Q1 2024 Packaging Corp of America Earnings Call

Good morning, everyone and thank you for joining packaging Corporation of America's first quarter 'twenty 'twenty four earnings results Conference call.

Operator: Good morning everyone, and thank you for joining Packaging Corporation of America's first quarter 2024 earnings results conference call. Your host today will be Mark Kowlzan, Chairman and Chief Executive Officer of PCA. Upon conclusion of this narrative, there will be a question and answer session. Please also note today's event is being recorded. At this time, I'd like to turn the floor over to Mr. Kowlzan. Please proceed when you are ready.

Your host today will be Mark Cold, then chairman Chief Executive Officer of PCA.

Upon conclusion of his narrative there will be a question and answer session and.

Please also note today's event is being recorded.

Mark W. Kowlzan: At this time I'd like to turn the floor over to Mr. Coles and 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 first quarter 'twenty 'twenty four earnings release Conference call again, I'm, Mark Cola, Zhang Chairman and CEO of Packaging Corporation of America, and with me on the call today is Tom has further.

Mark W. Kowlzan: Thank you, Jamie. Good morning, everyone, and thank you for participating in Packaging Corporation of America's first quarter 2024 earnings release conference. Again, I'm Mark Kowlzan, Chairman and CEO of Packaging Corporation of America, 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 first quarter results, and then I'll be turning it over to Tom and Bob, who will provide further details. And then I'll wrap things up, and we'll be glad to take questions.

Tom: Executive Vice President who runs the packaging business and Bob Monday, our Chief Financial Officer.

Tom: I'll begin the call with an overview of our first quarter results and that'll be turning it over to Tom and Bob Who'll provide further details.

Tom: And then I'll wrap things up and we'd be glad to take questions.

Tom: Uh huh.

Tom: Yesterday, we reported first quarter net income of $147 million or $1 63 per share.

Mark W. Kowlzan: Yesterday, we reported first quarter net income of $147 million, or $1.63 per share. Excluding special items, first quarter 2024 net income was $155 million, or $1.72 per share, compared to first quarter 2023 net income of $198 million, or $2.20 per share. First quarter net sales were $2 billion in 2024 and 2023.

Tom: Excluding special items first quarter 'twenty 'twenty four net income was $155 million or $1 72 per share compared to the first quarter of 2020 threes net income.

Tom: $198 million or $2 20 per share.

Tom: First quarter net sales were 2 billion in 'twenty, 'twenty, four and 2023.

Mark W. Kowlzan: Total company EBITDA for the first quarter, excluding special items, was $333 million in 2024 and $405 million in 2023. First quarter net income included special items expenses of nine cents per share, primarily for certain costs that are Jackson, Alabama mill for the paper to container board conversion related activity. Details of special items for both the first quarter of 2024 and 2023 were included in the schedules that accompanied our earnings press release.

Tom: Total company EBITDA for the first quarter, excluding special items was 333 million in 'twenty 'twenty four.

Tom: $405 million in 2023.

Tom: First quarter net income included special items expenses of nine cents per share primarily for certain costs at our Jackson, Alabama mill.

Tom: The paper to containerboard conversion related activities details of special items for both the first quarter of 'twenty 'twenty four and 2023 were included in the schedules that accompanied our earnings press release.

Tom: Excluding the special items, the 48 cents per share decrease in first quarter 'twenty 'twenty four earnings compared to the first quarter of 2023 was driven primarily by lower prices and mix in the packaging segment for $1.33 and paper segment eight cents.

Mark W. Kowlzan: Excluding the special items, the $0.48 per share decrease in first quarter 2024 earnings compared to the first quarter of 2023 was driven primarily by lower prices and mix in the packaging segment for $1.33, and higher scheduled mill outage expense for $0.08. Higher depreciation, 3 cents; higher expenses related to corrugated plant capital projects of $0.02, and other expenses $0.04. These items were partially offset by higher volumes in the packaging segment for $0.71, and paper segment $0.06.

Tom: Higher scheduled mill outage expense 10 cents higher depreciation three cents.

Tom: Higher expenses related to corrugated plant capital projects of two cents and other expenses four cents.

Tom: These items were partially offset by higher volumes in the packaging segment for 71 cents and paper segment six cents. We also had lower operating and converting costs of 15 cents driven by very good process efficiencies and control over other usages of fiber chemicals.

Mark W. Kowlzan: We also had lower operating and converting costs of $0.15, driven by very good process efficiencies and control over other usages of fiber, chemicals, energy, materials, and labor. Although energy prices were lower versus last year's first quarter, they were more than offset by higher recycled fiber. In addition, we had lower freight and logistics expenses of $0.04. Lower interest expense of $0.07, and lower tax rate of $0.09.

Tom: Energy materials and labor.

Tom: Low energy prices were lower versus last year's first quarter, they were more than offset by higher recycled fiber prices.

Tom: In addition, we had lower freight and logistics expenses for four cents.

Tom: Lower interest expense seven cents and lower tax rate nine cents.

Tom: The results were 18 cents above the first quarter guidance of $1 54 per share primarily due to the strong volume in the in both the packaging and paper segments.

Mark W. Kowlzan: The results were $0.18 above the first quarter guidance of $1.54 per share, primarily due to the strong volume in both the packaging and paper segments, along with the continued emphasis on cost management and process efficiencies across our manufacturing and converting facilities. This drove operating and converting costs lower, even with the persistent inflation we continue to experience across most of the cost streams. Executing the conversion outage at our Jackson, Alabama mill better than planned resulted in lower scheduled mill maintenance outages and expenses, and freight and logistics expenses were less than guidance as well.

Along with the continued emphasis on cost management and process efficiencies across our manufacturing and.

Tom: And converting facilities this drove operating and converting costs lower even with the persistent inflation, we continue to experience across most of the cost structure.

Tom: Executing the conversion outage at our Jackson, Alabama mill are better than planned resulted in lower scheduled mill maintenance outages are expenses and freight and logistics expenses were less than guidance as well.

Tom: Looking at the packaging business EBITDA, excluding special items in the first quarter of 'twenty 'twenty four <unk> of $326 million with sales of 1.8 billion resulted in a margin of 18, 1% versus last year's EBITDA of $392 million or sales of 1.8 billion.

Mark W. Kowlzan: Looking at the packaging business, EBITDA excluding special items in the first quarter of 2024 of $326 million, with sales of $1.8 billion, resulted in a margin of 18.1% versus last year's EBITDA of $392 million or sales of $1.8 billion, or 21.7%. Throughout the quarter, container board and corrugated products demand exceeded our expectations. In addition to outstanding operational performance at our box plants and container board mills, we were able to service the high demand due to excellent execution of the conversion outage at our Jackson Mill.

Tom: <unk> or 21.7% margin.

Tom: Throughout the quarter containerboard and corrugated products demand exceeded our expectations. In addition to outstanding operational performance at our box plants and containerboard Mills, we're able to service the high demand from excellent execution of the convert of the conversion outage at our Jackson mill.

Mark W. Kowlzan: This enabled us to restart both machines earlier than anticipated, and we completed our work prior to the quarter end rather than in the month of April, which had been the original plan. Despite these efforts, with the higher demand, we ended the quarter at a record low number of weeks of inventory supply for this time of year. With just our Filer, Michigan, mill having a scheduled maintenance outage in the second quarter, we do expect to build our inventories back to targeted levels by the end of this quarter. I'll now turn it over to Tom, who will provide further details on container board sales and the corrugated business in general. Thanks, Mark.

Tom: This enabled us to restart both machines earlier than anticipated and we completed our work prior to the quarter end rather than in the month of April which had been in the original plan.

Tom: Despite these efforts with the higher demand we ended the quarter at a record low weeks of inventory supply for this time of the year.

Tom: With our just our filer, Michigan mill, having a scheduled maintenance outage in the second quarter, we do expect to build our inventories back to targeted levels by the end of this quarter.

Tom: I'll now turn it over to Tom will provide further details on containerboard sales and the corrugated business in general.

Tom: Thanks Mark.

Thomas A. Hassfurther: As Mark mentioned, packaging segment volume for the quarter exceeded our guidance estimates. Corrugated product shipments per workday were up 11%, and total shipments with one less shipping day were up 9.2% compared to last year's first quarter. Compared to the pre-COVID period of the first quarter of 2019, shipments were up over 10.4% on a per day basis; the outside sales volume of container board was 40,000 tons above last year's first quarter and 15,000 tons below the fourth quarter of 2023.

Tom: As Mark mentioned packaging segment volume for the quarter exceeded our guidance estimates corrugated product shipments per workday were up 11% and total shipments with one less shipping day were up nine 2% compared to last year's first quarter.

Tom: Compared to the pre Covid period of the first quarter of 2019 shipments were up over 10.4% on a per day basis outside sales volume of containerboard was 40000 tons above last year's first quarter and 15000 tons below the fourth quarter of 2023.

Thomas A. Hassfurther: Our order backlog remained incredibly strong throughout the quarter, and although demand continues to be challenged by constant inflation, higher interest rates, and other factors, we expect to continue this positive momentum as we enter the second quarter. Domestic container board and corrugated products prices and mixed together moved slightly higher from the fourth quarter of 2023 levels by one cent per share, which was less than we anticipated due to our total announced increase not being recognized in the published benchmark prices. Compared to the first quarter of 2023, prices and mix were down $1.19 per share.

Tom: Our order backlog remained incredibly strong throughout the quarter and although demand continues to be challenged by constant inflation higher interest rates and other factors. We expect to continue this positive momentum as we enter the second quarter.

Tom: Domestic containerboard and corrugated products prices and mix together move slightly higher from the fourth quarter of 2023 levels by one cent per share, which was less than we anticipated due to our total announced increase not being recognized in the published benchmark prices.

Tom: Versus the first quarter of 'twenty twenty-three prices and mix were down a dollars 19 per share.

Tom: Export containerboard prices and mix were down a penny per share compared to the fourth quarter of 2023 and down 14 cents per share compared to the first quarter of 2023.

Thomas A. Hassfurther: Export container board prices and mix were down a penny per share compared to the fourth quarter of 2023 and down 14 cents per share compared to the first quarter of 2023. I'd like to point out that the capital spending and optimization strategy within our box plant system that we have been continuously focused on over the last few years is providing incredible benefits. This has allowed us to focus on the mix of customers we want to profitably grow our revenues with by providing them with the product and service needs they desire and allows them to grow. Based on our current demand outlook for this year, this strategy has us on pace to set a new record for box shipments per plant. I'll now turn it back on.

Tom: I'd like to point out that the capital spending and optimization strategy within our box plant system that we have been continuously focused on over the last few years is providing incredible benefits. This has allowed us to focus on the mix of customers, we want to profitably grow our revenues with by providing them the product and service needs they desire and allows them to grow.

Tom: So based on our current demand outlook for this year. This strategy has us on pace to set a new record for box shipments per plant.

Tom: Now I'll turn it back to Mark.

Mark: Thanks, Tom.

Unknown Executive: Next, looking at the paper segment, EBITDA excluding special items in the first quarter was $41 million, with sales of $164 million, or a 25% margin compared to the first quarter of 2023's EBITDA of $41 million and sales of $151 million, or a 27% margin. Sales volume, which exceeded our guidance estimates, was 14% above the fourth quarter of 2023 and 16% above the first quarter of 2022. Demand was very good, both from our existing customers as well as incremental volume from some new customers that we acquired towards the end of 2023.

Mark: Looking at the paper segment EBITDA, excluding special items in the first quarter was $41 million with sales of $164 million or 25% margin compared to the first quarter of 2020 threes EBITDA.

Mark: $41 million and sales of $151 million or 27% margin.

Mark: Sales volume, which exceeded our guidance estimates was 14% above the fourth quarter of 2023, and 16% above the first quarter of 2023 demand was very good both from our existing customers as well as incremental volume from some new customers as we acquire that we acquired towards the end of 2023.

Mark: Orders remained strong as we enter the second quarter, although volume will be impacted by the scheduled maintenance outage at our International Falls, Minnesota Mill in June.

Unknown Executive: Orders remain strong as we enter the second quarter, although volume will be impacted by the scheduled maintenance outage at our International Falls Minnesota mill in June. An improved sales mix moves paper prices slightly above the fourth quarter of 2023, although prices and mix were down about six percent from last year's first quarter. This past February, we announced a $100 price increase across all of our paper grades, and we began implementing these increases on April 1st. I'll now turn it over to Bob.

Mark: And improved sales mix moved paper prices slightly above the fourth quarter of 2023, although prices and mix were down about 6% from last year's first quarter.

Mark: This past February we announced a 100 dollar price increase across all of our paper grades and we began implementing these increases on April 1st I'll now turn it over to Bob.

Unknown Executive: Thanks, Mark cash provided by operations during the quarter totaled $260 million.

Robert P. Mundy: Cash provided by operations during the quarter totaled $260 million, and free cash flow was a first quarter record $184 million. The primary payments of cash during the quarter included capital expenditures of $77 million and dividend payments of $112 million. Excluding the invested cash proceeds from the bond transaction we mentioned on last quarter's call, our quarter-end cash balance, including marketable securities, was approximately $900 million, with liquidity of $1.2 billion.

Unknown Executive: And free cash flow was a first quarter record $184 million.

Unknown Executive: The primary payments cash during the quarter included capital expenditures of 77 million and dividend payments of $112 million.

Unknown Executive: Excluding the invested cash proceeds from the bond transaction, we mentioned on last quarter's call our quarter end cash balance, including marketable securities was approximately $900 million with liquidity of 1.2 billion.

Unknown Executive: Due to the excellent execution of the conversion outage at the Jackson mill that Mark spoke of and moving the International Falls mill outage from the third quarter and into the second quarter.

Robert P. Mundy: Due to the excellent execution of the conversion outage at the Jackson Mill that Mark spoke of and moving the International Falls Mill outage from the third quarter and into the second quarter, we are revising the scheduled mill outage guidance we provided last quarter. The revised total company estimated cost impact for the year is now $0.89 per share versus $0.96 per share previously. The actual impact in the first quarter was $0.24 per share, and the revised estimated impact by quarter for the remainder of the year is now 18 cents per share in the second quarter. $0.14 in the third and $0.33 per share in the fourth. I'll now turn it back over to Mark.

Unknown Executive: We are revising the scheduled mill outage guidance, we provided on last quarter's call.

Unknown Executive: The revised total company estimate of cost impact for the year.

Unknown Executive: He is now 89 cents per share versus 96 cents per share previously.

Unknown Executive: The actual impact in the first quarter was 24 cents per share.

Unknown Executive: And the revised estimated impact by quarter for the remainder of the year is now 18 cents per share in the second quarter.

Unknown Executive: <unk> 14 cents in the third and 33 cents per share in the fourth quarter.

Unknown Executive: I'll now turn it back over to Mark.

Unknown Executive: Okay.

Mark: Thanks, Bob.

Mark W. Kowlzan: Looking ahead as we move from the first to the second quarter in our packaging segment, we expect continued strong demand for higher corrugated products and container board shipments. Prices in the mix will move higher due to our announced price increases and an increase in published domestic index prices, as well as higher export prices. Orders in our paper segment are expected to remain strong, however, volumes will be lower due to the scheduled maintenance outage at the International Falls Minnesota Mill during the quarter.

Mark: Looking ahead as we move from the first and into the second quarter in our packaging segment. We expect continued strong demand and higher corrugated products and containerboard shipments priced.

Prices and mix will move higher due to our announced price increases and increase in published domestic index prices as well as higher export prices.

Mark: Orders in our paper segment are expected to remain strong however volumes will be lower due to the scheduled maintenance outage at the International Falls, Minnesota mill during the quarter.

Mark W. Kowlzan: Although we are implementing our recently announced paper price increases, the average prices and mix are expected to be slightly lower due to the published decrease in index prices earlier this year and how that impacts contract triggers with certain customers. Operating and converting costs should be slightly lower, primarily due to the sequential improvement in seasonal weather and wage and benefit timing expenses that we incurred in the first quarter, and scheduled maintenance outage expenses will be lower. Rail rate increases at six of our mills during the first and second quarters will result in higher freight and logistics expenses, and depreciation expense will be higher.

Mark: Although we're implementing our recently announced paper price increases the average prices and mix are expected to be slightly lower due to the published a decrease in index prices earlier, this year and how that impacts contract triggers with certain customers.

Mark: Operating and converting costs should be slightly lower primarily due to the sequential improvement in seasonal weather and wage and benefit timing expenses that we incurred in the first quarter and scheduled maintenance outage expenses will be lower.

Mark: Rail rate increases at six of our mills during the first and second quarters will result in higher freight and logistics expenses and depreciation expense will be higher.

Mark: Finally, our tax rate will be sequentially higher due to the tax related benefit of share based compensation vest in the first quarter.

Mark W. Kowlzan: Finally, our tax rate will be sequentially higher due to the tax-related benefit of share-based compensation vested in the first quarter. Considering these items, we expect second-quarter earnings of $2.07 per share. With that, I would be happy to entertain any questions, but I must remind you that some of the statements we've made on the call constitute forward-looking statements. The statements are based on current estimates, expectations, and projections of the company and do involve inherent risks and uncertainties, including the direction of the economy and those identified as risk factors in the annual report on Form 10-K on file with the SEC. And with that, Jamie, I'd like to open up the call for questions.

Mark: Considering these items, we expect the second quarter earnings of $2.07 per share.

Mark: 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 constitute forward looking statements. The statements were based on current estimates expectations and projections of the company.

Mark: And do 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 on file with the SEC actual results could differ materially from those expressed in the forward looking statements.

Speaker Change: And with that Jamie I'd like to open up the call for questions. Please.

Speaker Change: Ladies and gentlemen at this time, we'll begin the question and answer session.

Speaker Change: I'll ask a question you May press Star and then one using a touchstone telephone.

Speaker Change: Withdraw your questions you May press star and two.

Speaker Change: If you are using a speaker phone would you ask you. Please pick up the handset prior to pressing the numbers to ensure the sound quality.

Operator: Ladies and gentlemen, at this time, we'll begin the question and answer session. To ask a question, you may press star and then one on a touch screen telephone. For all your questions, you may press star and two. If you are using a speakerphone, we do ask that you please pick up the handset prior to pressing the numbers to ensure the best sound quality.

Speaker Change: Once again that is star and then one to join the question queue, we'll pause momentarily to assemble the roster.

Our first question today comes from George Staphos from Bank of America Securities.

George Leon Staphos: Go ahead with your question.

George Leon Staphos: Hi, everyone. Good morning, hope you're doing well thanks for the details.

George Leon Staphos: I guess the first question maybe the standard one for all of US can you talk to what the early trends are in terms of bookings and billings, so far into Q and they had a couple of follow ons.

Operator: Once again, that is the star and then one to join the question. We'll pause momentarily to assemble the roster. Our first question today comes from George Staphos from Bank of America Security. Please go ahead with your question.

George Leon Staphos: George This is Tom Yeah bookings remained very strong as I indicated in the.

George Leon Staphos: Hi everyone, good morning. I hope you're doing well. Thanks for the details. I guess the first question, maybe the standard one for all of us, can you talk about what the early trends are in terms of bookings and billings so far in 2Q and then add a couple of follow-ons.

George: Yeah, you know in the in the call earlier in the script, a where we're up 8% as of now and are we can we expect a strong second quarter and to the right.

Tom: The remainder of the year as well.

George: Thanks for that Tom can you talk a bit about what your vertical integration was in one queue.

Thomas A. Hassfurther: George, this is Tom. Yeah, bookings remain very strong, as I indicated in the call earlier in the script. We're up 8% as of now. And we can expect a strong second quarter and the remainder of the year as well. Thanks.

Tom: And also in four Q and if you don't want to provide and we understand you know an absolute level can you talk about what the relative trend was and similarly can you talk about how the mix of your business was.

Thomas A. Hassfurther: Thanks for that, Tom. Can you talk a bit about your vertical integration in OneQ and also in 4Q? And if you don't want to provide, and we understand, you know, an absolute level, can you talk about what the relative trend was? And similarly, can you talk about how the mix of your business was? You know, third party and export in one queue. And similarly, relative to what you saw.

Tom: You know third party and export and one Q and similarly relative to what you saw in <unk>.

Tom: Bob but yeah, Yeah, you know I don't have the absolute yet into the integration.

Thomas A. Hassfurther: I don't have the absolute integration number, around 90, almost 93%, George.

Speaker Change: In the first quarter was around 90, almost 93% George.

Thomas A. Hassfurther: and slightly below that, I think it was in the fourth quarter.

Speaker Change: Ken.

Speaker Change: And slightly below that I think it was in the in the fourth quarter.

Speaker Change: Thanks, Bob.

Speaker Change: Okay, I guess, the last one and I'll.

Thomas A. Hassfurther: I guess the last one I'll, and I'll, please go ahead.

Tom: Please go ahead Tom.

Thomas A. Hassfurther: Yeah, Tom, do you want to comment about the mix and...

Tom: Tom do you want to comment about mix and.

Tom: Right are you asking about mix of export or you asked what what exactly you're asking George.

Thomas A. Hassfurther: Well, are you asking about the mix of export, or what exactly are you asking?

George Leon Staphos: Really, I was asking about how much export tonnage, you know, 1Q, either directionally versus 4Q in absolute terms, in terms of percentage of tonnage, whatever sort of qualitative or quantitative data you could provide us, 1Q and 4Q, and really, the last question related to it, and I'll turn it over to you, is, you know, for all of the volume... Um, you know, kudos to you The operating, or EBITDA margin was less than we had been modeling for.

Tom: Really I was asking about how much was export tonnage you know one Q either directionally versus <unk> in absolute terms in terms of percentage of tonnage whenever sort of qualitative or quantitative data you can provide us once you went to <unk> and really the last question related to it and I'll turn it over as you know for.

Speaker Change: All of the volume.

Speaker Change: Yeah Kudos to you in terms of the shipments the operating EBITA margin was less than we had been modeling for and I'm trying to figure out.

George Leon Staphos: And I'm trying to figure out where that loss of margin, at least versus our model, maybe we're just too optimistic, was whether it was, you know, mix or something else in terms of the quarter. Thank you. I'll turn it over there.

Speaker Change: Now where that loss of margin of at least versus our model. Maybe we were just too optimistic was whether it was mix or something else in terms of the quarter. Thank you I'll turn it over there.

Speaker Change: Let me see let me see if I can tie this together here real quick for you George.

Thomas A. Hassfurther: Let me see if I can tie this all together here real quick for you, George. Thank you.

Speaker Change: Number one is the are the export the export and first quarter versus fourth quarter as I indicated was down slightly.

Thomas A. Hassfurther: Number one is export. The export in first quarter versus fourth quarter, as I indicated, was down slightly. You know, fourth quarter is a... is, you know, is a big export time for us.

You know fourth quarter is a.

Speaker Change:

Speaker Change: As you know is a big export at time for us and but you know on an overall basis it was pretty flat.

Thomas A. Hassfurther: And, but, on an overall basis, it was pretty flat. Relative to the EBITDA margins, I think one of the things that you might be missing in the model was the fact that the $20 downturn that took place last year some of that bled into the first of the year because of contract triggers. And, of course, we were counting on the $70 being published, but only $40 was published, and it was slightly delayed.

Relative to EBITDA margins I think one of the things that probably you might be missing in the model was the fact that the 20 dollar downturn that took place last year some of that bled into the first of the year because of contract triggers.

Speaker Change: And and of course, we were counting on the $70 being published and are the only $40 was published and it was slightly delayed.

Thomas A. Hassfurther: So the roll-through and the price increase did not occur quite as quickly as we had hoped and not by the same amount because of the index. In addition to that, I just want to remind you that inflation remains very sticky, and you know, I think there's a lot of noise around inflation, you know, the rate of inflation having slowed, from the U.S. So I think that's where the margin gap is.

Speaker Change: So you know the roll through and the price increase did not occur quite as quickly as that as we had hoped and not not in the same amount because of the index.

Speaker Change: In addition to that I, just want to remind you that inflation remains very sticky.

Speaker Change: And you know I think there's a lot of noise around inflation had you know the rate of inflation having slowed.

Speaker Change: From that rapid rate during COVID-19, but it's still going up.

Speaker Change: And it's been going up at the same time, the indexes are indicated prices going in the opposite direction until this $40 increase so I think that's I think that's where the where the margin gap is George there's a lot of elements within the cost structure that people lose sight of it.

Mark W. Kowlzan: George, there are a lot of elements within the cost structure that people lose sight of. I mean, if you keep in mind things just like general services that a paper mill or box plant relies on, all these associated costs to run the business have gone up dramatically over the last few years, and they're not easing up. Bob, do you want to comment on this? Again, I think people are truly, truly missing that. Yeah, yeah, Mark.

Speaker Change: If you keep in mind, I mean things just like general services that a paper mill or box plant relies on all these associated cost to run the business are up dramatically over the last few years and they're not easing up Bob you want to comment on this again and I think people are truly truly are missing.

Robert P. Mundy: I mean, you know, the things, and even as we go into the second quarter from the first, obviously recycled fiber, wood maybe a little bit higher from a price standpoint, electrical rates, even though gas is down, electrical rates are not. You know, chemicals, whether it be lime, adhesives in the box plants, resins, alum, starch across the board, all moving higher. You know, and again, you know, we typically talk about all the direct types of costs, which is only about 40% of our cost base.

Unknown Executive: Yeah, Mark I mean, you know the things and even as we go into the second quarter from the first you know obviously recycled fiber wood, maybe a little bit higher from a price standpoint, our electrical rate, even though gas is down electrical rates or not.

Unknown Executive: You know chemicals, whether it be you know lime adhesives, and the box plants resins.

Unknown Executive: Alums starch across the board all hot moving higher.

Unknown Executive: And again you know, we typically talk about all the direct type of cost and you know, which is only about 40% of our cost base you have the other 60%.

Robert P. Mundy: You have the other 60%, you know, which are, as Mark referenced, maintenance services, repairs, materials, operating materials, supplies. Property taxes, rent, warehouse costs, insurance, leases, so it's, you know, there's constant inflation, and all the people that supply those things have the same inflation going on in their business, and they don't eat it; they pass it on to us. So a lot of that just gets overlooked, I think.

Unknown Executive: You know, which are as Mark referenced you know their maintenance services repairs materials operating materials supplies, you know property taxes rent warehouse costs as on it you know insurance leases. So it's you know there there's constant inflation in all of the people that supply those things they have the same inflation go.

Unknown Executive: On in their business and they don't need it they pass it onto us. So a lot of that just gets overlooked I think George.

Speaker Change: I appreciate all the color guys I'll turn it over thank you very much.

George Leon Staphos: I appreciate all the color, guys. I'll turn it over. Thank you very much.

Speaker Change: Thank you next question please.

Operator: Thank you. Next question, please.

Speaker Change: Our next question comes from Michael <unk> from Trust. Please go ahead with your question.

Operator: Our next question comes from Michael Roxland from Truist. Please go ahead with your question.

Michael: Thank you Mark Tom and Bob for taking my questions. This is Niko, Virginia on for Mike.

Michael Andrew Roxland: Thank you, Mark, Tom, and Bob, for taking my questions. This is Nico Puccini on for Mike. I guess just realizing that demand has improved across the board. Are there any particular sectors or end markets where you saw more notable improvement than anything lagging?

Niko: Just realizing that demand has improved across the board or are there any particular sectors or end markets, where you saw more notable improvement and then anything lagging.

Niko: Ah I can tell you the demand improved across the board believe it or not are you know when we look at the various segments, whether it's E com AG food, even on them in them and the heavier manufacturing area, we had a significant improvement across the board.

Thomas A. Hassfurther: I can tell you that demand improved across the board, believe it or not. You know, when we look at the various segments, whether it's e-com, ag, food, even in the heavier manufacturing areas, we had significant improvement across the board.

Niko: Got it. Thank you and then just following up.

Niko: Since roughly 2019, you spent a good deal of time and money recapitalized in your box plants.

Thomas A. Hassfurther: Got it. Thank you. And then, just following up. Since roughly 2019, you've spent a good deal of time and money recapitalizing your box plants. Can you comment on maybe if there's anything left to do there, realizing there's always some level of work to be done?

Niko: Can you comment on maybe if there's anything left to do there.

There's always some level of work can be done.

Niko: Yeah, you know we've got this momentum going right now that we started you know a good five or six years ago and quite frankly as we've done in the mill side now the the opportunity to continue to.

Thomas A. Hassfurther: You know, we've got this momentum going right now that we started a good five or six years ago, and quite frankly, as we've done on the mill side now, the opportunity to continue to, you know, capitalize on the box plant opportunity will continue infinitum for us. That's part of our growth strategy, that's how we'll continue to provide value for our customer base, and so again, you know Tom.

Niko: Capitalized on the box plant opportunity will continue infant item for us that's part of our growth strategy. That's how we'll continue to provide value for our customer base and so again you know Tom again, just well I think I would agree I think it's a good reminder, always that you know our capital our capital plans in the <unk>.

Thomas A. Hassfurther: Well, I think it's a good reminder that our capital plans and the box plans are built around our customers. And the customers that we're aligned with are in growth mode. And that's a big benefit to us, and we'll continue to invest in those customers.

Niko: <unk> plants are built around our customers and our you know our customers are that we're aligned with are in growth mode and that's that's a big benefit to us and we will continue to invest around those customers.

Niko: You know again I think I commented on the January called in the last.

Thomas A. Hassfurther: You know, again, I think I commented on the January call that in the last five years since 2019, we've installed 69 new converting machines, we've replaced or completely upgraded 25 of our corrugators, we built four new plants, you know, Marshfield, Richland, Landisville, and Salt Lake City Specialty in Salt Lake City, which we just started up in the last month. So that's our newest one. And so we continue to do this as As Tom mentioned, it's all done to grow with the customer and take care of what the customer needs are. But we have this capability, and we will continue to capitalize on its strength.

Niko: Five years since 2019, we've installed 69, new converting machines, we've replaced or completely upgraded twenty-five over coordinators, we built for new plants.

Niko: Marshfield Richland Landis Bill in Salt Lake City specialty in Salt Lake City, We just started up in the last month. So that is our newest one.

Niko: And so we continue to do this as a.

Speaker Change: As Tom mentioned that it's it's all done to grow with the customer and take care of what the customer needs are but we have this capability and its.

Speaker Change: Again, we'll continue to capitalize on this strength.

Speaker Change: Right.

Speaker Change: Understood. Thank you very much for the commentary.

Michael Andrew Roxland: understood. Thank you very much for the commentary.

Speaker Change: Next question please.

Operator: Our next question comes from Mark Weintraub from Seaport Research Partners. Please go ahead with your question.

Speaker Change: Our next question comes from Mark Weintraub from Seaport Research Partners. Please go ahead with your question.

Mark Weintraub: Thank you. First, are you now done with the Jackson Project conversion? Is that now... Fully, fully set?

Mark Weintraub: Thank you first are you now done with the Jackson project conversion is that all that.

Mark Weintraub: That now fully fully sat.

Mark W. Kowlzan: Yes, everything that we had scoped out four years ago is complete, and that project has turned out, as you can imagine, we're more pleased than we thought we would be at this time. The phase of work that we just completed was originally a 58-day schedule. We completed that two weeks ahead of time, started it up the day before Easter, and have been running extremely well ever since. And, as I've talked about over the last year, I expected that machine to be producing over 2,000 tons a day, and we have been doing that for the last week or two.

Mark Weintraub: Yes, everything that we had scoped out four years ago is complete and that that project has turned out as you can imagine where we.

Mark Weintraub: We're more pleased than we thought we were going to be at this time the original phase.

Mark Weintraub: Phase of work that we just completed was originally a 58 day schedule. We completed that two weeks ahead of time started up the day before Easter and had been running extremely well ever since and as Ive talked over the last year I expected that machine to be producing over 2000 tonnes a day in and we've been doing that for the last.

Mark Weintraub: Week or two and so.

Mark W. Kowlzan: And so... Getting that mill stretched out now, getting everybody used to running at these high production rates, but the good news is we need every ton that we can produce. And this is all, you know, high performance grade lightweight liner board coming off that machine. And so it's doing everything we expected it to do and more.

Mark Weintraub: Getting that mill stretched out now and getting everybody used to running at these high production rates, but the good news is we need every every ton that we can produce and this is all all are real you.

Mark Weintraub: You know high performance grade lightweight linerboard coming off that machine and so it's doing everything we expected it to do and more.

Speaker Change: Congrats on that so so now with Jackson up in running footwear I think in the second quarter, you produced a little under 1.2 million tonnes.

Mark W. Kowlzan: [inaudible]

Mark W. Kowlzan: If you include the seven mil system... would be a little bit over 5 million tons. Why don't you round off the five million ton system to a little over 5.2 million or so? Depending on the grade mix that you're running, as far as lightweights, basis weights.

Speaker Change: Maybe on an annualized basis, what would your full production potential be assuming the demand is there for you to run fall.

Speaker Change: If if you include the seven mill system.

Speaker Change: We'd be a little bit over 5 million tons.

Speaker Change: Why don't you if you round off 5 million ton system little over 5 million tons, $5 2 million or so.

Mark W. Kowlzan: 5,000,005.2 is a good number going forward on a run rate basis. And then, lastly, I just want to come back to the 8% increase, at least, you know, in April, et cetera. If I look at where your first quarter daily shipments were relative to your second quarter, 23 daily shipments, they were up about 8% as well. And I realize we're talking about different time periods when you're referencing April specifically. But so the question is, are you still seeing momentum of demand getting stronger in the current environment? Or is it more that you have this uptick, you gain business, and it's sort of stable at those higher levels?

Okay, depending on the grade mix that you're running as far as the lightweight basis weight 5 million 5.2 is a good number going forward on a run rate basis.

Speaker Change: Excellent and then lastly, just want to come back to that the the up 8% at least you know and in April etcetera, If I, if I look at where your first quarter daily shipments were relative to your second quarter twenty-three daily shipments they were up about 8% as well.

Speaker Change: And I realize we're talking about different time periods, when you're you're referencing April specifically, but so the question is are you still seeing momentum.

Speaker Change: On the Mac getting stronger in in the current environment or is it more that you had this uptick you you gain business and it's it's sort of stable at those higher levels.

Speaker Change: Our market is still going up it's going up at a lesser rate, but still were going up and but you know second quarter is always an interesting one for us versus the third and fourth which are more predictable because we have you know we take seasonality is kind of a you know a little more if you're in the second quarter, but are we.

Mark W. Kowlzan: Mark, it's still going up. It's going up at a lesser rate, but we're still going up. And, but you know, the second quarter is always an interesting one for us versus the 3rd and 4th, which are more predictable because we have, you know, we take seasonality is kind of, you know, a little more iffy in the 2nd quarter, but we still see that momentum going up, and then we expect it to continue to go up again in the 3rd and 4th quarters of the year.

Speaker Change: We still see that momentum going up and then we expect it to continue to a to go up again in the third and fourth quarters of the year.

Mark Weintraub: Okay, and then one last quick one. If I read it right, your cap spend was pretty low, I think $72 million or something in the first quarter. What are you expecting a full year on CapEx and maybe, depending on the number, I thought you were going to be spending a fairly sizable amount still this year. Maybe help us, with Jackson now done, with what these new monies are going to be spent on?

Speaker Change: Okay, and then one last quick one.

Speaker Change: If I read it right your cap spend was pretty low I think like 72 million or something in the first quarter. What are you expecting a full year on capex and may be depend.

Speaker Change: Depending on the number if it's I thought you were gonna be spending if you know a fairly sizeable amount still this year and maybe maybe help us with Jackson now done what these new monies are going to be spent on yeah.

Robert P. Mundy: Yeah, Mark, that was a timing issue as far as just how the invoicing is done against the projects. You know, we called it out somewhere in that higher full hundred level, and we'll give you some updates in July. We always reserve the right to set an example if new opportunities come along. We move forward with these opportunities, and so, you know, right now, we're in that high hundred million area, but again, we'll give you some updates. If there's any change, we'll update you in July. Thank you. I'll get back to you.

Speaker Change: Yeah, Mark that was a timing issue as far as just how the invoicing is done against the projects. We we called out at somewhere in that that are higher 400 level and we'll give you. Some updates in July we always reserve the right as an example of a new opportunities come along we move forward.

Speaker Change: These opportunities are and so you know right.

Speaker Change: Right now where we're in that high 400 million area, but again we.

Speaker Change: We'll give you some update if there's any if there's any change we will update you in July.

Speaker Change: I'll get back in queue.

Mark Weintraub: Thank you. I'll get back in queue.

Speaker Change: And our next question comes from Gabe <unk> from Wells Fargo. Please go ahead with your question.

Operator: And our next question comes from Gabe Hyde from Wells Fargo. Please go ahead with your question.

Gabe: Mark Bob Tom Good morning.

Gabrial Shane Hajde: Mark, Bob, Tom, good morning. Good morning. Thank you for all the detail.

Gabe: Good morning, good morning for all the detail.

Thomas A. Hassfurther: I wanted to ask and I guess revisit the price question, which I know is a little tricky sometimes. But, you know, going back to the Q4 call, you made some comments, Mark, that you were going to try to, these are my words, kind of decouple from RISI indices to the extent you're able to. And then now we're reading on a sequential basis that, you know, we got the $40 a ton that posted in February.

Gabe: Wanted to ask I guess revisit the <unk>.

Gabe: This question, which I know is a little tricky, sometimes but you know going back to the Q4 call. You had made some comments mark but your entitle. These are my words can decouple from reaching indices.

Gabe: Sent you are able to and then now we are reading on a sequential basis that we got the $40 a ton that posted in February we'd expected 70 until it's what feels like a headwind relative to what you were expecting or maybe we all were expecting I'm going back to the kind of the price cost squeeze that we all miss.

Thomas A. Hassfurther: We had expected $70. And so, it feels like a headwind relative to what you were expecting, or maybe we all were expecting, going back to the kind of price-cost squeeze that we all mismodeled in the first quarter. So, I'm curious if that is proving more challenging. And I'm just asking in the context of, you know, this is kind of blazing new trails relative to what we're used to when analyzing this industry.

Gabe: Model than in the first quarter so.

Gabe: So I'm curious if that is proving more challenging.

Gabe: I'm just asking in the context of all.

Gabe: This is kind of blazing new trails relative to what we're used to when analyzing chemistry. So that's part number one.

Thomas A. Hassfurther: So, that's part number one. And then, part number two, not asking about future price increases, but given what you've described and your history of implementing price increases, is it fair to say that the January 1 price increase is now, you know, again, I know it's RISI and what they do, but commercially speaking, if you deemed it appropriate going forward, you would have to nominate something new? Thank you.

Gabe: And then part number two not asking about future price increases, but given what you've described in the history of implementing price increases is it fair to say that the January one price increase is now.

Gabe: And again I know, it's received and what they do but commercially speaking if you deemed it appropriate going forward that you would have to nominate something new thank you.

Gabe: Yeah.

Gabe: Gabe This is Tom and so it's a great question, you have especially relative to the decoupling from risky as I indicated in our last call. This would not be an easy task and it's going to take some time, but we're still we're still pressing forward with that driven driven again by our.

Thomas A. Hassfurther: Gabe, this is Tom. It's a great question you have, especially relative to the decoupling from RISI. As I indicated in our last call, this would not be an easy task, and it's going to take some time. But we're still pressing forward with that, driven again by our customers' frustration over what is going on and what gets reported these days. If you just work through, at least from PCA's perspective, if you walk through the math and say, well, Liner came down $110 after its peak, and Medium a little bit more, we would need to have a significant recovery to get back to those kind of levels.

Speaker Change: Customers' frustration over over what is going on and what gets reported these days.

Speaker Change: You know if you are if you just work through at least from Pca's perspective, if you look through the walk through the math and you said well you know liner came down $110. After its peak in and medium a little bit more.

Speaker Change: You know, we would need to we would need to have a significant recovery.

Speaker Change: Two to get back to those kind of levels and and as I also indicated inflation continues to take place. So.

Thomas A. Hassfurther: And, as I also indicated, inflation continues to take place. There's even customers who have said to us that, you know, if things had just remained the same from the peak, they would have, you know, they'd almost prefer that just because they just don't like these roller coaster rides, and they're trying to get off of that, you know, down and then up and then down and then up and these sorts of things.

Speaker Change: There's a you know even customers have said to us that our you know if things had just remained the same from the peak they would've they'd almost prefer that just because they just don't like these roller coaster rides and they're trying to get off of that.

Speaker Change: Down and then up and down and then up in these sorts of things so and over a long period of time, you know we could manage that in a much smoother fashion. So you know these are the these are the kind of discussions we're having with our customers. Our customers are very open to to alternatives and different methods, but you got to remember a lot of these contracts are long term.

Thomas A. Hassfurther: So and over a long period of time, you know, we could have managed that in a much smoother fashion. So, you know, these are the kind of discussions we're having with our customers. Our customers are very open to alternatives and different methods. But you got to remember, a lot of these contracts are long-term contracts. They have different trigger points.

Speaker Change: They have different trigger points at different times, when we were negotiating them and so you know we are where we are at this point in time.

Thomas A. Hassfurther: They have different times when we're negotiating them. And so, you know, we are where we are at this point in time. You know, the other thing that we talked about was that, you know, when we announced this increase, the increase was on container board. It wasn't, you know, the announcement wasn't on boxes, that's between us and our customers, but we announced it on the open market for container board, and we implemented it. It didn't get reported quite the same way, but that's part of our frustration.

Speaker Change: And.

Speaker Change: You know the other thing that we talked about was is that you know when we announced this increase do you need to increase was on containerboard and.

It wasn't you know the announcement wasn't on boxes, that's between us and our customers, but we announced it on the open market of containerboard and we implemented it didnt.

Speaker Change: It didn't get reported quite that same way, but you know that's that's that's part of our frustration.

Thomas A. Hassfurther: I think that relative to future pricing, you know, we don't really discuss future pricing or we don't make any indication of what we're going to do in the future, but you could probably, you know... You can probably read through where we are and some of the inflationary pressures that are taking place. And the last reminder is that, you know, it's... You know, all increases aren't set strictly on supply and demand.

Speaker Change: I think that relative to to future pricing you know, we don't we don't really discuss future pricing or we don't want to make any.

Speaker Change: Indication of what we're going to do in the future, but you could probably you know you probably read through you know, where we are and and some of the inflationary pressures that are taking place in the last reminder, is is that you know it's.

Speaker Change: They're all all increases aren't strictly on supply and demand are sometimes they they have to do is just just costs and costs in general and some costs that are you know we're trying to minimize as much as we possibly can but in lots of cases, we can so hopefully that gives you. The hopefully that gives you a good indication of where we are.

Thomas A. Hassfurther: Sometimes they have to do with just costs and costs in general, and some costs that we're trying to minimize as much as we possibly can, but in lots of cases, we can't. So hopefully, that gives you a good indication of where we are.

Speaker Change: No Crystal clear Thank you Tom.

Thomas A. Hassfurther: kind of standard repricing for rail occurs in and around April 1. You called it out. I think roughly two-thirds or so of your parent rolls get shipped around rail, and then the majority of converted product is mostly truck. So just maybe can you frame up maybe what the increases were or what portion of your transport spend is rail specifically?

Speaker Change: Maybe just I don't know Bob if you can quantify I think kind of standard repricing for rail occurs in and around April one.

Speaker Change: You called it out I think roughly two thirds or so of your parent rolls get shipped around rail.

Speaker Change: And then the majority of converted product is mostly trucks. So just maybe can you frame up.

Speaker Change: Maybe what the increases were or what portion of your transport spend Israel specifically.

Speaker Change: I think in total spend Gabe, it's it's like 65% or so is Israel I believe.

Robert P. Mundy: I think in total spend, Gabe, it's like 65% or so is rail, I believe.

Speaker Change: Okay.

Speaker Change: And one last one a very subjective but given the fact that your your two largest competitors right now are you.

Gabrial Shane Hajde: And one last one, very subjective, but given the fact that your two largest competitors right now are, you know, pursuing transatlantic combinations, do you see any opportunity, Mark, either organically or potentially, if there's a required divestiture, to pick up business along the way? Again, appreciating it. I know it's a sensitive topic. Thank you.

Speaker Change: Pursuing trans Atlantic combinations do you see any opportunity Mark hi.

Speaker Change: Either organically or potentially if there's a required divestiture.

Speaker Change: To pick up business along the way.

Speaker Change: Again, I appreciate and I know, it's a sensitive topic. Thank you.

Mark W. Kowlzan: Yeah, I don't have any comment regarding that somewhere. I won't go.

Mark: Yeah, I don't have any comment regarding that if that's at some places they won't go.

Operator: But, as you can imagine, we take advantage of opportunities as they come along. Thank you. Next question, please.

Mark: But as you can imagine we take advantage of opportunities as they come along.

Mark: Yeah.

Speaker Change: Thank you next question please.

Speaker Change: Our next question comes from Anthony Pettinari from Citi. Please go ahead with your question.

Operator: Our next question comes from Anthony Pettinari from Citi. Please go ahead with your question.

Anthony Pettinari: Hi, good morning.

Anthony Pettinari: Morning. On the last call, you talked about expectations for, I think, you know, 35 cents sequential headwind in one cue on seasonal costs that I think were mostly labor and benefits related, and maybe being able to get 60% of that coming back in two cues. If I got that right, I'm just wondering how, you know, given where you shook out in one cue and the two cue guidance, how that kind of played out versus expectations.

Anthony Pettinari: Good morning on the on the last call you talked about expectations for I think 35 cents a sequential headwind in <unk> on seasonal costs that I think we're mostly labor and benefits related in it.

Anthony Pettinari: Maybe being able to get 60% of that coming back and QQ. If if I got that right I'm. Just wondering how you know given where you shook out in <unk> and the <unk> guidance, how that kind of played out versus expectations.

Speaker Change: Yeah I think it played you know we did a little better I think on what the impact was in <unk>.

Robert P. Mundy: Yeah, Anthony, I think it played, you know, we did a little better, I think, on what the impact was in 1Q, but in our 2Q guidance... You know, the what I indicated, I think, like you said, I think it was 60% of those. Seasonal or one-time items on the wage side of the cost. We are seeing those in our guidance for the second quarter.

Speaker Change: But in our <unk> guidance.

Speaker Change: What I indicated I think like you said I think it was 60% of those.

Speaker Change: Seasonal or one time items on the on the wage side of the cost.

Speaker Change: We are we are seeing those in our guidance for the second quarter.

Speaker Change: Got it got it and then you know just following up on games earlier question on pricing mechanisms you know a lot of packagers have contracts, where they get kind of an automatic pass through on their primary raw material, whether that's aluminum or polyethylene I'm, just wondering kind of conceptually big picture what.

Anthony Pettinari: I got it. I got it. And then, you know, just following up on Gabe's earlier question on pricing mechanisms, a lot of packagers have contracts where they get kind of an automatic pass-through on their primary raw material, whether that's aluminum or polyethylene. I'm just wondering, kind of conceptually, big picture, if it would be possible to structure contracts where, you know, fiber is just passed through automatically, whether that's OCC or virgin fiber, or is there something about, you know, KraftLiner, and TestLiner boxes where maybe there are too many SKUs, or there's too many customers, or it's just... makes that kind of automatic pass-through more difficult.

Speaker Change: Would it be possible to structure contracts, where you know fiber is just pass through automatically whether that's OCC or Virgin fiber or is there something about you know kraft liner test liner boxes, where maybe there's too many skus or theres too many customers or it's just it makes that kind of automatic pass through more difficult.

Speaker Change: <unk>.

Speaker Change: I think I said, Tom go ahead, and I don't Wanna, Anthony I think it's a it's a it's a fair question.

Thomas A. Hassfurther: I think it's a fair question, but far more complicated than I think you have in a lot of other materials. And I'd also like to add that in container board, not every sheet is the same. And there is a lot of variance between everything between 100% virgin and 100% recycled, and a lot of technology in between there on performance liners, et cetera. So there's just a whole myriad of things that go into the process that would have to be taken into account. And it's not as simple as just taking the raw fiber or something like that as your single material.

Speaker Change: But but but far more complicated than I think you have in a in a lot of other materials.

Speaker Change: And and I'd also like to add that.

Speaker Change: In in containerboard not every sheet is the same and you have a lot of variance between everything between you know, 100% Virgin and 100% recycled and a lot of technology in between there on performance liners et cetera. So there's there's just.

Speaker Change: A whole myriad of things that go into the process. They would have to be taken into account and it's.

Speaker Change: It's not it's not as simple as just taking that raw fiber or something like that is your is your single material.

Robert P. Mundy: Yeah, I just wanted to emphasize that, you know, maybe once upon a time when... A decade ago, things were more stable in general with inflationary activity, and fiber would move up and down. For the last number of years, we're in a world where inflation is back on track the way it was decades ago, and you're seeing across the board all your input costs going up dramatically, and as Tom said, it would be too complex to try to tie that into some type of mechanism.

Speaker Change: Yeah, I just wanted to emphasize that you know they'd be once upon a time win.

Speaker Change: A decade ago things were more stable in general with with inflationary activity and fiber would move up and down and but now.

Speaker Change: The last number of years, we're in a world where inflation is is back on track the way it was decades ago and you're seeing across the board. All your input costs are up dramatically and as Tom said, it would be too complex to try to tie that into some type of mechanism.

Speaker Change: But don't forget again.

Robert P. Mundy: Don't forget again, 25 years ago, transportation was a very minimal cost factor in moving container board and paper products around the country. Now transportation factors in as a major, very significant major element to the cost, just that one component.

Speaker Change: Yeah.

Speaker Change: 25 years ago transportation was a very minimal cost factor in moving containerboard and paper products around the country now transportation factors and there is a major very significant major element to the cost just that one component.

Anthony Pettinari: Got it, got it. I'm just wondering if, in previous periods of very strong inflation or maybe going back to the 70s, the paper industry was using things like surcharges? I'm just trying to think about other kinds of pricing mechanisms that have been used historically, obviously not talking about any kind of future actions, but you know, Bob listed out that, you know, those categories that are all seeing inflation. I'm just wondering, as you look at the history of the industry, were there sort of other ways that producers were able to pass those along?

Speaker Change: Got it got it I'm, just wondering kind of previous periods of a very strong inflation or maybe going back to the seventy's or.

Speaker Change: What was the paper industry using things like surcharges.

Speaker Change: I'm just trying to think about other kind of pricing mechanisms that have been used historically, obviously not talking about any kind of future actions, but you know Bob listed out that you know that those categories that are all seeing inflation I'm. Just wondering as you look at the history of the industry, where there were there sort of other ways.

Speaker Change: Producers were able to pass those along.

Speaker Change: Anthony This is Tom again, where we're exploring we're exploring all the all the potentials and we're doing it in detail with our customers and so so I think we'll just see where this where this unfolds overtime, but you know.

Thomas A. Hassfurther: Anthony, this is Tom again. We're exploring all the potentials, and we're doing it in detail with our customers. And so I think we'll just see where this unfolds over time. But, you know, and we're learning a little bit too on our side because we're getting it from all our suppliers, and we're getting all the above from all of our suppliers. And that's part of the inflation problem and the cost problem that we're incurring. So, you know, we're taking everything into account. But this will be, you know, solved directly with our customers. Suffice it to say, we'll be far better off going forward.

Tom: And and and we learn a little bit too on our side because we're getting it from all our suppliers and we're getting all of the above all of our suppliers and that's part of the that's part of the inflation problem in a cost problem that we're incurring. So are we you know we're taking we're taking everything into account and but that this will be this will be you know solved directly with their.

Tom: Our customers yeah, so suffice it to say it will be far better off going forward.

Speaker Change: Understand I appreciate it and appreciate its a difficult question to answer in this kind of format, but appreciate the color. Thank you.

Anthony Pettinari: understand, appreciate it, and appreciate it's a difficult question to answer in this kind of format, but appreciate the color. Thank you.

Operator: Thank you. Next question, please.

Speaker Change: Next question please.

Operator: Our next question comes from Philip Ng from Jefferies, LLC. Please go ahead with your question.

Speaker Change: Our next question comes from Philip <unk> from Jefferies. LLC. Please go ahead with your question.

Philip H. Ng: Hey guys, your box shipments were obviously really strong during the quarter. Seems like you're outpacing the market handily. Tom, you kind of talked about some of the investments you've made on the box side, and Mark, I think you talked about momentum kind of building there. Has that been a big area of differentiation that's kind of helped you take share a little faster and grow a little faster than your peers? Anything you want to call out in terms of these investments you've made that make PCA even more competitive than in years past?

Philip: Hey, guys are your box shipments were obviously really strong during the quarter. It seems like you're outpacing the market handedly Tom.

Philip: Tom you kind of talked about some of the investments you've made on the box side and Mark I think you've talked about momentum kind of building. There has that been a big area of differentiation that's kind of help you take.

Philip: Take care, a little faster and grow a little faster than your peers and anything that you want to call out in terms of these investments you've made that.

Philip: Makes PK P say, even more competitive than years past.

Speaker Change: Well I think felt they are you know yes. There is you know it's been a it's been a big plus for US. There's no question about it otherwise we wouldn't have embarked on it.

Thomas A. Hassfurther: Well, I think Philip, yes, it's been a big plus for us. There's no question about it.

Thomas A. Hassfurther: Otherwise, we wouldn't have embarked on it. I've said many times we won't build it and hope they will come. We do what our customers need us to do and invest where they need us to invest, and that's what we've been doing. And it's coupled with making our system more efficient, getting ourselves aligned properly in the right marketplaces, and aligned with the right customers. And, you know, I think that's a huge plus.

Speaker Change: You know I've said many times, we don't build it and hope they will come I you know, we do what we do what our customers need us to do and invest where they need us to invest and that's what we've been doing and and it's coupled with making our system more efficient getting ourselves aligned properly and the right marketplaces getting ourselves aligned with the right cut.

<unk> and you know that's I think that's a that's a huge plus now in addition to that I think what what helps US a lot is the fact that we're building a better quality product every day.

Thomas A. Hassfurther: Now, in addition to that, I think what helps us a lot is the fact that we're building a better quality product every day. We're able to turn it much faster and meet demands and work as a complete system. It makes a huge difference for us, and our customers definitely appreciate it, and I think that's showing up in the business that we're capitalizing on.

Speaker Change: We were able to turn much faster and and meet demands and workers and work as a complete system makes it makes a huge difference for us and our and our customers' definitely appreciate it and I think that's showing up in in the business that we're we're capitalizing on it if you. If you went back over the last five years.

Mark W. Kowlzan: You know if you went back over the last five years if you think about labor, you know input cost and in labor unit you know, applied per square foot of product or ton of product, you know, we've significantly improved the productivity and cost structure of every one of these converting facilities and full-line box plants, you know, we're producing, we quadrupled in many cases, doubled the productivity on average out of a box plant, and so it's given us incredible flexibility on how we grow with these customers and the capability to service these customers and do it in a very efficient manner, and that's where, again, we've We're able now to continue that momentum, and we're not playing catch. We, you know, we're in very good, you know, all of our box plants. Our paper mills were in very good position as far as our cost structure and efficiencies to compete.

If you think about labor.

Input cost and labor unit.

Speaker Change: You know applied.

Speaker Change: Square foot, a product or a ton of product.

Speaker Change: We've significantly improved the productivity and cost structure of every one of these converting facilities and a full line box plants, we're producing we quadrupled our in many cases are doubled the productivity on average out of a box plant and so it's giving us incredible flexibility.

Speaker Change: On how we grow with these customers and in the capability to service these customers and do it in a very efficient manner, and that's where again we.

Speaker Change: We're we're able now to continue that momentum and we're not playing catch up.

Speaker Change: We you know we're in very good you know all of our box plants are.

Speaker Change: Our paper mills were in very good position as far as our cost structure and efficiencies to compete.

Thomas A. Hassfurther: And so we just make the new investments that, as Thomas said, we grow with the customers and, so again, but we've been doing this for decades. This isn't something that we just came up with the idea five years ago; we've been working on this for a couple of decades, and we've been fine-tuning this and making it better. And it's just in the last five years; we have focused heavily within the box plant system with this organizational change we made in 2019.

Speaker Change: And so we just lay in the new investments that are as Thomas said, we we didn't grow with the customer and.

Speaker Change: So again well.

Speaker Change: But we've been doing this for decades, there's nothing that we just came up with the idea of five years ago, we're going to do this we've been working at this for a couple of decades, and we've been fine tuning this in and making it better and it just in the last five years, we've we focus heavily within the box plant system with this organizational change we made in two.

Speaker Change: That was in 19.

Philip H. Ng: Super. That's really helpful.

Speaker Change: Super that's helpful.

Thomas A. Hassfurther: And I guess a question on the pricing side of things. Since only $40 to the $70 line and board increase got reflected in the index, just from a logistics standpoint, are you issuing rebates to your customers? And then separately, the trade publication kind of reported that maybe perhaps some of the independent box makers were a little reluctant to push prices given a more mixed demand backdrop for them. How's the box price increase progressing? Do you kind of expect it to kind of proceed like normal?

Speaker Change: And I guess a question on the pricing side of things.

Speaker Change: So it's only 40 to $70 linerboard increased got reflected in the index just from a logistics standpoint are you issuing rebates your customers.

Speaker Change: And then I guess separately the trade publication kind of reported maybe perhaps some of the independent box makers were a little reluctant to push price just given a more mixed demand backdrop for them.

Speaker Change: How's the box price increase progressing do you kind of expected to kind of proceed like normal.

Speaker Change: Uh huh.

Speaker Change: Relative to the box price increase it's going to flow through as normal Oh over over a 90 day period, we'll have a little bit of we'll have a little bit of lag into the mid year. Because we do have some contracts that are you know have triggers in the midyear, but the lion's share of it as a as usual will roll in over 90 day period.

Thomas A. Hassfurther: Relative to the box price increase, it's going to flow through as normal over a 90-day period. We'll have a little bit of lag into the midyear because we do have some contracts that have triggers in the midyear, but the lion's share of it, as usual, will roll in over a 90-day period.

Speaker Change: We're not I'm not I'm not going to discuss what we do individually with our customers or anything like that but we did put the $70 price increase through and on containerboard as I indicated last time and that's that's been done for quite some time.

Thomas A. Hassfurther: I'm not going to discuss what we do individually with our customers or anything like that, but we did put the $70 price increase through and on container board, as I indicated last time, and that's been done for quite some time. And that's, you know, that's basically, you know, what we expect now, relative to, you know, an independent or whatever, you know, talking about supply and demand or whatever the case might be.

Speaker Change:

Speaker Change: And that's a you know that's that's basically you know what what we expect now you know relative to you know an independent or whatever you know talking about supply demand or whatever the case might be I mean, that's part of the whole frustration of the of the AR of the model that exist right now because as Ive indicated many times the open market is incredibly small today.

Thomas A. Hassfurther: I mean, that's part of the whole frustration of the model that exists right now, because, as I've indicated many times, the open market is incredibly small today. And you know, when I hear things about 70% of the survey saying that X or Y, that's 70% of what, 1% or something? I don't know what the, you know, how those percentages will work out. And there's no indication of that. So that's, that's why, that's why we have, as I indicated last time, some of the need to have some consideration for perhaps some other mechanisms.

Speaker Change: And when I hear things about 70% of the survey you know the survey says X or Y that's 70% of what 1% or something I don't know what the you know what the how those percentages workout and Theres no indication of that so that's.

Speaker Change: That's that's why that's why we've as I indicated last time.

Speaker Change: You know some of the need to to have some consideration for perhaps some other mechanisms.

Mark W. Kowlzan: If I can't sneak one more in, your two larger competitors in the U.S. are obviously merging with European counterparts. Historically, the industry has had mixed track records being international, but the Mark Thom team, I'm just curious, how do you kind of see that perhaps changing the competitive landscape and how you may compete and how you proceed with some of your customers going forward?

Speaker Change: Okay, Oh, if I can sneak one more in your your two larger competitors in U S are obviously <unk>.

Speaker Change: Emerging with European counterparts.

Speaker Change: Historically, the industry has had mixed track record being international but Mark Tom team and just curious how do you kind of see that perhaps changing.

Speaker Change: The competitive landscape and how you may compete in how you proceed with some of your customers going forward.

Speaker Change: I don't.

Thomas A. Hassfurther: I don't even think about it as a significant change here in the domestic marketplace. They're doing it for their own reasons. But again, that, you know, Tom, do you want to comment on that?

Speaker Change: I don't even think about it as a significant change here in the domestic marketplace. This is a you know.

Speaker Change: They're doing it for their own reasons, but again you know.

Speaker Change: Tom you want to comment on that I don't I don't I don't I don't have I don't I don't have any I don't have any comment at all.

Thomas A. Hassfurther: I don't have any comment at all relative to our competitors or what they're attempting to do or trying to do. We know what we need to do in our marketplace, and that's what we go and focus on executing.

Tom: Relative to our competitors or what they're what they're attempting to do are trying to do we.

Tom: We know what we need to do in our marketplace and that's why we go and focus on executing just keep in mind for that.

Mark W. Kowlzan: Just keep in mind, you know, for the better part of 30 years, we've concentrated in the lower 48 states, and we've grown our business significantly over these last few decades here in the United States, and we'll continue to do so. And we've outgrown the rest of the industry by doing that. And we'll continue to do that.

Tom: Better part of 30 years, we've concentrated in the lower 48 states and.

Tom: We've grown our business significantly over these last few decades here in the United States and we'll continue to do so and we've we've outgrown the rest of the industry.

By doing that and we will continue to do that.

Speaker Change: Okay I appreciate the color. Thank you.

Operator: Our next question is a follow-up from George Staphos from Bank of America Securities. Please go ahead with your follow-up.

Speaker Change: Next question.

Speaker Change: Our next question is a follow up from George Staphos from Bank of America Securities. Please go ahead with your follow up.

George Leon Staphos: Hi, thanks for taking the follow-on. Recognizing that for years, Packaging Corp has hired its team of engineers and has focused on productivity both at the mill level and the box plant level. And you said, Mark, earlier that the projects and the programs would continue ad infinitum. Is there any fade in terms of the net benefit we should expect from Packaging Corp's P&L over time from these programs, recognize they're going to continue, you know, basically has a lot of lower hanging fruit been consumed?

George Leon Staphos: Hi, Thanks for taking the follow on recognizing that four years packaging Corp has hired its team of.

George Leon Staphos: <unk> engineers and is focused on productivity both at the mill level on the box plant level.

George Leon Staphos: And you said Mark earlier that the projects and the programs will continue at an infant item.

George Leon Staphos: Is there any fade in terms of the net benefit we should expect to packaging corp's P&L over time from these programs recognize they're going to continue.

George Leon Staphos: Basically has a lot of lower hanging fruit been consumed or.

George Leon Staphos: Or do you think you can continue with, I think you said, you know, last quarter, you're spending $150 million on box plants this year, obviously, we'll get an update in June or July, that you can continue to have that same rate of return on these programs, and we can continue to see that benefit to the P&L as we've been seeing over the last couple of years? Thank you.

George Leon Staphos: Do you think you can continue with I think you said last quarter, you're spending $150 million in box plants. This year, obviously, we'll get an update in June or July that you can continue to have that same rate of return on these programs and we can continue to see that benefit to the P&L as we've been saying.

Speaker Change: Over the last couple of years. Thank you.

Mark W. Kowlzan: That will never end. If a company does not have the capability that we do, you will not be able to function efficiently going forward.

Speaker Change: That will never end.

Speaker Change: If a company does not have the capability that we do.

Speaker Change: You will not be able to function efficiently going forward.

Mark W. Kowlzan: The technology capability that we bring to bear 24 hours a day, seven days a week. We take care of our operational matters in real time, whether it's a box plant issue or a mill issue. We don't depend on vendors to take care of our needs.

Speaker Change: All right.

Speaker Change: The technology capability that we bring to bear 24 hours a day seven days a week.

Speaker Change: You know, we take care of our operational matters in real time, whether it's a box plant issue or a mill issue, we don't depend on on vendors to to take care of our needs and so the fact, there's technology and engineering group is not only working on capital investments, but they're working on.

Mark W. Kowlzan: And so this technology engineering group is not only working on capital investments, but they're working on process efficiency and process improvement on a real-time, 24-7 basis. And that will never end. And that's been one of the benefits that has differentiated PCA for many years now, and we just continue to make it better and better. And the opportunities that the organization, whether you take an individual box plant or a mill and you take the operating group and the technology engineering group together, they see new opportunities continuously, and then they're able to identify new technology that can be applied, and then we implement that new technology, and again, how that rolls into the relationship with growing what our customer needs are.

Speaker Change: Process efficiency process improvement on a real time 24, seven basis and that will never end and that's been one of the benefits that is differentiated P. C. H.

Speaker Change: For many years now and we just continue to make it better and better and the opportunities that the the organization, whether you take them individual box plant or nil and you take the operating group and the technology Engineering group.

Speaker Change: Together, they see new opportunities continuously.

Speaker Change: And then you were able to identify new technology that can be applied and then we implement that new technology and again, how that rolls into the relationship with with growing what are key.

Speaker Change: Customer needs are.

George Leon Staphos: So Mark, you know, recognizing, you know, you can't give us a schedule in terms of... benefit this quarter, next quarter, next year, three years from now, in your mind's eye, you see, as the efforts will continue, as you just said, the return and the benefit to the P&L should be roughly what we've been seeing in the last few years on a going forward basis at PCA. Would that be right? Absolutely. That's one of the different reasons.

Speaker Change: Some are you know recognizing.

You can't give us a schedule in terms of benefit this quarter next quarter next year for three years from now in your Mind's eye you see as the efforts will continue as you just said the return and the benefit to the P&L should be roughly what we've been saying in the last few years on a going forward basis at PCA would that be right.

Speaker Change: Absolutely. It's that's one of the differentiating factors that will continue to provide the type of benefits that you see at PCA.

Mark W. Kowlzan: Absolutely. That's one of the differentiating factors that will continue to provide the type of benefits that you see at PCA. Thanks, George. Any further questions?

Speaker Change: Thanks Mark.

Thanks George.

Speaker Change: Any further questions.

Operator: We do have an additional question from Ryan Fox from Bloomberg. Please go ahead with your question. Good morning.

Speaker Change: We do have an additional question from Ryan Fox from Bloomberg. Please go ahead with your question.

Good morning, gentlemen.

Ryan Fox: Well, again, we just reported that in the second quarter, Tom had called out the fact that our trend continued into the second quarter.

Ryan Fox: In the fourth quarter of 'twenty three we saw that you outperformed the broader industry by a very wide margin. Just curious if you felt like in the first quarter, we're going to see a similar performance.

Ryan Fox: Yeah.

Ryan Fox: Well again, we just we just reported that in the second quarter, Tom had called out the fact that our trend continues into the second quarter. So.

Thomas A. Hassfurther: No, I mean, Tom, you know, you're referring to the industry numbers. I think that'll come out at the end of the week versus our performance. Right. Right. I think we'll I think we'll outperform the industry. But, but

Unknown Executive: Bob go ahead.

Unknown Executive: I mean, Tom he was referring to the industry numbers I think that'll come out at the end of the week versus our performance right right. I think we'll I think we'll outperform the industry, but but you know I would I would think that the industry will be will be up as well.

Thomas A. Hassfurther: Right, I think we'll outperform the industry, but I would think that the industry will be up as well. And why do you think you've outperformed the industry by such a great margin in the last two quarters?

Speaker Change: And why do you think you've outperformed the industry by such a great margin and I'll ask two quarters.

Thomas A. Hassfurther: Well, you know, one reason is that, you know, we've been, we've been very, very focused on, as I said, our existing customers; our capex has been around those existing customers. And some of those customers, as I indicated, in the past, coming out of COVID, we had a large customer base that had really gone through some very significant destocking of inventory. And they were kind of slow to recover.

Speaker Change: Well you know one one reason is is that are you know we've been we've been very very focused on as I said our existing customers.

Speaker Change: Our capex has been around those existing customers and some of those customers as I indicated in the past you know coming out of Covid. We had we had a large customer base that had really gone through some very significant destocking of inventory and they were they were kind of slow to recover.

Thomas A. Hassfurther: And they have now recovered at a very rapid rate. And so that's been very helpful to us. Because if you look at our, you know, it's not a secret.

Speaker Change: And they have now recovered at a very rapid rate and so that's been very helpful to us because if you look at our you know it's no. It's no secret I mean are we had a pretty easy comp a you know a year ago and you know we're so the number looks very very good but as you look at lash.

Thomas A. Hassfurther: I mean, we had a pretty easy comp, you know, a year ago, and, you know, we're so the number looks very, very good. But as you look at last year, second, third, fourth quarter of 23, they all improved and kept improving. And so in order to keep up this pace, you know, we're going to have to keep improving throughout the year, which we see happening. But, you know, it's a whole myriad of things. But you know, also, we got some real lift from a couple of significant customers that had really lagged coming out of COVID. Really, thank you.

Speaker Change: Year second third fourth quarter of twenty-three all all improved and kept improving and so in order to keep up. This pace you know, we're gonna have to keep improving throughout the year, which we see happening but.

Speaker Change: It's a whole myriad of things, but also we've got some we've got some real lift from a couple of significant customers that had really lagged coming.

Speaker Change: Coming out of Covid.

Speaker Change: Right. Thank you so much.

Speaker Change: Thank you any further questions.

Mark W. Kowlzan: And once again, if you would like to ask a question, please press star and then one. To withdraw your questions, you may press star and two. And sir, at this time, having asked no additional questions, I'd like to turn the floor back over to you, Mr. Kowlzan, for any closing comments.

Speaker Change: And once again, if you would like to ask a question. Please press star and then one to withdraw your question you May press Star and two.

Speaker Change: Yeah.

Speaker Change: And Sir at this time in showing no additional questions I'd like to turn the floor back over to you Mr Cola for any closing comments.

Mark W. Kowlzan: I'd like to thank everybody for joining us today and look forward to talking with you later at the end of July to give you the second quarter results and spend some time with you then. Have a good day. Take care.

Mr Cola: I like to thank everybody for joining us today and look forward to talking with you at a later at the end of July to give you the second quarter our results in and spend some time with you then have a good day take care. Thank you.

Operator: Ladies and gentlemen, that concludes today's conference call and presentation. We thank you for joining us. You may now disconnect your lines.

Speaker Change: Yeah.

Mr Cola: Ladies and gentlemen that does complete today's conference call and presentation. We thank you for joining you may now disconnect your lines.