Q2 2023 Packaging Corp of America Earnings Call
Participants
Mark W. Kowlzan; Chairman of the Board & CEO; Packaging Corporation of America
Robert P. Mundy; Executive VP & CFO; Packaging Corporation of America
Thomas A. Hassfurther; EVP of Corrugated Products; Packaging Corporation of America
Anthony James Pettinari; Director & US Paper, Packaging & Building Products Analyst; Citigroup Inc., Research Division
George Leon Staphos; MD and Co-Sector Head in Equity Research; BofA Securities, Research Division
Mark Adam Weintraub; MD & Senior Research Analyst; Seaport Research Partners
Unidentified Analyst
Presentation
Operator
Good morning, everyone and thank you for joining Packaging Corporation of America's Second Quarter 2023 Earnings Results Conference Call. Your host for today will be Mark Kowlzan, Chairman and Executive -- Chief Executive Officer of PCA. Upon conclusion of his narrative, there will be a Q&A session.
I'd now like to turn the floor over to Mr. Kowlzan. Sir, please proceed when you're ready.
Mark W. Kowlzan
Thank you, Jamie. Good morning, everyone and thank you for participating in Packaging Corporation of America's Second Quarter 2023 Earnings Release Conference Call. Again, 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 our second quarter results and then I'll be turning the call over to Tom and Bob, who will provide further details. I'll then wrap things up and then we'll be glad to take any questions.
Yesterday, we reported second quarter net income of $203 million or $2.24 per share. Excluding special items, second quarter 2023 net income was $209 million or $2.31 per share, compared to the second quarter of 2022's net income of $304 million or $3.23 per share. Second quarter net sales were $2 billion in 2023 and $2.2 billion in 2022. Total company EBITDA for the second quarter, excluding special items, was $418 million in 2023 and $533 million in 2022. Second quarter net income included special items expenses of $0.07 per share for certain costs at the Jackson, Alabama mill for paper to containerboard conversion-related activities and closure costs related to corrugated products facilities and design centers. Details of special items for both the second quarter of 2023 and 2022 were included in the schedules that accompanied our earnings press release.
Excluding special items, the $0.92 per share decrease in second quarter 2023 earnings compared to the second quarter of 2022 was driven primarily by lower volumes in the Packaging segment for $0.90 and Paper segment, $0.07. Lower price and mix in the Packaging segment of $0.47 and higher depreciation expense, $0.09 and higher other converting costs, $0.03. These items were partially offset by lower operating costs of $0.34, primarily driven by lower fiber, energy and chemical costs. We also had higher prices and mix in the Paper segment for $0.12, a lower share count resulting from the share repurchase in the second half of 2022 for $0.13; lower scheduled maintenance outage expenses for $0.03 and lower tax rate for $0.02. The results were $0.35 above the second quarter guidance of $1.96 per share, primarily due to lower operating costs resulting from efficiency and usage initiatives and lower freight and logistics expenses.
Looking at our Packaging business. EBITDA excluding special items in the second quarter 2023 of $405 million with sales of $1.8 billion resulted in a margin of 23% versus last year's EBITDA of $525 million and sales of $2.1 billion or a 25% EBITDA margin. Demand in the Packaging segment was about where we expected for the quarter and Tom will discuss this further in a moment.
As they did in the first quarter, our employees remained focused on very efficient and cost-effective operations as we balanced our supply according to the demand. Or said another way, we are extremely effective at managing what is in our control. In our mills, this included things like improving our wood yields, producing board closer to nominal basis weights, reducing fiber and chemical usage and running our pulp mills more efficiently, increasing our internal energy generation while also reducing our energy consumption and executing our planned maintenance outages for less cost than we had estimated. Also at our mills and including our corrugated facilities, we closely monitored headcount and overtime as well as usage of materials and supplies in addition to other discretionary spending items.
In addition, our mills and plants, together with our logistics and distribution personnel worked effectively to minimize the negative impacts from rail rate increases at certain locations and changes in the mix of shipping locations as we ran our system to demand.
Finally, as you know, we temporarily curtailed operations at our Wallula, Washington mill once we exited the planned maintenance outage early in the quarter. This was not a reaction to any change in our views on demand but rather our thoughtful approach to manage containerboard supply as economically as possible. The mill remains temporarily curtailed and we will continue to monitor any potential changes to the strategy along with our outlook for demand during the second half of the year.
I'll now turn it over to Tom, who'll provide more details on containerboard sales and the corrugated business.
Thomas A. Hassfurther
Thank you, Mark. Total prices and mix in the Packaging segment came in where we anticipated with domestic containerboard and corrugated products prices and mix together $0.32 per share below the second quarter of 2022 and also $0.32 per share below the first quarter of 2023. Export containerboard prices were down $0.15 per share versus last year's second quarter and down $0.07 per share compared to the first quarter of 2023. As Mark indicated, Packaging segment volume for the quarter also came in where we expected. Corrugated product shipments were down 9.8% in total and per workday compared to last year's second quarter.
Outside sales volume of containerboard was 62,000 tons below last year's second quarter and 33,000 tons above the first quarter of 2023. With last year's box volume tying our shipments' per workday second quarter record, we knew this will be a tough comparison period. As we said on last quarter's call, the same variables that have impacted demand in the last few quarters would continue into the second quarter. The shift of consumer buying preferences more towards service-oriented spending, persistent inflation and higher interest rates continue to negatively impact consumers' purchases of both durable and nondurable goods.
Inventory destocking, both in boxes and of our customers' products also continued to varying degrees across our customer bases and the manufacturing index has remained in contraction territory for 8 months in a row now. However, as we talked about last quarter, we expected some improvement relative to the inventory destocking of both customer product and boxes as well as improvements based on certain customers' feedback regarding their business and that is what helped the second quarter shipments improve almost 3% compared to the first quarter. We expect continued positive momentum this quarter, although there is 1 less workday compared to the second quarter.
I'll now turn it back to Mark.
Mark W. Kowlzan
Thank you, Tom. Looking at the Paper segment, EBITDA, excluding special items in the second quarter was $39 million with sales of $143 million for a 27% margin compared to the second quarter 2022, EBITDA of $32 million and sales of $150 million or 21% margin. Paper prices and mix were 12% higher than last year's second quarter and less than 1% below the first quarter of 2023.
Paper demand remains soft with our sales volume just over 14% below last year's second quarter, which also included some sales from our Jackson, Alabama mill, where there was no volume in this year's second quarter. We ran our International Falls mill to match supply with demand as well as to build some additional inventory during the quarter to prepare for the 9-day planned outage -- maintenance outage that's coming up this third quarter.
Similar to the comments I made regarding the Packaging business and for many of the same categories, employees in our Paper business remained focused on efficient and cost-effective operations as they also balanced supply according to demand and delivered outstanding margins for the quarter.
I'll now turn it over to Bob.
Robert P. Mundy
Thanks, Mark. For the quarter, we generated new second quarter records for cash from operations of $360 million as well as free cash flow of $233 million. Key cash payments during the quarter included capital expenditures of $126 million, common stock dividends of $112 million, cash taxes of $83 million and net interest payments of $30 million. We ended the quarter with $630 million of marketable securities and cash on hand with liquidity of almost $1 billion.
I'll now turn it back to Mark.
Mark W. Kowlzan
Thanks, Bob. Looking ahead, as we move from the second and into the third quarter, in our Packaging segment, although there is 1 less shipping day for the corrugated business, we expect shipments per day to improve versus the second quarter. However, prices will be lower as a result of previously published domestic containerboard price decreases along with slightly lower export prices. We expect seasonally stronger volumes in our Paper segment from back-to-school shipments, although prices are expected to trend lower based on the recent declines in index prices.
Operating and converting costs should trend slightly higher, primarily due to higher recycled fiber prices and seasonal energy cost. Scheduled outage expenses will be higher by approximately $0.06 per share, driven by the scheduled maintenance outage at International Falls, Minnesota. Finally, we estimate that our depreciation expense and tax rate to be slightly higher as well. Considering these items, we expect the third quarter earnings of $1.88 per share.
With that, we'd be happy to entertain any questions but I must remind you that some of the statements we've made on the call constituted forward-looking statements. Statements were based on current estimates, expectations and projections of the company and involve inherent risks and uncertainties, including the direction of the economy and those identified as risk factors in the annual report on Form 10-K and on file with the SEC. The actual results could differ materially from those expressed in the forward-looking statements.
And with that, Jamie, I'd like to open the call up for questions, please.
Question and Answer Session
Operator
(Operator Instructions) Our first question today comes from George Staphos from Bank of America Securities.
George Leon Staphos
Congratulations on the operating performance in the quarter. Mark, Bob, Tom, my first question, the excellent, from our vantage point operating performance in 2Q, I guess, the $0.34 or so in lower operating costs. How much of that is embedded in your third quarter guidance? Is there any chance within reasonable probabilities that you could -- given all the efforts that your employees have underway, find further efficiencies and benefits such that there might be some upside tilt to your guidance. So help us think about how operations might be able to benefit? And what's baked into your third quarter guidance?
Mark W. Kowlzan
George, as we always do, we continue to focus on 365 days a year, continuous improvement, operational excellence. One thing we commented on last year as we were moving into 2023 and we were winding down a lot of the major capital projects, we're going to take the approximately 150 engineers and technology personnel in our corporate technology group and really let them focus now on unit operations' optimization. And really work with the box plants and mills on a lot of the new equipment, quite frankly, that have been installed in the last couple of years but really take that to a new level of performance and execution and that's paid off for us this year, as you can see. So my answer is, we will continue in that effort. Nothing is guaranteed but we do obviously perform quite well in general. And I would expect to see similar results going forward. Tom, Bob (inaudible).
Robert P. Mundy
Yes, Mark. This is Bob, George. I'll say that from the operating cost perspective, we'll hold on to the performance we had in the second quarter. If you just assume that production volume in the mills is similar to the second, maybe up a little bit, we'll see. Yet, we think our cost per ton stays relatively flat. So to be able to hold on to that even though we know OCC prices will be higher, if you just take the average, they moved up from the end of the second quarter and to supply that across the third quarter, they're up like 12% to 14%. So we'll overcome that plus we have the seasonal electricity rates that hits you as well as some seasonal usage items. So in effect, we'll pretty much be offsetting that by continuing the excellent operating cost performance in the mills and the box plants.
Thomas A. Hassfurther
George, this is Tom. I would just add 1 last thing. It's very obvious that a lot of this extensive groundwork has taken place. And as our volume increases going forward, we're going to be able to take advantage of this cost position we're in and it will be quite dramatic, I think, going forward as the business conditions change and get more positive.
Mark W. Kowlzan
George, let me add 1 thing. If you looked at our quarter and you looked at month by month, we are running, in not just 1 mill but most of the mill system, we're pushing 99% uptime efficiency -- operational efficiency in our mills. I mean, that's unheard of in the industry. Month of June, we had most of the mills in that category and we had 1 mill in particular that was basically 99.99% uptime efficient. It had no paper breaks. And so we're in a level now. It's obviously -- not many of our competitors are there but that's what we strive to do every day and make it better and better. And so I'm confident we'll continue to see good results.
George Leon Staphos
It's a great rundown. And obviously, something we'll all try to continue to remember going forward. Two last ones for me and I'll turn it over. To some degree kind of the obligatory, when we think about the 2Q index pricing changes roughly, roughly, how much of that is baked into your third quarter guidance percentagewise? And what would be left in fourth quarter?
And then Tom or Bob or Mark, back to the closures that you mentioned in corrugated, in the design centers, I mean it's kind of self-explanatory but what was -- if there was a common denominator, what were you looking to achieve with the -- whatever reconfiguration you were doing?
Thomas A. Hassfurther
George, I'll take the closure piece and then I'll turn it over to Bob and he can comment on the pricing changes going forward. But on the closure side, listen, we have continuously tried to make sure that we're rightsized for the business and that we have very efficient operating methods. And part of our whole capital investment has been around making sure that we're as efficient as we possibly can in the plants that make the most sense. So that's been an ongoing process. This is nothing really new. We're just announcing it because it took place in the quarter but there's -- this is small facilities and it's consolidation and some things like that. So that's -- it's kind of more of the normal course of business for us. Bob?
Robert P. Mundy
Yes. George, regarding the price. I guess the way to think about it is, in the first quarter, there were 2 drops in prices that occurred during the quarter on the benchmark grade for $30 a ton. And then the second -- and the impact of that is, as we say, it pretty much runs through over a 90-day period. So the bulk of that was reflected in our second quarter numbers. So if you think about what occurred in the second quarter where there was a $20 drop and you sort of ratio that with what happened in the first with a $30 drop, you can sort of get the impact of price in the third quarter. Does that make sense?
George Leon Staphos
Yes, I guess so. I mean, I guess what I'd ask is just how much -- again, not trying to be too precise, I know you can't be, how much of a residual would be left of that for the fourth quarter 5%, 30%?
Robert P. Mundy
For the fourth quarter, most of it would be from the -- latest drop will be in the third. And the impact will be, like I said, if you sort of compare that to what happened in the first, we gave you the impact -- I mean, yes, in the second quarter. And then so when you would think in the -- no other changes, the fourth should be -- you shouldn't see much of an impact if things sort of hang out where they are right now.
Operator
Our next question comes from Mark Weintraub from Seaport Research Partners.
Mark Adam Weintraub
First, second quarter record cash flow from operations, pretty interesting in this challenging environment. I mean, one of the things, obviously, is your CapEx has been coming down after all those big projects. Can you sort of just update us on what are your thoughts for CapEx for this year? And preliminarily, if the environment remains challenging, what type of CapEx you might bracket for next year?
Mark W. Kowlzan
Yes. Mark, over a year ago, actually, we started getting people thinking about the fact that the heavy projects were winding up. And the big projects that we've been involved in over the last 10 years were really, really coming to fruition. And that 2023 would be a year that we (inaudible) that capital down in the $400 million range. Last year, we were $824 million of capital spending. And we'd -- again, we alerted everybody that this year would be in that $400 level and that's where we are. I fully expect us to finish the year somewhere in that $400 million area. And then we're already talking about the 2024 capital spending plan.
And looking at our needs and the opportunities, we feel comfortable right now that the number will continue to be in that $400 million area, unless some opportunity came along that was so outstanding that we felt compelled that we wanted to, to direct capital into that opportunity. So we have that luxury right now. But I think for the benefit of running the business in the uncertain times we're in, $400 million range is a good range to be in and it supports business improvement opportunities along with maintenance capital spending within the mills and box plants.
Mark Adam Weintraub
Great. And even at the $400 million, do you still have runway? I think you're referencing to still get some of these operating improvements that we've been seeing in the last couple of quarters. Or does that start running out pretty quickly if the CapEx doesn't go higher?
Mark W. Kowlzan
No. That's the beauty of it. We're continuing to execute every week on a number of opportunities within the box plants. New equipment installations, new equipment -- significant rebuilds on, modifications on a lot of the production lines. So this is not stopping. The mills, as we talked about, we wound up most of the (inaudible) work at Wallula Mill last year and the woodyard work in the OCC plant. Jackson, Alabama, most of that work has wound up. We're just waiting for the opportunity to move into the final phase of the No. 3 machine at Jackson.
But again, we can do all of that and still keep the capital spending in this $400 million range, that provides us an opportunity to really just move forward as we look at what these -- whether it's a customer-driven opportunity or a cost takeout efficiency -- energy efficiency, labor efficiency, we continue to see those opportunities. And where we are right now, I could say, barring some big one-off opportunity, some $400 million number keeps us moving forward with taking advantage of this. Bob?
Robert P. Mundy
And just one other thing, Mark is, a lot of the operating cost improvement and things that you're seeing is not necessarily capital related. It's just doing things within the process, watching usage, watching your routines, behaviors, practices, improving upon where you've been before. And a lot of that is not capital driven. It's just -- there's a huge benefit of our operating cost, is managed just by those things as well.
Mark, over the last few years, we were doing hundreds of projects in our box plants and mills on an annual basis. Now granted, a lot of them are smaller projects. But literally, we had our entire workforce moving to make improvements in hundreds and hundreds of areas every year. And now that we've been able to slow this process down, we're able to take advantage of that. And now the personnel can really take a much closer look and a deeper dive in how is that equipment running.
And from a unit operations effectiveness and efficiency, the operating personnel at the plants and the mills, the technology organization are now really stepping back and looking at all of the new converting lines, the projects at the mills and really assessing. Are these projects doing what we expected them to do? And if not, how do we make it do what we expect it to do. And they're optimizing and fine-tuning and the benefits are what we've seen in the second quarter is a great example and we'll continue to do that.
Mark Adam Weintraub
Appreciate that. And I'd say it's certainly showing. Just one, if I could go back to the bridge from the second to the third quarter, make sure that I understood, I mean, it sounded like there wasn't going to be any negative pickup in operating costs. And I guess you alluded to like a $0.06 increase in maintenance outages. And so if we look at the $2.31 and we go to $1.88, that would seem to be like $0.37 other, if we take off the $0.06 for the maintenance. So is that primarily impact from price? Or are there other variables to be conscious of when doing that bridge, because it seems kind of high on the -- for a price number?
Robert P. Mundy
Yes. No, I think you're pretty close, Mark. If you looked at those 2 items on the -- if we just look at the price and the outages, maybe it's a little bit different than what you were saying. But there's almost probably 90% of the delta right there. And then on the operating cost side, if you take in some of the other things that offset the higher recycled fiber prices and the energy costs that we spoke of, it's -- hopefully, we will be pretty close to a push. And so what you're left with are just a couple of cents here and there. We talked about depreciation. We put that in our release and that just has to do higher depreciation from the second quarter, just has to do with the timing of placing our assets and service based from our capital spending program. And we had some benefits in the second quarter that won't repeat in the third.
On the tax side, there were just some favorable tax items from divesting of stock and performance units as well as some state tax law changes that gave us a benefit that don't repeat themselves. So those are the other few items that gets you to that $0.43 change.
Operator
Our next question comes from Gabe Hajde from Wells Fargo.
Unidentified Analyst
This is Alex on for Gabe. I was hoping you could give me some color on the bookings in July and maybe how this is trending compared to June and May? And just thinking about the Q3 volume pickup, I was wondering if you can help parse out how much of that is seasonality in underlying demand.
Thomas A. Hassfurther
Okay. Alex, this is Tom. Our bookings for July, about halfway through the month is very robust, up 15%, which is great, good start to the quarter. The other thing that we're seeing is, I think that's pretty important. And I want to point out is that a lot of our customers are telling us that some of this destocking is now over with their products and that's very important. So hopefully, that will translate throughout the quarter and certainly going into the fourth quarter for some volume that is, what I would call more predictable. .
We still do -- I'll just go ahead and point this out right now, we do have some challenging segments still that we're dealing with, which indicates some of our decline in volume. The ag business, Florida had the worst citrus season they've had since the '30s or '40s. We had hurricanes down there, which completely wiped out some of the tomatoes and all the strawberries for a cycle. We've had flooding in Northern California, which has caused a lot of problems. They -- it's feast or famine there, I guess, in terms of moisture. And then in Eastern Washington also, they had some pretty serious droughts. So that segment has been a drag on us.
The Building Products segment was booming during COVID with a lot of remodeling going on and all those sorts of things. And that slowed down dramatically. And now because of high interest rates, it's really slowed down housing starts. So that's been a drag on us, as well as single-use plastic products manufacturers. So those are the segments that have impacted us on a negative point. The ag will recover for sure. The e-com and the food and beverage, those segments have held up significantly better. But I think the key takeaway here going into the second half of the year, is the fact that a lot of this destocking has now finally taken place and I think we'll have more predictability going forward relative to volume.
Unidentified Analyst
Okay. And I guess as a follow-up question, I'm just curious on your cost bucket side, can you maybe talk about which side of the costs are still being pressured and maybe some cost buckets that are kind of coming down there?
Mark W. Kowlzan
Again, you're always concerned about fiber cost and energy, transportation, especially on the rail. Rail rates continue to move up. So it's -- and then as we go through the third, into the fourth, we'll be getting into the seasonal cooler months and energy usage along with the cost pressure from that usage. So wood cost is always a factor depending on weather conditions. So it's continuing whole host of all your input and what's happening at any given time.
Operator
Our next question comes from Philip Ng from Jefferies.
Unidentified Analyst
Mark, Bob, Tom, this is John (inaudible) on for Phil. I just -- I wanted to start off around the box shipments. I mean you guys have lagged the last few quarters from the overall market, which is generally surprising given your solid track record. Would you consider that more of a factor of the local customers and then feeling more of the pinch that you've kind of called out prior? Or is it you're maybe seeing a little bit more pressure from customers on pricing and you're walking away from some of that business?
Thomas A. Hassfurther
John, this is Tom. I'll take this one. I would say that there are a couple of reasons why our numbers look like they do. #1 is, we had unbelievably tough comps from a year ago. And if you go back, I mean, we were significantly higher than the industry, even much higher than our normal trend. And I think that's because, as I mentioned even back then, the wide segment of business and wide swath of different businesses, whether they're local, national or what segments they're in, all were up significantly during the COVID period. .
And as I just mentioned a while ago, a number of those have come down significantly. And I'm talking -- when I say significant, we haven't lost any of these customers but we have some that are down 50-plus percent still at this rate just because there was so much demand during COVID and that demand has shrunk so significantly. So those are the -- those to me are the main reasons why it looks as if we're lagging the industry probably more so than -- and the numbers look so much different than they have in the past.
Unidentified Analyst
Okay. That's helpful. And just with the pricing that we've seen already come out, so they already realized $90 per ton on the containerboard side. Are you seeing prices erode maybe a little bit quicker on the box side? Or they seem generally in line with historical trends?
Thomas A. Hassfurther
I'll be -- I got to temper this a little bit in terms of discussing this. But -- what we're seeing is, no, I would say, no way is the box trend worse than the linerboard in medium trend. In fact, I would even say that our observations and what we've heard from our customers, they've been quite surprised that of any linerboard or medium reductions that have taken place. And I would say on the box side, it's very much the same thing.
Unidentified Analyst
Okay. That's very helpful. And if I could just squeeze one more in. Did -- the box demand progression in the second quarter seemed to get worse from what you had called out month-to-date on the last earnings call through the rest of the quarter. Could you kind of just give us a breakdown of maybe what you were seeing during the quarter? And then if things had weakened, was there any material economic downtime that you guys took to kind of help offset that?
Mark W. Kowlzan
Our volume was pretty much what we expected it to be, which was slightly improving. And June, quite frankly, was very strong. So we felt pretty good as the quarter moved through the months. And again, we saw that in June and we're continuing to see that in July. So I'm not sure...
Thomas A. Hassfurther
Yes, I would just add that we were up about 3% Q2 over Q1 and the trend line continues to look quite favorable. So we'll -- and the beauty of -- the beauty of what we've done and what we talked about on the operating side is that we can flex now, however we need to and to whatever the demands are and do it very cost effectively.
Robert P. Mundy
And I'll just add, the economic downtime was pretty much what we had anticipated it to be. So there was no change there from what we were assuming.
Unidentified Analyst
Does that mean potentially flat in terms of a ton percentage quarter-over-quarter?
Robert P. Mundy
On a per ton -- on a per day basis, it's up. It's up. So I think Tom made some comments about what he's seeing, as far as trends now and so forth. So hopefully, that means from a -- on a total basis, even though there's 1 less day, that, that could be something that -- some tailwind there that hopefully we can realize in our numbers.
Unidentified Analyst
Apologies. To clarify what I meant was the economic downtime on a tons basis, you were saying there (inaudible).
Robert P. Mundy
Well, again, we'll have to see. That's always a moving target but I would say in total because we do have less scheduled outages as far from a ton perspective, so we get tons back from that in the third versus the second. There's an additional day of -- in the mills. So you get another day there. So there's another 15,000 tons or so. So and we'll just manage the economic downtime commensurate with that pickup that we're seeing from the second quarter.
Operator
(Operator Instructions) And our next question comes from Anthony Pettinari from Citi.
Anthony James Pettinari
Tom, just following up on the July trends that you discussed, the 15% -- up 15%, is that month-over-month or year-over-year? And then you talked about destocking, maybe kind of running its course or maybe being closer to the end. In terms of your own inventories, I mean, you talked about inventories down 11,000 tons from 1Q. Just wondering where your inventories are broadly kind of relative to target levels or comfort levels? Yes, those are my questions.
Thomas A. Hassfurther
Okay, Anthony. Relative to the July trends, the one thing we have typically started out most quarters, up quite a bit year-over-year and that's no different this quarter. But there's a little more predictability in these numbers than what we've had in the past. And I'm seeing our customers trends of order patterns starting to come more in line with where they had been prior to all this destocking and this big change from -- after COVID.
So that's the best I can tell you about the July trends. I'm feeling better about these trends than in the past. And these numbers are (inaudible) up. Don't forget, I mean, when it's bookings, you're talking about not just -- in the month of July, you're talking about August, September, kind of out through the quarter. And so -- but again, these patterns seem to be much more predictable.
Relative to the inventories, we didn't talk about export. Export is still a moving target and it's certainly something that we're trying to get our arms around and it seems to change almost on a daily basis in this global demand. So I think we feel comfortable with where our inventories are. And -- but again, we've got the ability to flex some depending on what the demand curves are.
Anthony James Pettinari
Okay. That's helpful. And the 15%, it was year-over-year, not month over month?
Thomas A. Hassfurther
Yes. Yes.
Anthony James Pettinari
Yes. Great. And then I guess, -- is there any way to frame kind of the financial impact of the Wallula curtailment? And understanding this is in line with matching supply to demand? Any kind of just broader thoughts on that decision as we go through the year?
Mark W. Kowlzan
As we were running through the first quarter and into the second quarter, we were running the mills, in many cases, slowed back and just kind of throttling our way through demand. As we got into the springtime and we had our outages taking place, we were into the Wallula outage. And we didn't see the improvement at that time back in April with demand. And so we quickly reassessed our position and realized that it was far better to take the 6 mills that we currently have running and run them very, very efficiently. And then in order to do that, you had to take Wallula and keep it down.
So we had Wallula down to the annual outage. So we finished that work and decided to just temporarily idle that mill for the time being as we watch the demand situation. But by doing that, it allowed us to take the 6 other containerboard mills and really optimize them and speed them up to the optimum point on their production curve and take advantage of that. And that's another part of the benefit we saw in the second quarter earnings.
Robert P. Mundy
Yes, Anthony. And just to frame it up a little, it's -- as Mark -- you take out the highest cost mill in our system and then you run your lower-cost mills more full out, even though there is a freight penalty from Wallula -- the lowest cost from a freight perspective because of where it ships to. And so you do have a freight penalty by operating that way. But it's probably close to $15 a ton of benefit operating that way versus if we had tried to manage it across the entire system rather than isolating Wallula.
Operator
(Operator Instructions) And ladies and gentlemen, with that, I'm showing no additional questions, I'd like to turn the floor back over to Mr. Kowlzan for any closing remarks.
Mark W. Kowlzan
Again, thank you for joining us today on the call and look forward to talking to you when we wrap up our third quarter and have our call in October. Have a good day. Thank you.
Operator
And ladies and gentlemen, with that, we'll be wrapping up today's conference call and presentation. We thank you for joining. You may now disconnect your lines.
