sales volume of containerboard was about 33,000 tons below last year's first quarter as we ran our containerboard system to demand, supply the increased needs of our box plants and managed lower export volume. Domestic containerboard and corrugated products prices and mix together were $0.39 per share above the first quarter of 2018 and up $0.03 per share compared to the fourth quarter of 2018. Export containerboard prices were down about $0.02 per share compared to both the first and fourth quarters of 2018.

Now I'll turn it back to Mark.

Mark Kowlzan -- Chief Executive Officer

Thanks, Tom. Looking at the Paper segment. We had a first quarter record EBITDA, excluding special items, of $55 million with sales of $240 million or an all-time record 22.9% margin compared to the first quarter 2018 EBITDA of $31 million and sales of $269 million or an 11.6% margin.

Market conditions remained favorable during the quarter, and we began implementing our announced price increases. Our pricing/mix and sales volume were better than anticipated, and we were able to improve our freight and logistics costs as a result of managing our inventories back to a good level at the end of 2018 after running most of last year on allocation.

Our mill system is running extremely well with an increased focus on our most profitable products. The lower revenues compared to last year are a result of the exit from the white papers business at our Wallula Mill. As we said a couple of years ago, we felt that we could improve our profitability and margins in the Paper segment by exiting this business at Wallula rather than continuing to allocate people and capital resources to it. And that's exactly what we're starting to see.

I'll now turn it over to Bob.

Robert Mundy -- Chief Financial Officer

Thanks, Mark. We had record first quarter cash generation, with cash provided by operations of $236 million and free cash flow of $157 million. The primary uses of cash during the quarter included capital expenditures of $79 million, common stock dividends totaled $75 million, $14 million for federal and state income tax payments, net interest payments of $6 million and pension contributions of $1 million. We ended the quarter with $442 million of cash on hand.

I'll turn it back over to Mark.

Questions and Answers:

Operator

(Operator Instructions) Your first question comes from the line of Chip Dillon with Vertical Research Partners.

Chip Dillon -- Vertical Research Partners -- Analyst

I want to ask a couple of questions about of all things, the white paper business, which I think had the best quarter we've ever seen since you bought Boise. As we look at the second quarter and then the second half, can you give us an idea of kind of how much of a hit or decline in the second quarter we would see versus the first because of I Falls? And I don't know how much of the price increase you feel comfortable asking us to assume. And then how -- would the operations likely bounce back to where they were in the first quarter by the third quarter in that segment?

Mark Kowlzan -- Chief Executive Officer

I will let Bob give you the outage impact costs for the I Falls.

Robert Mundy -- Chief Financial Officer

Yes, Chip. In the second quarter, there's -- from the first, there's about $0.06 related to the I Falls outage. And there will be some additional labor and some other fixed costs that will be up relative to the first quarter. But as we said, pricing -- we'll continue to implement the announced price increases as well.

Mark Kowlzan -- Chief Executive Officer

And then in regard to volume, we expect volume to -- as you would look at the seasonal impact, the seasonal impact should be moving up as the summer comes on here. Back-to-school will start in the June period. And so volume should be up as we'd expect. Also, we're able to build our inventory, so we'll be able to sell out of our inventories. So in terms of volume, the outage at I Falls won't impact on our ability to satisfy the customer demand.

Chip Dillon -- Vertical Research Partners -- Analyst

So if I hear you and we decide to assume you get a lot of this pricing, you could actually have sequentially flat or even up earnings in that segment?

Robert Mundy -- Chief Financial Officer

We'll see. It should be certainly a good quarter, though, Chip, relative to our history for sure.

Mark Kowlzan -- Chief Executive Officer

And then you'd have to expect, Chip, with the outage behind us in the second quarter, 3Q, without an outage and again, continuing back-to-school-type sales volume, 3Q should -- you would expect would be another good quarter in terms of our EBITDA generation.

Chip Dillon -- Vertical Research Partners -- Analyst

Terrific. And then one other question I had just on that segment is we've seen some -- if you could just update us on where we stand in terms of tariffs, et cetera. I know that some of the demand kind of faltered if we look at some of the data in the last couple of months. And yet I know that in the past, there have been some trade, I guess, some tariffs put on because of a dumping by other countries. I think there were 5 involved. And could you just update us on where that stands? Are those tariffs still in place and as a way to impact the U.S. market?

Mark Kowlzan -- Chief Executive Officer

Chip, for all intents and purposes, the tariffs are still in place. And as you would have expected with the industry announcements earlier in the first quarter with the capacity coming out, customers, quite frankly, had to rely on the imports or the export market from the rest of the world supplying some of their needs, so they didn't go and seek some of the import capacity to satisfy their demand. Quite frankly, the domestic capacity could not at that point in time supply the needs. So we're seeing somewhat of a rebalancing of how the industry supplies itself in terms of the customer base. So it's not surprising that imports have picked up. That's a natural reaction.

Chip Dillon -- Vertical Research Partners -- Analyst

And then last question. Mark, as you know, a few weeks ago or last week or so, a major producer down in Brazil announced that they were going to build containerboard capacity using eucalyptus. Although I seem to think that they are making a very lightweight grade, do you have any thoughts about -- we've never really seen a hardwood-based containerboard, that I've seen at least, that's been widely usable. And I didn't know if you had any thoughts about that.

Mark Kowlzan -- Chief Executive Officer

Well, I think you just summarized it. It's short fiber. Traditionally, short fiber does not satisfy the performance requirements of a traditional high-performance demand container. Quite frankly, eucalyptus or mixed hardwoods fall into the category of being able to produce a container that's akin to a folding carton type of packaging material. So it would be in the lightweight, super-lightweight container, which to my knowledge is a very -- the demand is small, the volumes are small worldwide, so it'll certainly, in my mind, be a real niche product.

Operator

Your next question comes from the line of Mark Connelly with Stephens.

Mark Connelly -- Stephens -- Analyst

Mark, there was a lot of chatter early in the quarter about PCA losing a big customer, and you clearly aren't showing a lot of signs of distress from that. Can you remind us what your customer base looks like and how you think about individual customer gains and losses?

Mark Kowlzan -- Chief Executive Officer

Yes. I think on the January call, we talked about that. But primarily, that was some business from our Sacramento Container acquisition, and we talked about that in terms of a competitor had purchased the sheet feeder piece of that business. And so that's some of the business we've been having to make up for. But other than that, that was the big component. Tom, do you want to add some color to that?

Thomas Hassfurther -- Senior Key Executive

Mark, I think you're probably referring to the rumor that was going around that it amounted to something like 10% of our volume or something like that. I'm going to remind you, as we've said many times, the makeup of our customer base is 10,000 strong and lots of different industries, lots of different markets. And our largest accounts are, on a relative basis, are a small percentage of our total. So it's very well spread out, so we don't have anybody even in that category. What Mark was referring to earlier, I think, was we discussed the loss of a couple of large sheet accounts that we had out in Sacramento, and those were purchased by somebody. So as you know, one of those events that you can't help. But it was impactful to Sacramento, but I mean, obviously, in the big scheme of things, you don't see that large impact for us.

Mark Connelly -- Stephens -- Analyst

That's helpful. And just one more question. Can you talk a little bit more about the progress with your new box plant? And you've talked in the last couple of calls about a significant number of box plant optimization projects. Can you tell us how that's going to affect your overall system and what it's doing to your integration levels?

Mark Kowlzan -- Chief Executive Officer

First part of your question, with regard to the new plant out in Richland, we had a little bit of a weather delay starting breaking ground, as you would expect. The Pacific Northwest had some of the worst weather they've seen in the last 100 years. But all in all, we're still on schedule for the end-of-the-year start-up on the box plant. Everything looks good. we're very pleased with the design we put down. So -- and then for the very first time again, we have a new oversight in terms of we teamed up the mill project management team with the corrugated packaging operational and project team. So we've got quite a formidable group putting this plan together. Tom, do you want to add to that?

Thomas Hassfurther -- Senior Key Executive

Yes. I would just also add that keep in mind that when we bought Wallula, the box plant there was really stretched for an ability to add any capacity. We did what we could over a short period of time. And so we're -- this is all customer-driven. I mean we need more capacity out there to satisfy our customers' needs. We're not -- I've said it before it. We're not a "build it and hope they will come" type of company. I mean, we're doing this to satisfy real demand. And any of the other optimization projects that we have are driven by customers or driven by labor markets, where it's a very, very tight labor market and we need to go a little more automation.

Operator

Your next question comes from the line of Mark Weintraub with Seaport Global.

Mark Weintraub -- Seaport Global -- Analyst

One question is a bit of a follow-up. Could you provide the outage expenses by quarter this year? I know you've mentioned I Falls being 6% more 2Q than 1Q.

Robert Mundy -- Chief Financial Officer

Yes, Mark. They're no different than what we gave on the last call. They are 18 -- we expect $0.18 in the second quarter, $0.08 in the third and $0.14 in the fourth. They were about $0.19 in the first quarter this year.

Mark Weintraub -- Seaport Global -- Analyst

Okay. And Wallula, can you give us a sense as to whether or not you are now at kind of full profitability mode on the -- with the second leg of that conversion having been completed or whether there's still upside as we progress through the year?

Mark Kowlzan -- Chief Executive Officer

No. We talked about this in January about on a run rate basis, we've got capacity for the next couple of years to supply the system off of Wallula capability, and so we're not at the full run rate. That machine was modified to produce 400,000 tons a year. And so we are not running to the 400,000 ton a year capacity. That's part of within our statement, we talked about running to demand. We're running to supply our needs, but the additional capacity requirements into the future next couple of years will come from the final supply off Wallula.

Mark Weintraub -- Seaport Global -- Analyst

Great. And then lastly, could you give us a sense of box shipments April to date?

Thomas Hassfurther -- Senior Key Executive

Yes, Mark. Through 15 days -- we're up 0.5% through 15 days. So we're -- again, remember, these are some -- we got some tough comps from a year ago, especially given the Sacramento situation that I talked about. And also demand was good last year as well. So we're off to a little what we'd consider to be a little bit of a slow start in April, but we see the second half being a little bit better.

Mark Weintraub -- Seaport Global -- Analyst

Okay. Had you seen the slowing in March that showed up in the statistics?

Thomas Hassfurther -- Senior Key Executive

Yes. Yes. I think a number of factors were baked into March. One is, if you look back a year ago, I think if I recall, I think the March number was up like 6.5%. So it was an incredibly tough comp given the fact that the year didn't turn out to be nearly at anywhere near 6.5%. You had a lot of weather-related issues. We certainly suffered a lot of shutdowns in a lot of our box plants, whether it had to do with snowstorms, polar vortex, flooding, you name it from East Coast to West Coast. I mean it seemed like there was an event going on every week during the month of -- well, really, I mean February and March but certainly during March as well.

Operator

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

George Staphos -- Bank of America -- Analyst

I wanted to piggyback on the discussion on growth in box shipments that we've been seeing and recognizing that April has maybe started off a little bit more slowly. What we've seen in the last couple of quarters for you and for others is kind of a good start to the first month of a quarter and then a deceleration the quarter has progressed. Would you agree with that? And would you say that, that is just a function of inventory patterns from your customers, maybe a little bit less -- a little bit more caution in terms of holding inventory so people ratchet things down as a quarter comes to a close? Any thoughts on that would be helpful.

Mark Kowlzan -- Chief Executive Officer

Yes, George. I think given the fact that -- and of course, most of our customers and our large customers are global companies. They're reading the same news we're reading. One day, things look good. Another day, globally you hear negative news. So I think there's a lot of a little more knee-jerk reaction, I think, that's going on right now, especially relative to inventories. And we're seeing that same pattern you're talking about, where it starts off -- the quarter start off a little stronger, and then they kind of tail off. And so it's -- and we're talking to our customers. Our customers are not talking in terms of negative growth or anything like that. They're still planning to grow their business, and they still feel bullish about their business. But they are managing their inventories very, very closely.

George Staphos -- Bank of America -- Analyst

Okay. Second question I had is just on basis weights, and the question comes up periodically on the calls. And Mark, you were talking about earlier in terms of the Codine announcement. Are you seeing any different rate of change on the basis weights being used and the move or not to lightweights in the U.S. based on some views on trying to take content out of the package, trying to use less fiber, the move to perhaps optimize packaging at the e-tail level. What are you seeing in terms of trends there? Is anything discernibly different than what you've seen in the last couple of quarter? And how do you think this is going to materialize the next couple of years?

Mark Kowlzan -- Chief Executive Officer

Tom, why don't you go ahead and add some color?

Thomas Hassfurther -- Senior Key Executive

George, I'll tell you, the trend is the performance. That's where the trend is. And that trend bodes very well for us being a virgin-based containerboard system. Because we've got better ability with, as everybody knows, the long fibers, the formation of the fibers, et cetera. We have a much better ability to meet performance levels with the correct amount of fiber. And that's really where things are headed. We've talked about recycled in comparison, where you have to throw a lot more fiber at it, chemicals, et cetera. I think we're in a very, very good spot for where the trends are long term right now and long term for the box business.

George Staphos -- Bank of America -- Analyst

Okay. My last question, and you might have mentioned. If you had, I'd missed it. How long do you think it will take for wood costs in the south, in particular, to normalize relative to what we've been seeing here because of the weather? Do you think by the time we're done with 2Q, we're back to a normal period? Obviously, it will be dependent on the weather, which we can't predict. But any thoughts on that would be helpful.

Mark Kowlzan -- Chief Executive Officer

George, you answered your own question. We've got hurricane season starting here in a month. So all bets are off if we end up with some of the severe southeastern hurricanes and Gulf of Mexico-type hurricane with tropical weather activity.

George Staphos -- Bank of America -- Analyst

All right. So then I'll take another one. Wisconsin box plant doing OK so far coming up the curve?

Thomas Hassfurther -- Senior Key Executive

Yes.

Yes. We're very pleased with that.

Operator

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

Scott Gaffner -- Barclays -- Analyst

Tom, you gave us the April numbers. You talked a little bit about what happened actually in 1Q, the polar vortex. And I think you mentioned some of the flooding in the Midwest. But can you give us a cadence of how box shipments for you sort of broke out during the quarter at the end of the day by month?

Thomas Hassfurther -- Senior Key Executive

I mean we were pretty steady throughout the quarter with the exception of March. I mean we started out in pretty good shape, and then -- and felt pretty good about March actually starting out. But -- and then it kind of went into that tailspin, and it was very much weather-related. And of course, I'm going to remind everybody, when we're down, our customers are down also. And when they're down, I mean, those orders are essentially gone. They're just not producing that day. So when they come back up, it starts production all over again. So it wasn't as if we were down and our customers weren't. That's really what the impact was in March.

Scott Gaffner -- Barclays -- Analyst

Okay. Fair enough. You mentioned, Mark, I think in your prepared comments that freight cost you thought would be sequentially higher in 2Q versus 1Q. Are you seeing actual freight rates reaccelerate? Or what's driving that? Is it the different freight patterns?

Robert Mundy -- Chief Financial Officer

And there's some mix in there as well, Scott, depending on when you have outages at certain mills and when you bring them back. It's just -- there's a mix factor that goes into that as well.

Scott Gaffner -- Barclays -- Analyst

Okay. And just last one for me. When you look at the outside sales, you said down 33,000 tons. I think that was a year-over-year comment on the outside sales. Was that regionally more difficult in one place versus the other? I mean we've heard some weakness from customers in the Pacific Northwest. I don't know if it's that or if it was more in the southeast. Is there anything -- any one region that was affected more than the other?

Mark Kowlzan -- Chief Executive Officer

The 30,000 tons that you're referring to was the export.

Robert Mundy -- Chief Financial Officer

It's primarily export. There is some domestic but primarily export.

Mark Kowlzan -- Chief Executive Officer

And very small amount of domestic. But primarily, the bulk of that was the export year-over-year decline. And that was throughout all of -- we shipped to 30-some-odd countries around the world, and we saw that decline all around the world.

Operator

Your next question comes from the line of Anthony Pettinari with Citi.

Mark Kowlzan -- Chief Executive Officer

If you just do the math, if you look at what we produced for the first quarter and then you know what our capability is now with Wallula in terms of our system capability, I think you can do the math. We never call out specifically the amount of downtime. I will say that beside running Wallula No. 3 to its demand requirements, we did take some downtime at mills like Tomahawk, Wisconsin on the No. 2 machine, which is the smaller machine; and the Filer City No. 1 machine, which is the smaller machine during that polar vortex period when gas was reaching astronomical levels. And not only was the price -- spot price going to $150 a unit, but they were also curtailing operations for a few days. So we saw a couple of days of downtime on the smaller machines in the Midwest. Other than that, it was just running the system to demand throughout Counce, DeRidder, just not having to push the mills as hard as we might have to.

Anthony Pettinari -- Citi -- Analyst

Okay. That's very helpful. And then just a follow-up question on fiber mix. Can you remind us your mix between virgin and OCC? And with OCC at $40 a ton, can you quantify sort of any opportunity to switch from virgin into OCC sort of at the margin at your mills?

Mark Kowlzan -- Chief Executive Officer

We're still probably in that recycle of 15%, 18% level in terms of the amount of OCC DLK that flows through the containerboard mills. Tom?

Thomas Hassfurther -- Senior Key Executive

Anthony, I'll also add that you say can we make the switch? Not really because we -- as I mentioned earlier, I mean, we're selling performance-based linerboards. And we're not going to sacrifice our performance in the marketplace for our customers for a -- for what potentially could be very short-term gain on OCC.

Operator

Your next question comes from the line of Gabe Hajde with Wells Fargo Securities.

Gabe Hajde -- Wells Fargo Securities -- Analyst

You mentioned, Tom, I think about having a fairly diverse end customer set. I was curious if you can maybe comment at all what you're seeing in terms of, I guess, what came through in the first quarter and/or in April if there's any particular end market that stands out to you. Sort of asking the question in the context of we're seeing reports of some substitution, some e-commerce applications. Just curious what you guys are seeing.

Thomas Hassfurther -- Senior Key Executive

Well, I would -- there's -- I mean, typically, our markets are pretty steady throughout the year, and some are seasonal and some aren't. But I would say that if there was any one segment that probably is -- changes on a more regular basis, it would be the e-commerce segment. Of course, we come out of the fourth quarter, which is very heavy e-commerce. And then you get into the first quarter, which is less so. There's no question that some of the larger players in there have stated publicly that they're looking for ways to reduce their packaging expenses and have one-way trips and things like that. So there's some going on there. But it's still growing. It's still going to be a big, big part of the market. And -- but that's the one that probably is more impacted. On the other hand, we've got other segments that could have been in RPCs, as an example, that are moving back to corrugated for food safety reasons, for transport reasons, for a myriad of reasons, including sustainability and environmental. So these markets are very dynamic, and you have pluses and minuses all the time. So it's kind of the things we face all the time in this competitive environment.

Gabe Hajde -- Wells Fargo Securities -- Analyst

That makes sense. Understood. Can you -- I guess you didn't mention anything, Bob, in terms of repurchasing shares in the quarter. Has anything changed on the capital allocation front? Can you comment at all about what the acquisition market looks like in terms of valuations or anything like that?

Mark Kowlzan -- Chief Executive Officer

Gabe, regarding share buyback, obviously, we didn't call out any shares bought back. And in regard to capital, we are still on target for what we talked about in January, a little over $400 million. That hasn't changed. And then Bob, you want to add anything?

Robert Mundy -- Chief Financial Officer

No. I'd say the answer, Gabe, is similar to what we said last call is we continue to evaluate all of our options, whether they'd be M&A-related or dividend or share buybacks or high-return capital. And that hasn't changed, and that's continued -- we'll continue to look at it that way for this year.

Operator

Your next question comes from the line of Mark Wilde with the Bank of Montreal.

Mark Wilde -- Bank of Montreal -- Analyst

Tom, I wondered if you could give us a sense, if you were running Wallula at that 400,000 ton level, what would your current integration level be?

Mark Kowlzan -- Chief Executive Officer

Without doing the absolute math, it puts us back up into the 95%, mid-90s area. So we're currently running a low 90s. You move back up into that mid-90s probably somewhere without having done the math.

Thomas Hassfurther -- Senior Key Executive

As I've said before, Mark, we're going to continue to participate with our domestic customers because we've got some long-term relationships there, and with our export market as well. Bob, you want to...

Robert Mundy -- Chief Financial Officer

Yes, I was just saying -- if you were saying at current box demand, if that were the case, obviously, that would -- that integration rate would go down. We're not going to call out what it would be. But as Mark said earlier, we're running Wallula. We have runway there for our future, and we're certainly running it in a way to match supply with demand. So -- but certainly, it would go down at current box demand.

Mark Wilde -- Bank of Montreal -- Analyst

Okay. And then just thinking a little bit further out. Is it possible that you could stretch Wallula beyond 400,000 tons?

Mark Kowlzan -- Chief Executive Officer

Yes. If you'll recall, I did mention on the January call that for some -- a certain amount of capital, we could spend some more money at Wallula and stretch the Wallula Mill out to grow that capability.

Mark Wilde -- Bank of Montreal -- Analyst

Okay. And the last question for me is just when we think about the second quarter guidance, the guidance is essentially flat kind of year-over-year. But you had a containerboard hike last year, and you've got a couple of paper hikes. So what are the main offsets when we think kind of just year-over-year in terms of things that are offsetting the benefit from the containerboard and paper hikes, just the big bucket?

Robert Mundy -- Chief Financial Officer

Yes. The big buckets, Mark, would be certainly on the paper side. Our volume will be down because of the exiting the release liner business. So that would be a drag. Fiber costs are certainly higher than last year for the reasons we've talked about earlier. And just -- and then keep in mind, too, as we said, when we -- with Wallula and W3, we're pulling a lot of real high-cost fiber. It's just everything's -- fiber is very expensive out in that part of the country, just like it is for everyone else. And so when you add the volume we're adding from W3 and the fiber needs for that at a very high cost, then that metric alone is going to go up as well. Energy costs are up. And then just inflation. We have inflation across labor and benefits. That's normal. But there's also a sizable amount of inflation and things that don't get talked about a lot around repair materials, operating materials, rents, equipment rentals, building rentals, on and on and on. And we do have this year in the second quarter the item we mentioned in the release about the accounting for restricted stock issuance. It's just an accounting thing that just hits us this second quarter versus last year. And it's almost about $0.04 a share. And then, of course, export prices. Export prices are probably $0.05-or-so down from last year's levels as we go look at the second quarter. So those start to negate that price improvement we were getting on the Packaging side.

Mark Kowlzan -- Chief Executive Officer

Yes. In addition, Mark, I'd just add that we had the RISI move up $10, which came out of nowhere. As far as we were concerned, it was a very large surprise. They're citing such a small portion of the market. And quite frankly, we didn't see any of it, and we do participate in the outside market. So that was a big surprise to us. And those -- even a $10 movement can be impactful, OK?

Mark Wilde -- Bank of Montreal -- Analyst

I'll just slip one more. You've got almost $0.5 billion of cash, and it looks like you should be building more cash this year. Is there any kind of upper limit on what you're willing to hold in terms of a cash balance?

Robert Mundy -- Chief Financial Officer

When we get there, we'll let you know. We'll talk about it then.

Operator

Your next question comes from the line of Brian Maguire with Goldman Sachs.

Thomas Hassfurther -- Senior Key Executive

I just wanted to follow up on the last comment you made around the change in linerboard prices. I guess my understanding had been you guys are highly integrated, so it would take more like a $20 or $25 cut in the published price before you'd see a material change in your selling prices. So when you talk in the comments around the 2Q guide around lower prices being a headwind, are you talking specifically around export prices and some of the small sort of merchant open market board sales you're selling? Or are you actually expecting an impact on kind of box prices and box revenue in 2Q versus 1Q?

Brian Maguire -- Goldman Sachs -- Analyst

I was wondering of you could comment on your inventory levels in the Packaging segment, how you kind of see them versus where you'd like to be. And you mentioned kind of running for demand. Just as you try and adjust those inventory levels to wherever you'd want to be, would you envision needing to take any economic downtime in 2Q? And is that sort of contemplated in the guidance you gave?

Mark Kowlzan -- Chief Executive Officer

Again, using that term running to demand, we still have an outage at DeRidder in June that will take the machine down. And so as we finished up 2018, we knew we had to build some extra inventory to get through the normal outage activity in the first quarter into the early part of the second quarter, and we did that. And so we ended the first quarter right where we wanted to. And we're in good shape right now. So unless something changes in the economy, we're going to continue doing what we're doing and running in the mode that we're running. So I don't anticipate anything unusual, but again, that's where we are.

Operator

Your next question comes from the line of Adam Josephson with KeyBanc.

Adam Josephson -- KeyBanc -- Analyst

Tom, just one more on -- Tom, just on the demand, I know you talked about the weather in March, and to a larger extent, in February and that adversely affecting demand to some extent. If we go back to, say, middle of last year, that's when we started to see the industry growth slowing to about 0.5% or so, which has continued really into March, are there other factors that you would point to the economy slowing, the e-commerce effect that you talked about earlier? And how would you characterize the state of box demand today compared to where it was, say, in late '16 and throughout 2017?

Mark Kowlzan -- Chief Executive Officer

Let me start that one off and then I will let Tom finish up. If you think about last year, think about the news you watched every day in the morning and everything you read throughout the day. I'm talking about the uncertainty with the world economy. You've got the Chinese and North American and United States trade discussions going on, Europe. It's just a lot of uncertainty worldwide with the economy. A day didn't go by that some news media was talking about that very fact. And so I think, and Tom mentioned this earlier, that whether it's our customer base or customers in general, people are running their business a little tighter right now because of the uncertainty. And in fact, whether or not demand has slowed, there are segments, auto industry is down. So I think it was just a lot of -- if you look at European -- German manufacturing index, down during the first quarter. So there's some actual economic slowdown along with the uncertainty. And I think in India, some of the trade negotiations are creating some of the uncertainty and the actual slowdown. So Tom?

Thomas Hassfurther -- Senior Key Executive

Yes. Adam, in addition to Mark's comments, what I would say is I would say a good way to look at this might be that we went through a very fast growth curve in this business due to e-commerce. I mean everybody knows that it kind of came out of nowhere, and the demand went up dramatically. E-commerce continues to grow, but it's not growing at the pace it was because it's not starting from infancy anymore. So even that business is becoming a little more mature. So if you look at and you say, well over time, we had this big spike in demand. We're still building on top of that spike of demand, which is good. But right now, I think and even -- and this was true last year as well. As I said, a lot of our customers are global suppliers. And as things began to slow down elsewhere in the world, that did -- that does translate back to box business because all the stuff does ship in a box when it goes overseas. So those are kind of what I'd call the headwinds that we have, although I still feel good about the fact that we continue to grow on top of a much larger base.

Adam Josephson -- KeyBanc -- Analyst

Just one follow-up. You started off April first half up about 0.5%. I know the comp is pretty tough. I think the comp -- for the industry, I know. For you, I'm not as sure. But I assume the comp gets appreciably easier in May and June. So in terms of the guidance that you gave for 2Q, are you at liberty to say roughly what rate of demand growth you're assuming for the quarter as a whole?

Thomas Hassfurther -- Senior Key Executive

We don't really make assumptions on that. We just -- we go by based on the facts that we know.

Operator

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

George Staphos -- Bank of America -- Analyst

I'll make it quick. Tom, back to e-commerce, certainly markets like apparel and electronics have been pretty well penetrated, and there is some more to go. But there are other markets and there are other avenues of getting product to the consumer, whether it's food, produce and so on, that really haven't been penetrated yet. Recognizing that might not necessarily be your key end market, do you think there's a potential for e-commerce to see a improvement in the growth rate for corrugated consumption as some of these new markets, which are frankly bulkier and heavier goods, need more corrugated to get the product ultimately to the consumer? That's question number one. Question number two, back to Paper. To the extent that you can comment, historically looking back, how long would it take you to get the uncoated freesheet price increase into the market. Not expecting -- not asking you to tell us this quarter about this increase, but historically, how many months will it take you to get that in?

Thomas Hassfurther -- Senior Key Executive

Yes, I'll take your first one, George, and I'll turn it over to Mark to take the second one on the Paper. Yes, there's -- as I said, it's still a growth engine. E-commerce clearly is still a growth engine. I think some of our e-commerce customers that -- you mentioned food and produce, it's still a great end market. It's going to require corrugated. It's had some difficulty, I think, penetrating and getting off the ground. It's not as obvious to a lot of consumers that they can do that and feel good about that. I still think when it comes to fresh food, I mean, they like to touch it and feel it and pick their own, if you will. So there's some -- there's going to be some difficulties penetrating it like they'd like to. But I think there's going to be a large segment of the market that's going to go for it, and they will continue to develop that. So that's clearly an opportunity within the e-commerce area, and there's others as well. They're going to try to make our lives as easy as possible and deliver something in a different way and reinvent the way consumers purchase. And they'll do it in every market they possibly can. And most of them -- most of that will require corrugated boxes, and that's good for our industry. Mark?

Mark Kowlzan -- Chief Executive Officer

Regarding the paper price timing, historically, if you went back and looked, once the index has picked up and you start moving price, it's about a 3-month period of time on average.

Thomas Hassfurther -- Senior Key Executive

Are there any other questions?

Operator

(Operator Instructions)

Very good, operator. It sounds as if there are no questions. I want to thank everybody for joining us on the call, and we look forward to talking with you in July. Thank you. Have a good day.

Duration: 52 minutes

Call participants:

Mark Kowlzan -- Chief Executive Officer

Thomas Hassfurther -- Senior Key Executive

Robert Mundy -- Chief Financial Officer

Chip Dillon -- Vertical Research Partners -- Analyst

Mark Connelly -- Stephens -- Analyst

Mark Weintraub -- Seaport Global -- Analyst

George Staphos -- Bank of America -- Analyst

Scott Gaffner -- Barclays -- Analyst

Anthony Pettinari -- Citi -- Analyst

Gabe Hajde -- Wells Fargo Securities -- Analyst

Mark Wilde -- Bank of Montreal -- Analyst

Brian Maguire -- Goldman Sachs -- Analyst

Adam Josephson -- KeyBanc -- Analyst

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