Jan 22, 2013
Executives
Mark W. Kowlzan - Chief Executive Officer and Director Richard B.
West - Chief Financial Officer, Principal Accounting Officer and Senior Vice President Paul T. Stecko - Executive Chairman Thomas A.
Hassfurther - Executive Vice President of Corrugated Products
Analysts
George L. Staphos - BofA Merrill Lynch, Research Division Chip A.
Dillon - Vertical Research Partners, LLC Steve Aragon Phil M. Gresh - JP Morgan Chase & Co, Research Division Mark A.
Weintraub - The Buckingham Research Group Incorporated Mark Wilde - Deutsche Bank AG, Research Division Anthony Pettinari - Citigroup Inc, Research Division Scott Gaffner - Barclays Capital, Research Division Philip Ng - Jefferies & Company, Inc., Research Division Alex Ovshey Ovshey - Goldman Sachs Group Inc., Research Division Mike Adler - Goldman Sachs Group Inc., Research Division
Operator
Thank you for joining Packaging Corporation of America's Fourth Quarter and Full Year 2012 Results Earnings Conference Call. Your host today will be Mark Kowlzan, Chief Executive Officer of PCA.
Upon 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 are ready.
Mark W. Kowlzan
Good morning, and welcome to Packaging Corporation of America's Fourth 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, we'll be glad to take any questions. This morning, we reported fourth quarter 2012 net income of $61 million or $0.63 per share.
The reported results included net income of $3 million or $0.03 per share from state income tax adjustments related to cellulosic biofuel tax credits and after tax charges of $1 million, or $0.01 per share from plant closures. Excluding these items, net income was $59 million, or $0.61 per share, compared to the fourth quarter of 2011 net income of $39 million or $0.40 per share.
The $0.21 per share increase in earnings, excluding these special items, were driven by higher containerboard and corrugated products price and mix of $0.12; higher volume, $0.09, and lower costs for recycled fiber, $0.04; and energy, $0.02. These items were partially offset by higher costs for labor and benefits of $0.05, including incentive compensation related to record earnings.
Full year earnings, excluding special items, were $201 million, or $2.06 per share, compared to 2011 earnings of $162 million or $1.61 per share. The $0.45 per share increase in earnings was driven by higher volume of $0.33, and price and mix of $0.06; lower costs for energy, $0.17; recycled fiber, $0.12, and chemicals, $0.05; and a lower share count, $0.05.
These items were partially offset by higher costs for labor and benefits of $0.14; depreciation, $0.08; interest expense, $0.06; and transportation; $0.05. Net sales in the fourth quarter were $737 million, up 13% compared to the fourth quarter of 2011.
And full year net sales were a record $2.844 billion, up 9% over 2011. Overall, we had another strong quarter, setting all-time quarterly records for sales, earnings and shipments, despite about 10 box plants in the East and Midwest being impacted more than usual by severe weather conditions.
Our corrugated products demand was strong throughout the quarter, and our corrugated products price increase went through as planned. Moving to more details for the quarter, our corrugated shipments were up 5.8% on a per workday basis compared to last year's fourth quarter, including 2.1% from box plant acquisitions and up 7.6% in total, with 1 more shipping day this quarter.
Our shipments per workday were up each month for the quarter compared to last year. And in November, we set an all-time record for any month in shipments per workday, both including and excluding acquisitions.
For the year, our corrugated shipments were up 6.6%, both in total and per workday, with the same number of workdays as in 2011. Of the 6.6% increase, 3% was from box plant acquisitions.
Our domestic and export containerboard sales demand remained strong. However, with our increasing integration level and to maintain containerboard inventories at targeted levels, we did sell fewer tons into the export market compared to both last year's fourth quarter and the third quarter of this year.
Our export shipments of containerboard were about 8,000 tons lower than last year's fourth quarter, and about 17,000 tons lower than the third quarter of this year. Domestic containerboard sales were down about 2,000 tons compared to both the fourth quarter of last year and the third quarter of this year.
Our mills produced 652,500 tons of containerboard, up 12,000 tons over the fourth quarter of 2011. The higher production was driven primarily by capacity increases resulting from the energy projects at our Counce, Tennessee and Valdosta, Georgia linerboard mills.
But it's worth noting that all 4 of our mills set all-time production records for the year, producing 2.6 million tons and ran at essentially 100% of capacity. We ended the year with containerboard inventories, up 6,000 tons compared to the end of 2011, as we needed to begin to build some additional inventory in advance of the 2013 annual maintenance outages.
We've adjusted our mill annual maintenance outage schedule in 2013 to better optimize inventory levels, and also to accommodate the scheduled delivery of critical items needed for the outages. The only maintenance outage in the first quarter will be the No.
2 paper machine at Counce, Tennessee linerboard mill, which will be down for 5 days in March, reducing production by 7,000 tons and also increasing operating costs. The majority of our maintenance downtime will occur in the second quarter, when we complete our Counce outage, and also have our Valdosta, Georgia, linerboard mill and our Tomahawk, Wisconsin, corrugating medium mill down for their annual maintenance outages.
There are also 2 less calendar days in the first quarter, which will lower mill production by about 7,000 -- 15,000 tons compared to the fourth quarter. And there's 1 less day compared to last year because 2012 was a leap year.
We will need to build some additional containerboard inventory in the first quarter to cover our second quarter maintenance outages. This will impact first quarter earnings, but earnings from these tons will be recognized in the second quarter when they are sold.
On the box side of the business, there are 2 less workdays than the first quarter of last year. Looking at pricing, we completed our corrugated products price increase as planned.
In total, we achieved the full pass of the containerboard price increase to boxes. From an average price standpoint, we realized about 2/3 of the total earnings benefit of the box price increases in the fourth quarter, and we realized essentially all of the remaining benefit of the price increases in the first quarter.
Moving to costs, lower recycled fiber costs improved earnings by $0.04 per share, as the industry published prices for old corrugated containers, or OCC. Excluding delivery costs, we're down about $35 a ton in the fourth quarter of 2012 compared to the fourth quarter of last year.
Our wood costs for both the fourth quarter and the full year were essentially flat with 2011, and we're also able to complete our annual winter wood inventory build in the fourth quarter. Since early January, a pattern of extremely wet weather in the mid-South has begun to put pressure on wood costs and availability.
Our wood inventories are declining, and the extent of the earnings impact from the wet weather in the first quarter will depend on how long the weather pattern persists. Energy costs were down $0.02 per share compared to last year's fourth quarter, driven mostly by the energy project and lower natural gas costs in our box plants.
Finally, labor and benefits were up $0.05 per share compared to last year's fourth quarter, including the cost for higher incentive payouts associated with the record earnings. I'm now going to turn it over to Rick West, our CFO, who will give an update on our generation and uses of cash and taxes.
Richard B. West
Thank you, Mark. In the fourth quarter, PCA generated cash from operations of $153 million, including the positive working capital change of $25 million.
Capital expenditures were $34 million for the quarter, and for the full year, were $129 million. We also spent, during 2012, $35 million for box plant acquisitions.
We paid both our October quarterly common stock dividend of approximately $24.5 million and also paid our normal January dividend in December for $24.5 million. We repurchased 103,000 shares of our common stock during the fourth quarter for about $35.35 per share or $4 million.
And for the year, we repurchased 1.5 million shares for $45 million at an average price of $29.95 per share. As of December 31, 2012, our diluted shares outstanding were 97.4 million shares.
Cash tax payments of $200,000 were made during the quarter for state income taxes and fuel credits of $3 million were used to offset federal taxes. We have estimated remaining fuel tax credits of up to $76 million.
We ended the fourth quarter with $207 million in cash, up $66 million from our third quarter ending cash. Our guidance at the end of the fourth quarter was $794 million.
Before I turn it back over to Mark, I have a few estimates for certain 2013 items. We expect capital expenditures in 2013 to be about $120 million.
We also may consider spending up to an additional $50 million for either box plant acquisitions or strategic investments in our existing box plants. Preliminary 2013 pension funding and expense estimates, including other post-retirement benefits, are about $31 million and $40 million, respectively.
In terms of cash taxes, after the remaining tax credits are used, our tax -- cash tax rate will go back to about 35%. The final amount of the available fuel tax credits and the final cash tax rate in taxes paid, in both 2012 and 2013, is contingent upon the conclusion of the IRS audit currently underway.
Our effective tax rate for income statement purposes is expected to be about 36% in 2013, based on current federal and state tax laws. Our debt pay down, under our $135 million term loan outstanding, will be $15 million in 2013.
We currently have no plans to pay down any additional debt in 2013. Based on current interest rates, our cash interest payments in 2013 are expected to be $32 million, and interest expense will be $38 million, with a $6 million difference between payments and expense due to the amortization of debt refinancing charges.
With that, I will turn it back over to Mark.
Mark W. Kowlzan
Thank you, Rick. Before I move to the first quarter outlook, to sum up 2012, we set several records for both operations and financial results, driven by better-than-expected earnings benefits from our major energy project at our Counce, Tennessee, and Valdosta, Georgia, linerboards mills, and record corrugated product shipments, driven by our ability to provide value to our customers and strategic investments we've made in our existing box plants, as well as our acquisitions.
Based on our strong financial position and the results in 2012, PCA announced on January 14, 2013, an increase in the quarterly cash dividend on our stock, from an annual payout of $1 per share to $1.25 per share, a 25% increase. Looking ahead to the first quarter, as I mentioned earlier, we expect lower containerboard production and higher operating costs compared to the fourth quarter, with 2 less mill production days and annual maintenance downtime.
We also expect higher energy costs with colder weather, and a pattern of extremely wet weather in the South is putting pressure on wood costs and availability. Corrugated products volume will be seasonally lower, and we expect higher costs for recycled fiber and labor and benefits.
These items will be partially offset by higher average corrugated products prices, with a full quarter of realization of our fourth quarter price increases. Considering all of these items, we currently estimate our first quarter earnings at about $0.56 per share.
With that, we'd be happy to entertain any questions. 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 on our annual report on Form 10-K on file with the SEC. The actual results could differ materially from those expressed in these forward-looking statements.
With that, operator, I'd like to take questions, please.
Operator
[Operator Instructions] Our first question comes from George Staphos from Bank of America Merrill Lynch.
George L. Staphos - BofA Merrill Lynch, Research Division
The first question I had, can you give us the traditional rundown on what your bookings and billings look like early in the first quarter, recognizing it's still early?
Richard B. West
Yes. George, for the first 11 days, from the bookings point of view, we were up 4.5%, billings, 3.5%.
As the month goes on, bookings and billings equalize of, again, 4.5% and 3.5% for the first 11 days of January. And George, I might add, that's maybe 1% better than we expected because that's a per workday number.
And we have 2 fewer workdays in the first quarter, so that will affect the total number. So it's good, but it's not as good as it sounds because there are less workdays in the first quarter, which will affect the total number.
But we're a little better than we expected coming out of the shoot.
George L. Staphos - BofA Merrill Lynch, Research Division
Understood. It's consistent with some of the other things that we've seen in our work.
I guess second question I had is around the box plant network and vertical integration. I was hoping, given it's the end of the year, that you're reporting that you can give us an update on actually where your vertical integration was for the year?
And can you comment a little bit on the plant closure that I guess you did in the fourth quarter and how they relate to the overall network?
Mark W. Kowlzan
On -- regarding integration, for the fourth quarter, we are 83.5% integrated. Full year, it's just under 83% to 82.5% full year.
And then again -- what was your second question? I'm sorry.
George L. Staphos - BofA Merrill Lynch, Research Division
No, that was basically it. Just the plant closures, since you need the capacity to some degree, this thing that you're going to invest, what was behind the actual plant closing this year?
Mark W. Kowlzan
We have 1 plant in the Southeast that for a period of time, we had -- quite frankly, we had had a customer that was no longer part of that mix. And so we had an opportunity, it's a very small plant, but we had an opportunity, to shift that volume into another plant in a nearby region.
And basically, the total plant closure cost, we did have another plant in the Midwest that was not a plant closure, per se, but we did some modification to the buildings and took some write-off regarding building demolition.
George L. Staphos - BofA Merrill Lynch, Research Division
Okay. Last one and I'll turn it over.
I know there were some incentive comp in the $0.05 in the fourth quarter in terms of higher labor and benefit costs, but is that a run rate, let's call it $0.04, or how would you have us think about it that we should think about for the rest of, well, for 2013 on a quarterly basis?
Mark W. Kowlzan
Paul, you want to get...
Paul T. Stecko
Yes, since I still look at compensation, that number was between $0.02 and $0.03 in the fourth quarter. We had an all-time payout on our incentive compensation plan as we beat our all-time record earnings by 27%.
What that number will be in the future will depend on what our level of earnings will be. So our incentive compensation plan has a feature that I would define as affordability.
When you're making a lot of money, you can afford to pay higher bonuses, and when you don’t, you can't. And then we have some performance criteria, both external and internal.
So the answer to your question is, it will be a function of our earnings this year. And it's not necessarily a run rate number.
It will follow, as I said, our earnings. As they go higher, then there's a high probability we'll pay out more.
And if our earnings go lower, there's high probability we'll pay out less. So it's not a run rate number.
Operator
Our next question comes from Chip Dillon of Vertical Research.
Chip A. Dillon - Vertical Research Partners, LLC
First question, can you give us a little bit of direction between the downtime impact? You gave us the first quarter and mentioned the 1 machine at Counce, but how much more in terms of tons will we see in the second quarter versus the, I guess, the 7,000 we'll see from that outage in the first?
Mark W. Kowlzan
Well, again, the first quarter was the Counce machine going down. You're going to see directly, say, 7,000 tons come out of the system with the Counce machine down.
But also, by moving the remainder of Counce into the second quarter, basically, the first quarter is about equal to the second quarter when you look at the difference in the number of days with the leap year effect, again, because with the added day last year, that leap year added in, say, another 7,000-plus tons. So in essence, first quarter, second quarter, will be about the same as far as tons impact.
Chip A. Dillon - Vertical Research Partners, LLC
Okay. And I guess as a related question, could you maybe give us either the final kind of score?
I know you were seeing some continued gains from the energy projects and it's been a while, I guess it was November '11 -- 2011, when you completed them. But what -- where that stands in terms of how you see the savings, either EPS or EBITDA-wise?
And then how much more there might still be, if any, in 2013?
Mark W. Kowlzan
Yes, as we said on the third quarter call, we expected $0.37 for the year. And we achieved that.
As far as any incremental benefits going forward, we don't expect to see any. So again, the project achieved more than we had expected, and as we talked last year, to the second, third quarter calls, we are very comfortable with that $0.37 contribution from the projects.
Richard B. West
The only change to that, Chip, is if energy prices would spike and go up, we're going to see benefits in terms of cost avoidance because basically, we buy no fossil fuel at Valdosta, everything's self-generated. But that's a cost avoidance.
It will protect earnings from going down, it won't add to earnings. And I guess the only other thing, we usually can creep capacity at about a 1% a year.
This project will probably enable us to be able to do that. And we couldn't have done that without this project.
So we may get another, but we're talking maybe 1% of capacity in terms of being able to creep, so you could theoretically say, well, you couldn't have done that without the project. But basically, as Mark said, we've got essentially all of our earnings out of this, with the big proviso, so it does give us cost avoidance protection.
Chip A. Dillon - Vertical Research Partners, LLC
Got you, and this is the last quick one. Is -- you mentioned how stable the wood prices have been, wood cost, and as we go into 2013 and beyond, they're different forces at play, whether it would be, I would guess, higher chip availability with lumber coming back.
But then again, you've got these alternative energy-type plants being built, pellet plants. So what do you sort of see for your wood costs, percentage increases, we look out this year, and maybe even into the next year?
Mark W. Kowlzan
Well, again, Chip, just looking at -- coming into this 2013, we're pretty comfortable and our wood costs were flat through the year. We did our winter wood build at Counce, and again, very comfortable with where we were.
However, during that Christmas period, we started to see a weather pattern shift through the South and a lot of the heavy rains starting to move up from Texas to Louisiana into the mid-South. So we were impacted pretty dramatically for about a 3.5 week period.
And that forced us to start consuming our winter wood build at a much more rapid rate than normal. And so that's one of the primary reasons we've talked about wood cost going up on the short term.
Again, we've had a reprieve this week, weather is better. The other regions, we're not seeing any of the impact as far as anything unusual.
As far as sawmills and chips, we have seen an uptick in availability of chips, residual chips available at our Northern mills and our Southern mills. So again, as far as anything that's out on the horizon, if the weather behaves itself and gets back into a normal pattern, then there's nothing that should move wood costs either way.
So we're not expecting anything dramatic, in that regard.
Paul T. Stecko
Yes, I guess, Chip, this is Paul. The only thing I'd add.
I mean, you've said the 2 variables. As wood products improves, there is going to be chip availability, which is definitely a plus.
And then there's the uncertainty of these pellet wood plants that could or could not come online, and once more, a short term earlier than the others, a little more long term. So I would say, if you look at the cut rate versus the growth rate, it's pretty good.
The question is, can chip plants start to eat into that balance? And most of it -- those -- I mean, pellets, not chips.
And most of the pallets are going offshore to Europe and places like that for environmental reasons, for subsidized energy. And the question is, will that continue, will Europe continue to subsidize energy, when they've got problems in terms of costs, Greece, Spain, et cetera.
And what will happen in the long term? Will economics prevail, or will government subsidy prevail?
And that's probably the most important variable, and that's a tough one to call.
Operator
Our next question comes from Mark Connelly of CLSA.
Steve Aragon
This is Steve Aragon filling in for Mark Connelly. My first question goes back to fiber costs.
It sounds like you're expecting a wetter-than-normal weather in the South, so higher than usual fiber costs, but the EPS progression from fourth to first looks pretty normal. What's offsetting these extra headwinds?
I know you mentioned price, but is there anything else there?
Mark W. Kowlzan
Well, again, besides the wet weather, we're in -- it's a colder weather period. We're seeing the colder temperatures up North that we haven't seen for a few years, so the -- energy use, in particular, is going to be higher.
And then again, we just don’t know what this winter weather, as far as the rain is going to do. Rick, do you want to elaborate on any of the other changes?
Richard B. West
Yes, I think, rather than looking at fourth quarter '12 to 1Q '13, I think it's a little simpler to look at 1Q '12 to 1Q '13. If you look on that basis, we made $0.42 per share in the first quarter of 2012.
With the production day and corrugated product workday difference, the volume that we'll produce and ship in the first quarter of 2013 versus the first quarter of 2012 is expected to be essentially the same. So the second item is cost.
You're going to have your normal year-over-year increases in merit and benefits, et cetera, so say that's $0.03 negative, that would take you down to $0.39. We said in the fourth quarter, we recognized about $0.12 per share in price and mix, and it was 2/3 of the total benefit.
So you divide that by 2/3, you get $0.18. You add the $0.39 plus the $0.18 for price, that gets you to $0.57, then some of these weather things that are unusual, you back off $0.01, that gets you to our guidance of $0.56.
So that's a very simplistic way to look at the change in earnings and our guidance.
Operator
Our next question comes from Phil Gresh of JPMorgan.
Phil M. Gresh - JP Morgan Chase & Co, Research Division
Just on the capital allocation side of things. For the year, you guys bought back $45 million of stock, and Paul, I kind of asked about this last quarter, so I just want to follow up again about as to how you're thinking about things as we enter 2013.
If things are more stable out there, would you guys be looking to buy back more stock this year given the cash flow?
Mark W. Kowlzan
Well, I wish things were more stable out there. We would like to buy stock more continually.
We've been opportunistic. We didn't buy a lot in the fourth quarter because of the impending "financial cliff."
Fairly, uncertain time. We faced the same thing to some extent in the first quarter with the debt ceiling and what its effects it will have on macroeconomics and the stock market in general.
So we're waiting for a little more stable time to be more consistent buyers, and if there's any volatility that we think unfairly hits our stock, we're well prepared to be able to take advantage of that. And like you, we're hoping for more stable times, it makes buying stock back a little easier.
And that's the best way I can say it, we're not -- we don't have a long-term strategy right now. We have a short-term strategy that still tries to be a little opportunistic.
And we'll move to a longer strategy when things get a little more stable.
Phil M. Gresh - JP Morgan Chase & Co, Research Division
Okay, fair enough. And then on the inventory front, just where you guys are exiting in the year, I know you're talking about building some on the first quarter as -- from a maintenance standpoint.
But do you feel comfortable just kind of on a longer-term basis whereas where your inventory levels are right now?
Mark W. Kowlzan
Yes, as we finished up the year, quite frankly, we had hoped to be able to build some inventory with the Christmas storms that took place. We actually ended up with a few thousand tons more than we had planned on.
But quite frankly, with the fact that the dynamics are different now during the latter part of the fourth quarter for the last few years, we don't see the December slump like we used to so demand is fairly constant, which again, from going back historically we're used to see an inventory bulge that you'd want to work off during that early part of the -- first part of the year. You don't see that anymore.
So again, it creates the necessity to build that inventory that can sustain us through this shutdown period. So it's important that we build an inventory.
We're pretty much where we want to be right now. So again, we've spaced out these shutdowns, and that's again, one of the factors that we've looked at as where we take these shutdowns now and space it a little bit longer through the first and second quarter to better accommodate the cut off needs and the mill capabilities during the first part of the year.
So regarding that, again, I think where we are at right now in January, inventories are pretty close to where we want them.
Phil M. Gresh - JP Morgan Chase & Co, Research Division
Okay. And then just my last question, your major investments are now basically done at the existing mills, you've got the savings locked in.
And so, I guess, I'm just wondering from a footprint standpoint, how you're thinking about things moving forward? Is the idea of adding more mills to the system something that you'd be considering at this point or just how you think about that strategically?
Mark W. Kowlzan
Well, just to go back and review. We've talked through the last couple of years about our integration plans moving from the low 80s up to the low 90s, 90% to 92%, 93%.
And that remains our focus. And so Tom's been able to create some good opportunities with box plant acquisitions and the organic opportunities with the capital spending from 6 of our plants.
But nevertheless, again, we remain focused on that integration plan. We currently -- again, you've heard Paul say this, I've said it, if an opportunity came along and the right price, we'd consider mill acquisitions.
That's always something you'd have to consider right now. Again, that's again, our priority is the integration plan.
Paul T. Stecko
Yes. And I'd add, we're not looking for diversion here.
Our goal is get to 90-plus percent integration, and that is our main focus.
Operator
It's from Mark Weintraub of Buckingham Research.
Mark A. Weintraub - The Buckingham Research Group Incorporated
Rick, I appreciated the bridge you did of -- from 1Q '13 versus 1Q '12, and I understand that, if we did look though at 4Q to 1Q, it seemed that you had implicitly suggested there'd be about $0.06 positive on pricing mix. And since the number is gone -- going down $0.05, you add the $0.06 to the $0.05, it looks like there's about $0.11 seasonal flash cost variance for Q2, 1Q.
Could you help us understand a little bit better what the components are because it seems to be more than the normal seasonal. So whatever you can do to help us out there, that would be great.
Richard B. West
Well, I didn't say it was more than normal. Just to walk you through some of the items.
Let's just say colder weather, energy, wet weather, $0.04. We do have statutory benefits that start back up in the first quarter which is more of a timing item, that's about $0.025 to $0.03.
Then you have your normal year-over-year increase in wages and some fringes increase which is about $0.025 to $0.03. Then you're looking at recycled fiber, on average, being up about $0.01 a share.
And you've got some offsets with different things, inventory, a little less maintenance expense with not as many outages in the first quarter. And then you've got some seasonal volume related, as we said, corrugated products volume will be down the first quarter versus the fourth quarter.
But essentially, the same in total year-over-year. So that may have been about, $0.03.
So that gets you down to our guidance of $0.56. I think the real difference this year is the more seasonality of the corrugated products volume with less work days than last year.
And we had a leap year last year, we don't have one this year. Leap years are good.
Mark A. Weintraub - The Buckingham Research Group Incorporated
Right. I'm sorry, what's the statutory benefits you're talking about versus the other benefits?
Richard B. West
The statutory benefits, your [indiscernible], your [indiscernible], your [indiscernible], people pay those out as they go through the year. So you have a lot of those paid out by the fourth quarter, but you're not getting the expense.
And then when you start up in the first quarter, you begin that expense again.
Mark A. Weintraub - The Buckingham Research Group Incorporated
And then does that go back down again in the second quarter or that's just at a higher level versus...
Richard B. West
It goes back down throughout the year as people pay out their benefit requirements for the statutory fringes.
Mark A. Weintraub - The Buckingham Research Group Incorporated
Okay, so presumably a typical normal year, you would see much of the energy cost weather-related stuff come back in the second quarter, you would see the statutory benefits and the other benefits also come back, is that fair?
Richard B. West
I would say that's a fair, fair assessment. But not all -- it's not necessarily -- it will depend on your rate of pay, the Social Security's capped at $100,000-some, once you get there, some people will get there in the second quarter, third quarter, fourth quarter.
And that thing, it decays over the year in terms of payment and until you have reached the minimums. But in the first quarter, you take a full hit.
Mark A. Weintraub - The Buckingham Research Group Incorporated
Okay, and then obviously your seasonal volumes typically get better?
Richard B. West
That's correct. The only thing that goes up is your maintenance expense for outages.
That increase because we amortize them over the remainder of the year after they occur.
Mark A. Weintraub - The Buckingham Research Group Incorporated
Well, and on that, you had mentioned that you're going to be building some inventory in the first quarter, but that the sales wouldn't get booked until the second quarter. If you were to sell that production in the first quarter, is that a meaningful difference to what the earnings would be?
Richard B. West
Rough number, $0.01 or so.
Mark A. Weintraub - The Buckingham Research Group Incorporated
Okay. And so how much does maintenance go up, second quarter versus first quarter, order of magnitude, earnings last?
Richard B. West
Really, at this point, Mark, we haven't finalized those numbers as we're completing the total cost of our annual shutdown so I would be reluctant to give you that number at this time.
Paul T. Stecko
And Mark, our current practice is we give guidance a quarter at a time, we're not going to start giving estimates for the second, third, fourth quarter on things. So they're just too difficult to make.
One quarter at a time.
Operator
Our next question comes from Mark Wilde of Deutsche Bank.
Mark Wilde - Deutsche Bank AG, Research Division
Just a couple of follow-up questions. First, can you talk a little bit about the sort of net impact from the hurricane because it sounded like you had some box plants that might have lost a little volume, but at the same time, you said that it's a record shipping month in November for you.
Paul T. Stecko
Yes, Mark, I'm going to let Tom expand on that one because we had a few different storm events taking place.
Thomas A. Hassfurther
Yes, Mark, the net impact from Sandy, that impacted a number of our plants, and then additionally, we had the 2 snow storms that came through the Midwest. All in all, that was about $0.01 a share.
The difficulty there is estimating, okay if you lose a little bit of business because you shut down, does any of that come back. Typically, if you've got our plants down and our customers' plants down, you're going to lose some sales as a result of that.
So that won't show up in the following year.
Mark Wilde - Deutsche Bank AG, Research Division
Okay, but just to be clear, Tom, you did say November was an all-time record month for you guys. Is that right?
Thomas A. Hassfurther
Right.
Paul T. Stecko
And I'd add, Mark, I know you're not a weatherman, but Sandy was in October. And the bad storms were in December.
So we had good weather in November, which allowed that.
Mark Wilde - Deutsche Bank AG, Research Division
Okay, and then the other question I had, just -- can you just recap for us again that maintenance that's going to be going on in the second quarter. I know -- if you don't -- can't give us a cost or anything, that's fine.
But just to recap for us, what is actually going to be out in the second quarter?
Mark W. Kowlzan
Yes. Again, what we'll do is we're going to complete the Counce outage in April.
During that same period of time, we're going to have the Tomahawk mill down in April this year. And then in May, we'll take Valdosta down and complete its annual shutdown in May.
And so those are the 3 shutdowns. And just so everyone understands, again, the Filer City mill will not go down until October of this year.
We've moved it up to October. We got the flexibility now with the energy infrastructure systems at Filer.
Mark Wilde - Deutsche Bank AG, Research Division
Okay. And Mark, if we just went back and looked at sort of what normally happens in terms of these maintenance outages at the 3 mills you've mentioned, is that going to be a pretty good indicator of what we should see this year?
Mark W. Kowlzan
Mark, this year, again, there's just normal outages, mainly inspections. We're not into a lot of big capital upgrades.
So this year, it's just routine work, take the mills down, inspect, repair, get them buttoned back up and run again.
Paul T. Stecko
Yes. And Mark, we only give downtime forecast one quarter in advance for various reasons.
So we could tell you what's down and the next quarter, when we have the same call, we'll tell you how many tons for the quarter. We don't do it more than a quarter in advance.
Mark Wilde - Deutsche Bank AG, Research Division
Yes, I think we all understand that. I was just trying to make sure that we were doing as well as we could in terms of calibrating that bridge going into second quarter.
Operator
Our next question is of Anthony Pettinari of Citigroup.
Anthony Pettinari - Citigroup Inc, Research Division
Your CapEx, $129 million this year, I think it's a tad higher than what's you're shooting for next year. Can you just remind us as was there any carryover expenses from the energy projects or was there anything that kind of caused that number to be a little bit higher this year?
Mark W. Kowlzan
Again, we said that we'd spend $120 million of normal CapEx between the mills and box plants. And then we have said that on the strategic side, primarily the box plants, we'd set aside perhaps $50 million or $60 million per ton to look at potential acquisitions, strategic opportunities.
And so that $9 million, the $129 million, from $120 million to $129 million, is basically strategic opportunity spending that took place. But we have the one acquisition for the year, and so again, we'd looked at some of the opportunities.
And one of the opportunities also was Valdosta, with some, again, strategic capability upgrades. So that $9 million differential was strategic opportunity spending.
Paul T. Stecko
Yes. And Anthony, Paul.
Just on that point Mark is making. That is just kind of a -- I think it's an interesting anecdote, the way we approach capital spending, minimum effective design, we try not to make sure that things are gold plated when we did the energy project at Valdosta, there's about 5 or 6 things we've could've also done.
We assessed the probability of meeting them and the probability on most of these items was 20% and 30%, so we didn't do any of them. And when we get done with the project, they'll always find some things that don't go exactly like you like.
And this was a positive one. We were able -- the boiler did better than we thought.
And we were able to get out more electricity, and that created a problem. We didn't have enough steam.
We looked at it and said, "Hey, the biggest steam user in the mill is the fan pump drive." It's a steam driven pump and we decided it's a -- would be the biggest motor in the bill, so we decided to spend $1 million this year to put in an electric drive instead of a steam drive, that's a $1 million motor.
But the payback is $1 million, so 1 year payback. But the whole point of the discussion is that we really do minimum effective design and if you missed something, then you only fix the things that you missed, you didn't put in 5 other things you didn't need.
So we'll get a very high return on that. And that's in at numbers that could have been part of the project but it wasn't.
Anthony Pettinari - Citigroup Inc, Research Division
Okay. And I guess, just a related question.
You referenced the 90% integration goal. When you think big picture over the next 2 to 3 years, do you think you'd get to that 90% mostly through those kinds of strategic spending and strategic initiatives?
Or do you get it from the box plant acquisitions, or how should we think about those kind of buckets as you move towards the 90%?
Mark W. Kowlzan
It's a combination. If you look at the benefits of the strategic spending that was completed in 2011, which was a 2010, 2011 spend in the box plants that are half dozen of our plants where we upgraded their capabilities, and then you look at the acquisitions, basically, the incremental volume that we saw in 2012, half of it came from the organic capability in the box plant, half of it came from acquisitions.
And so we'll continue that trajectory. And Tom's always looking at acquisition opportunities.
And some of that $9 million, that $129 million of capital, some of that $9 million Tom applied at a number of the box plants and strategic pieces of capital that will enable, again, better organic support for customer base.
Operator
Scott Gaffner Of Barclays.
Scott Gaffner - Barclays Capital, Research Division
I was just curious, the -- you talked about the strong results in November, sort of continuing then into the first quarter a little bit better than expected. Can you talk from a end market demand perspective.
Are you seeing any increased demand from housing-related industries or anything related to better industrial production?
Mark W. Kowlzan
Tom, why don’t you look at that?
Thomas A. Hassfurther
Okay. Yes, I think there's some pick up in the economy, I don't think there's any question about that.
It's certainly not what I call booming, but I think there is some pick up that's -- it's steady. The housing industry obviously, the numbers are much better.
And of course, that will drive a lot of residual customers towards increasing their purchases. So I think that's one of the tailwinds we have going forward.
Scott Gaffner - Barclays Capital, Research Division
And longer-term, you've talked about the return of your manufacturing jobs and factories to North America. Are you seeing that currently?
Is that starting to impact the results or anything you could provide there on the longer-term outlook for that?
Thomas A. Hassfurther
I wouldn't say there's an immediate impact of results but it certainly is encouraging what Walmart has just decided to do. With setting aside a major amount of purchase in hundreds of billion of dollars towards helping assure that there is some re-shoring of manufacturing to this country.
So I'm sure that got the attention of many of our customers and that will bode well for our business going forward.
Scott Gaffner - Barclays Capital, Research Division
Okay. And then just lastly, the -- throughout the whole price increase discussion that just occurred, and some of the changes in consolidation in the industry over the last 2 years, have you seen any meaningful shift in share particularly in the fourth quarter?
Thomas A. Hassfurther
We're not really in a position to comment about that.
Operator
The next question comes from Philip Ng of Jefferies.
Philip Ng - Jefferies & Company, Inc., Research Division
Your mills obviously ran very well, it ran close to 100%. Is that 2.6 million number -- production number sustainable and should we assume like a 1% supply creep for 2013?
Mark W. Kowlzan
Yes, the 2.6 million tons is sustainable and with continued discrete investments to support that, 0.5%, 1% is achievable. Again, it depends, again, we've said this before, it's all about how much capital do you want to spend or do you need to spend.
But we feel good that the -- that number is sustainable and we can continue to grow at a very conservative ratio.
Richard B. West
And just a caveat on that. The way it normally works is, after you get done with an annual maintenance outage, everything is in tip-top shape.
And you could probably run in our system, 102%, 103%, 104% of capacity. And then, you'll lose that ability over the next 12 months as you -- as things wear and you'll get down to less than 100% of capacity like 98%.
Counce, for example, ran less than less than full capacity in the fourth quarter because it's at the end of its cycle. And so it's not a linear phenomenon.
And the other thing it's not -- we had no major problems in 2012 in our mill system. You have your normal day-to-day, but nothing, no big boiler problems, et cetera.
So that has the one caveat, knock on wood, that you don't have a major problem because that would impair your ability to run at 100%. So in a normal year, without any major problems, yes, it's sustainable.
Philip Ng - Jefferies & Company, Inc., Research Division
I got you. Are there any other major projects on the horizon that you could actually debottle more incremental capacity than the normal 1%?
Mark W. Kowlzan
No, currently we're not looking at anything big. It's just the day-to-day's -- the things that address cost, reliability, maintaining our uptime, but right now we don't have any big -- nothing of the magnitude of the big energy projects.
And you can always come up with projects, that'll be expensive, and just a matter of money, and right now, we want to spend our money and get to 90-plus percent integration level.
Philip Ng - Jefferies & Company, Inc., Research Division
I got you. Did you provide some color on inflation on the wood fiber component, what about some of the other major pieces like chemicals cost and starch?
Mark W. Kowlzan
Looking at the first quarter, we didn't see anything in the chemical-related area. And it's more so the normal year-over-year increases in the annual wages, et cetera, and benefits.
So that's the biggest one from an inflation standpoint, a little bit on recycled fiber, as I've said earlier.
Philip Ng - Jefferies & Company, Inc., Research Division
Okay. And just one last question.
I just want to get a sense from your perspective of the state of the market. It sounds like you're generally a little more upbeat about demand.
This time last year we saw some leakage on the pricing export and some spot discounting, but it sounds like the market is much tighter right now. I just want to get to your takeaway.
Mark W. Kowlzan
I think you described it very well, Philip. It's a -- it's certainly better than it was a year ago.
Things are pretty tight. Export market, demand remained very strong.
So on an overall basis, I think that the market itself is in pretty good shape.
Operator
Comes from Alex Ovshey of Goldman Sachs.
Alex Ovshey Ovshey - Goldman Sachs Group Inc., Research Division
As I look at the earnings work from '11 to '12, it looks like volume benefited earnings by more than $0.30, if my models are right. I think you said half of that was acquisition, the other half was organic volume growth.
So on the organic side, it's still a very meaningful contribution to earnings in '12 despite the overall industry being flat from a volume point of view. So as we look at '13 and you look at your book of business and the conversations you're having with customers, any color you can provide on how we should think about the benefit that volume could provide to earnings in '13?
Mark W. Kowlzan
We really are not in the position to get in to that. We talk one quarter at a time.
So, but the first part of your discussion on the volume, you were correct in your assumption on what the contribution was from volume for the year. But again, moving into anything but this quarter.
We're not...
Paul T. Stecko
And it's Paul. The only thing I would add is, as Mark said, we give volume guidance a quarter, any guidance a quarter at a time.
But if look at our long track record, 10 years, you can see that we've outgrown the industry considerably, and obviously, that still remains one of our objectives.
Alex Ovshey Ovshey - Goldman Sachs Group Inc., Research Division
Okay. Thanks, Paul.
And on the export side, can you just talk about the current demand trend you're seeing out there, and whether or not you expect any mix shift between the normal amount of tonnage that you ship with the export versus what you expect to see in 2013.
Mark W. Kowlzan
Yes. As I just mentioned a few minutes ago, the export demand remains very strong.
And of course, they're going through a price increase right now, our announced price increase is $60 a euro and that's on recycled. So things are moving up there as well in Europe, and Latin America remains very strong, as well as South America.
So I think that as we've talked before, we exported over 250,000 tons, and some of that is going to go to our integration. So that's -- we're not as we've talked before, large exporters, and that we concentrate on a couple of markets.
That's all I can really can't comment on. And I think that the worldwide demand is still quite good.
Paul T. Stecko
Just to amplify what Tom said, this is Paul Stecko again. 250,000 tons last year, some of those tons will be needed in our own box plants this year.
So we're not as dependent on export as many of our competitors are and will become less dependent on export overtime.
Alex Ovshey Ovshey - Goldman Sachs Group Inc., Research Division
And so the last question. There is a number of capacity conversions in the wings and containerboard, I think most of them are from newsprint to containerboard.
I'm curious if you have any thoughts around whether our conversion from newsprint to linerboard would be accepted in the marketplace whether you've seen examples where it's been accepted in the marketplace, and just general thoughts around the conversions that are happening from newsprint to containerboard?
Mark W. Kowlzan
Paul, why don't you to talk to that. You've been studying that one for the last year or so.
Paul T. Stecko
Yes. We've got a lot of questions on that, the problem with answering the question, it's in our discussion because it's very complicated, so I'm going to try to keep it simple and short.
I mean there's a lot of variables, no 2 machines are alike. When you try to convert a newsprint machine, you're faced with probably running way at the low end of the weight spectrum.
And some which grades are only exportable or aren't consumed in the U.S. And the more money you put into a machine, the more flexibility you can get with regard to weight range, you just have to change more things, so it's all over the map.
But the bigger problem with newsprint conversions is that, newsprints primarily uses a lot of hardwood, a lot of ground wood, and you need softwood to make a linerboard. And so, you can have a newsprint mill but there are no trees there to make the pulp from which is a problem.
So then you're faced with using recycled fiber, and again, the problem there is most of the newsprint machines are -- would be big, and you'd need a lot of recycled fiber. So you've got some cost exposure and then you got availability exposure because you've got a newsprint machine were there a lot of trees, but not a lot of boxes.
Ideally, a recycled mill is going to be someplace like Chicago, New York, were there are a lot of boxes. So fiber doesn't match up really well.
That said, there will be some conversions. I think over the next decade, with some re-shoring, and if this economy is going to grow and help with the debt situation, more containerboard capacity will be needed in the U.S.
and certainly some conversions will be viable. But it's a very complicated thing, and the ones that we have looked at, there's a lot more -- there's no chance of a conversion that can be converted.
So there may be a few gems out there, but in our opinion, there's few and far between.
Operator
Our next question comes from Carly Mattson of Goldman Sachs.
Mike Adler - Goldman Sachs Group Inc., Research Division
So I'm -- assuming I'm -- I'm sorry, this is Mike Adler speaking for Carly Mattson. I assume that you were holding $50 million per acquisitions earlier in the call.
But could you frame us how you view the opportunities within the broader containerboard space for M&A specifically, is there room for more broad scale M&A, either from a strategic perspective or maybe from a financial buyer and what role could a packaging corp. play there.
Mark W. Kowlzan
Yes, let me answer that. We can't answer that question.
We would not want to share that information with any of our competitors. What we're doing in M&A, we like to keep to ourselves for competitive advantages.
So that's just a subject that is not appropriate for general discussion. Sorry about that, but that's the way it is.
Mike Adler - Goldman Sachs Group Inc., Research Division
I understand.
Operator
Mr. Kowlzan, I see there are no more questions.
Do you have any closing comments?
Mark W. Kowlzan
Yes. Thanks, everyone, for joining us on the call today, and we look forward to talking to you on the April first quarter call.
Thank you.
Operator
Thank you. Ladies and gentlemen, this concludes the conference for today.
You may all disconnect and have a wonderful day.