Q3 2024 Packaging Corp of America Earnings Call
Yeah.
Speaker Change: Good morning, everyone. Thank you for joining packaging Corporation of America's third quarter 2024 earnings results Conference call.
Speaker Change: Your host will be Mark close there.
Speaker Change: Chairman and Chief Executive Officer of PCA.
Speaker Change: Upon conclusion of his narrative there will be a question and answer session.
Speaker Change: I would now like to turn the conference call over to Mr. Colson.
Speaker Change: Sir. Please proceed when you are ready.
Mark Colson: Thank you Jamie.
Mark Colson: Good morning, everyone and thank you for participating in packaging Corporation of America's third quarter 'twenty 'twenty four earnings release Conference call again, I'm, Mark Cola, Zhang Chairman and CEO of PCA and with me on the call. Today is Tom has further executive Vice President who runs our packaging business.
And Bob Monday, our Chief Financial Officer.
As usual I'll begin the call with an overview of our third quarter results and then I'll turn the call over to Tom and Bob Who'll provide further details.
Mark Colson: And then I'll wrap things up and we'd be glad to take questions later.
Yesterday, we reported third quarter net income of $238 million or $2.64 per share.
Excluding special items third quarter 2024, net income was $239 million or $2 65 per share compared to the third quarter of 2023 net income.
Mark Colson: Of $185 million or $2 <unk> five per share.
Mark Colson: Third quarter net sales were $2.2 billion in 2024.
Mark Colson: And $1.9 billion in 2023.
Mark Colson: Total company EBITDA for the third quarter, excluding special items was $461 million in 'twenty, 'twenty, four and $388 million in 2023.
Mark Colson: Details of special items for both the third quarter of 2024 and 2023 were included in the schedules that accompanied our earnings press release.
Mark Colson: Excluding special items, the 60 cents per share increase in third quarter 2024 earnings compared to the third quarter of 2023 was primarily driven by higher volume of 94 cents and prices and mix three cents.
Mark Colson: In the packaging segment higher volumes in the paper segment for three cents.
Mark Colson: Lower freight and logistics expenses of nine cents.
Mark Colson: Lower scheduled outage expenses for six cents and lower interest expense for five cents.
These items were partially offset by lower prices and mix in the paper segment for two cents.
Mark Colson: Higher operating and converting costs 51 cents and higher depreciation expense five cents and other expenses two cents.
The results were 20 cents above our third quarter guidance of $2 45 per share primarily due to higher volumes in our packaging and paper segments and higher prices and mix in the packaging segment.
Mark Colson: Looking at our packaging business EBITDA, excluding special items in the third quarter of 2024.
Mark Colson: $446 million with sales of $2 billion, resulting in a margin of 22.2% versus last year's EBITDA of $374 million.
Mark Colson: With sales of $1.8 billion, and a 21.3% margin.
Mark Colson: The operational benefits of our capital spending program and the continued great focus and execution by our sales customer service nil in corrugated products plant employees continued to deliver impressive results.
Mark Colson: Setting new all time quarterly records for containerboard production.
Total box shipments and shipments per day, while meeting service and quality needs of our customers would not have been possible without our long term well thought out strategic capital spending plan and the hard work and dedication of our employees.
Mark Colson: Even with record production as a result of the strong demand we were not able to meet our inventory target at the end of the quarter.
Mark Colson: With some adjustments we made to the Deridder mills scheduled outage plans for this year plus two less corrugated shipping days during the fourth quarter and with a lighter than average schedule in the first half 'twenty four 'twenty five we do hope to reach our target by the end of the year.
Speaker Change: I'll now turn it over to Tom Who'll provide further details on containerboard sales and the corrugated business.
Tom: Thanks Martin.
Tom: The corrugated products demand strengthened throughout the quarter and as Mark mentioned resulted in record breaking performance for our plants shipments per day were up 11.1% over last year's third quarter and total shipments with one additional shipping day were up 12, 9% versus the second quarter of 2024 ships.
That's per day were up five 8% and total shipments with one less shipping day were up 4.1% outside sales volume of containerboard was 45000 tons above last year's third quarter, and 7000 tons above the second quarter of 'twenty 'twenty four.
Tom: Prices and mix came in ahead of expectations as implementation of our previously announced price increases for containerboard and corrugated products was managed very well domestic containerboard and corrugated products prices and mix together were up 35 cents per share versus the second quarter of 'twenty, 'twenty, four and flat compared to the third quarter.
Tom: <unk> 20th twenty-three export containerboard prices were up three cents per share compared to the second quarter of 'twenty 'twenty four and the third quarter of 2023.
Tom: I'd like to mention that in addition to ensuring our customers quality and service needs were met during a record breaking quarter. Our employees did not get complacent their focus on continuous improvement regarding customer service as well as efficiency quality productivity and optimization improvements across our packaging segment is really.
Tom: Lists and drives our industry leading results they fully understand that there are always areas that can be improved upon even with record setting performance.
Mark Colson: Now I'll turn it back to Mark.
Mark: Thanks, Tom looking at our paper segment EBITDA, excluding special items in the third quarter was $43 million with sales of $159 million or 27.0% margin compared to the third quarter of 2023 EBITDA.
Mark: A $35 million and sales of $158 million or 22, 4% margin a previously announced price increases were implemented as planned with average prices and mix up 2% versus second quarter 2024 levels.
Mark: And down 2% versus the third quarter of 2023.
Mark: Volumes, which exceeded forecast levels had very good back to school shipments and strong printing and converting demand.
Mark: Volume was up 4% versus the third quarter of 2023 and was 5% above the second quarter of 2024 mill operations were managed very well with excellent machine efficiencies and material usage, especially with chemicals and energy and now I'll turn it over to Bob for more financial details.
Bob: Thanks Mark.
Bob: Cash provided by operations during the quarter totaled $327 million with free cash flow every $180 million.
Bob: The more significant cash payments during the quarter included capital expenditures of $147 million.
Bob: Common stock dividends totaled $112 million.
Bob: $77 million for federal and state income tax payments and $26 million for pension and other post employment benefit contributions.
Bob: We ended the quarter with $741 million of cash including marketable securities.
Bob: And our liquidity on September 30th was approximately $1 $2 billion.
Speaker Change: Lastly, our planned annual maintenance outage expense for this year has changed slightly due to the adjustments made to the Deridder mill outage that mark referred to earlier.
The third quarter outage impact was 17 cents per share or three suits and favorable to our previous guidance.
Speaker Change: And the new estimate for the fourth quarter is 29 cents per share or 4% favorable to our guidance.
Speaker Change: For the year is 87 cents per share.
Speaker Change: I'll now turn it back over to Martin.
Martin: Thanks, Bob looking ahead as we move from the third and into the fourth quarter, we expect demand in our packaging segment to remain strong with corrugated shipments per day, continuing to strengthen and slightly higher containerboard volume.
Martin: Whoever total shipments for the corrugated business will be impacted by two less shipping days and the recent hurricane damage the strawberry crops in Florida.
With current containerboard inventory below our target levels. We will also attempt to build some inventory prior to year end.
Martin: We expect continued realization from the previously announced price increases and higher export prices, although with a seasonally less rich mix compared to the third quarter.
Martin: In our paper segment shipments will be lower versus the seasonally stronger third quarter.
Well prices and mix should be fairly flat operating and converting costs are expected to increase driven by higher seasonal energy costs and chemical costs.
Martin: Scheduled outage costs are estimated to be 12 cents per share higher than the third quarter and depreciation expense should be slightly higher also considering these items, we expect fourth quarter earnings of $2 47 per share.
Speaker Change: 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. The statements were based on current estimates expectations and projections of the company and do involve inherent risks and uncertainties, including the direction of the economy and those identified as risk factors in our annual report on form 10.
Speaker Change: K and in subsequent subsequent quarterly reports on Form 10-Q filed.
Speaker Change: File with the S E C. Actual results could differ materially from those expressed in the forward looking statements.
Speaker Change: 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 our question and answer session to ask your questions.
Speaker Change: One.
Speaker Change: With all your questions you May press star and shoes.
Speaker Change: We will pause momentarily to assemble the roster.
Speaker Change: Yeah.
Speaker Change: First question please.
Speaker Change: Our first question today comes from George Staphos from Bank of America. Please go ahead with your question.
George Staphos: Hi, everyone. Good morning.
George Staphos: For taking the question and congratulations on the progress so far.
George Staphos: Gentlemen, I guess the first question I had you know standard.
George Staphos: Can you talk a bit about where bookings and billings are to start the fourth quarter with whatever adjustment you want to make on a per workday were actual.
And if you could shade or provide some color in terms of.
Now what end markets or product lines are seeing the most or least traction.
Speaker Change: Second question I had for you.
Speaker Change: You know and you talked about it last quarter.
Speaker Change: And certainly it didn't you know you had favorable results versus your guidance.
Speaker Change: Can you talk about how whatever growth you're getting incrementally in the brown market so to speak.
Speaker Change: Is impacting your overall mix.
Speaker Change: And you know sort of any implications for the outlook for earnings and EBITDA growth for the future.
Speaker Change: Yeah.
Speaker Change: Hey, George This is Tom I'll take that question first of all on a per day basis, our bookings and billings are up just a little over 8%.
Speaker Change: Versus twenty-three. So are you know we continue to be in a very nice growth mode.
The end markets are involve a little bit about your question regarding growth and mix as well so let.
Speaker Change: Let me talk about the let me talk about the growth first.
Speaker Change: And and where and where we're seeing some end markets that are they're growing more than perhaps others and probably the biggest difference that we're seeing right. Now is that the E. Com area are across the board and of course I've mentioned many times that we have you know a a lot of e-commerce customers and that a lot of our customers got it.
Speaker Change: E Comm a number of years ago that segment continues to grow nicely and our you know that's that's evidenced by any anything you see out there data wise regarding you know a big box stores and some of this other stuff and so you know a lot of online shopping.
Speaker Change: And then on the other hand some of that are some of that graphics mix, you know, which is a P. O P related point of purchase displays and things like that those are pretty flat. So we've got you know one area growing quite nicely and another area. That's that's been pretty flat over the last few years.
And you know it's it's the same thing as we talked about in the past because of consumer spending and because of kind of where consumers are right now.
Speaker Change: We are the durables certainly haven't performed as well as the non durables are at.
Speaker Change: At least from our at least from our segments of business that we have so hopefully that gives you hopefully that gives you enough understanding of kind of where we are and what we're saying.
Speaker Change: Tom that's great I guess my last one I'll turn it over can you talk a little bit about what the crop damage might mean to you in terms of volume and <unk>.
Speaker Change: As you look out to next year do.
Do you need to ramp any investment.
Speaker Change: Whether it's working capital Capex to keep the growth that you'd like to have.
Speaker Change: You know looking out to 'twenty five given how tough the comparisons our thanks and good luck.
Speaker Change: Yeah, George that's a great question number one is it's a little unknown how severe the crop damage is going to be it's a spotty all over the state of Florida and of course, that's a that's a very big market for us. So we anticipate that what would traditionally be a full crop that would come in during the fourth.
Speaker Change: Water is now going to come in at the end of the fourth quarter and bleeding into the first quarter of next year.
Speaker Change: Because they're going to have to do a lot of replanting all those plants were quite young so that's what caused a lot of the damage.
And relative to cap or Capex and investments.
Speaker Change: As I've said, many many times you know, we we invest where the customers need us to invest and we're continuing to do that.
Speaker Change: One of the commentary I said about our employees and our and what a great job all of our associates have done.
Speaker Change: Is because we've had a lot of capital projects going on.
Speaker Change: While we've had this surge in demand and you know they've done just an unbelievably great job of making sure that we serviced our customers the way they need to be serviced with the quality products that they demand.
Speaker Change: And keeping in line with the with that commentary George you know as we said on the July call. You know this year. We will have worked on at least 60 major projects within our box plant system with with new Corrugator is major corrugated rebuilds, new converting lines as we announced in July we're heavily engaged at this.
Speaker Change: Building out the new new operations in Glendale, Arizona that will start up early next year and then I'm just going forward. We will talk about this more in the January call, but we've got plans on the books to to build out a couple of new big plants over the next two and a half three years also but we will continue the pace of reinvestment in these plants.
Speaker Change: This has been the.
Speaker Change: Is driven the capability to be where we are today.
Speaker Change: We said this on the call I believe in July. If you include this year's capital spending over the last five years. We would have spent $2 billion just on the box plant system Recapitalizing and building out some new plants and in many cases in almost all cases, we view the quadruple their or increased even it'd been over that the capability of.
Speaker Change: These are these box plants to produce a quality packaging for the customers and so we're not going to let up on the on that momentum that we have that's that's what gives us the ability to grow and take care of our customers.
Speaker Change: Understood. Thanks, so much.
Speaker Change: Next question please.
This question comes from Michael Hoffman from true. Please go ahead with your question.
Michael Hoffman: Oh, Thanks, Mark Tom Bob for taking my questions and congrats on a really good quarter.
Speaker Change: Thanks, I appreciate it Mike.
Michael Hoffman: Your volumes continue to outpace the industry and your nearest peers and how should we think about your volumes and when growth should normalize that's something that should occur.
Michael Hoffman: <unk> early next year second half of next year or could this even play out longer given the ongoing self help and restructuring is that your larger peers are going through.
Michael Hoffman: Mike You know, we we plan to you know take advantage of every opportunity we get that where we can profitably grow our revenue.
Michael Hoffman: And I think I think right now we're able to perform in a way that is very desirable for a lot of our customers are certainly most of our growth comes within our existing customers.
And and then you know we get opportunities outside of that as well, but you know they they happen to be looking for something we're able to deliver and I think those opportunities will remain now there's no question that starting next year, the comps are going to get tougher.
Michael Hoffman: You know we made a big we've made a big jump this year and but you know we are you know are you know our key objective. This is profitable revenue growth and we continue you know, we'll we'll continue to go down that path and I'm very confident of it, especially given the fact that as I've mentioned many times our capital expenditures are not a build.
Michael Hoffman: It and hope they will come it's it's we do it based on what our customers have asked us to do and you know that that provides us a lot of opportunities and and efficiencies as well.
Speaker Change: You know, Mike what Tom just said about the comps don't forget last year's fourth quarter. I think we were up probably five 5% to 6% last year's fourth quarter over the prior year's fourth quarter. So the 8%. He's calling up is is over a very big comp. So again, but if you also look back over the last 20 years.
Speaker Change: PCA has a track record of significantly outgrowing our customers on the packaging side year over year decade, after decade, and we we intend on continuing that trend.
Michael Hoffman: Got you that's great color. It sounds like you know Mark based on what you just said that you could probably outgrow your costs are going up.
Speaker Change: Peers.
Speaker Change: Good faster rate than you had historically given some of the moving pieces that are happening in the industry.
Mark Colson: You know I don't want it I, Mike I don't want to you know really compare ourselves to our competitors because we just we just basically stay focused on what our opportunities are and we stay focused on our customers and what their demands are and that kind of move that cut that takes us forward.
Michael Hoffman: Gotcha and then one quick follow up just Mark you said you put out a teaser.
Speaker Change: You mentioned, some new plant you're looking to build out over the next few years and you mentioned maybe cousin January anything you could share with US now on those new plants particular regions and markets anything you can share regarding what you want to accomplish with those new small box plants over the next two to three years.
Michael Hoffman: No.
Speaker Change: Well, we'll give you more details in January.
Speaker Change: Sounds great. Thanks, a lot guys.
Speaker Change: Thanks next question please.
Our next question comes from Gabe <unk> from Wells Fargo. Please go ahead with your question.
Speaker Change: Mark Tom Bob Good morning, and congrats on the good quarter.
Gabe: Okay. Thank you I wanted to dig in a little bit on a comment you made about a lighter maintenance schedule and each 125 mm Mary.
Gabe: Marrying that up with again comments about having a little bit of difficulty seemingly.
Gabe: Rebuild inventories and of course, that's a function of the.
Gabe: Performance.
Gabe: But it seems like to us in the outside World I mean, maybe that's a little bit of marginal contribution.
Gabe: On the production side.
Gabe: I don't know 50000 tons or something like that.
Two two part question. One is can you give us a sense for maybe the swing.
Gabe: H one versus H two on the maintenance outage and second Mark you guys have been really diligent about investing in the system in the business.
Gabe: You've talked about before.
Gabe: Being okay being over integrated.
Gabe: But you are seemingly kind of hidden Red line right now in terms of your ability on the on the court or containerboard side excuse me.
Gabe: How long could you buy more a paper in the open market or maybe some thoughts there in terms of what the plant can be.
Speaker Change: Gabe I think you have 10 questions in that one question.
Speaker Change: I'm first of all as far as far as far as as far as the outage schedule where are we calling it later them for next year don't forget we had that massive annual outage at Jackson to finish up the last phase of rebuild work at Jackson that was about 40, some odd days worth of effort in to and then just the learning curve.
Speaker Change: Two the springtime to get the machine up where we wanted it to be but.
Speaker Change: For the 2025 year, we won't have those types of outages at any of our mills were quite frankly, we're planning on just the normal routine.
Speaker Change: The annual outages, we take take the mills down clean inspect a routine boiler worked urban work machine.
Speaker Change: Efforts, so it ought to be a significantly lighter year in that regard without calling out a lot of details, but that's what we were implying in that as far as the.
Speaker Change: The containerboard supply into the market never underestimate us we have long term plans on how we will take care of our customers that it's a discussion that we have inter.
Speaker Change: Internally everyday so I'm confident that for the next few years, we're going to be in a really great place to to grow and take care of our customers needs. That's all I want to say about that.
Speaker Change: Okay.
Speaker Change: And then I guess, maybe Bob one on the you didn't mention any sort of share repurchase 850.
Speaker Change: $1 million I think on the balance sheet, but just good leverage position what opportunities do you see for the capital on a go forward basis.
Speaker Change: Well Mark may be the better one to answer that gave but as you know we were we always evaluate our you know how we allocate capital looking for the biggest return for the shareholders. When it makes sense for you know our strategic.
Speaker Change: Capital spending plans and that's again and be as opportunistic as we can without with share repurchases. So.
Speaker Change: Mark unless you have something different that's I think that's how we'll continue yeah. I think if you look at our capital spend you know this year, we called out I think the original number was $470 million and then when we we identified the opportunity down in the Phoenix area, which specifically Glendale that number went up plus we are we.
Speaker Change: We saw some other opportunities within some of the plans for new corrugator in some converting lines. So so the call out for the rest of the year I believe is up closer to $700 million right now, it's a 680, some odd million dollars as we sit here but.
These are going into high return.
Speaker Change: Very very valuable accretive opportunities within within the system and we've got a runway and a portfolio of those opportunities we're going to continue to take advantage of and quite frankly that that's the best use of our excess cash right now.
Speaker Change: And I do believe our investors.
Speaker Change: Tend to agree and they do support the.
Speaker Change: The way, we handle our cash.
Speaker Change: I would agree with that thank you guys.
Speaker Change: Next question.
Speaker Change: Your next question comes from Mark Weintraub from Seaport Research Partners. Please go ahead with your question.
Mark Weintraub: Thank you and congrats on another great quarter.
Mark Weintraub: So just maybe a little bit following up along the lines of.
Mark Weintraub: Taner board production et cetera, and opportunities to increase well where were you in terms of operates in the third quarter, where you're pretty full out was well lula up and running full in the third quarter.
Speaker Change: Yes, So you know all of the mills.
We're up and running last year, if you'll recall, we brought well Lula backup and then in January I think we finished the year.
Speaker Change: Hum.
Speaker Change: The startup of Hulu with the complete startup of the mill so it.
Speaker Change: Essentially we've run with Lula fallout this year.
Speaker Change: And then again don't forget, though we have the big Big shutdown at Jackson. So that was that was a big disruption.
Speaker Change: And so.
Speaker Change: But.
Speaker Change: As you could expect we never sit still we're always working on optimization opportunities at all of the mills and so these will continue but I think the good news is that we continue to run in a very effective very efficient manner of taking advantage of our assets.
Speaker Change: And then planning out into the future years, where tons, where I should say containerboard will come from to supply the customers needs on the.
Speaker Change: Corrugated side and I'm very confident we've got a good plan.
Speaker Change: Next few years.
Speaker Change: Understood and are there are there potentially significant internal Jackson type opportunities or is it more at least internally are going to be.
Speaker Change: You know a smaller projects that you know across the board perhaps.
Speaker Change: It's a combination we've got a few projects identified right now quite frankly, we've got you know some paper machines in the system that time goes by pretty quickly.
Speaker Change: <unk> mill received a lion's share of capital spending in the 19 nineties and the early two thousands.
Speaker Change: 25 years ago, and so we've got opportunities to look at Counce number one machine as an example, and really do some things to that machine to get some good incremental capability out of that Val.
Speaker Change: Valdosta is another example of a machine that has a incremental opportunity and then depending on how much capital you want to spend in the future years are in in terms of adding.
Speaker Change: Adding adding another paper machine, if we had to in the future years, but right now for the next few years, we're in a very good place on on how we take care of the customers.
It would be containerboard supply right.
Speaker Change: Alright, and just because it deserves a little attention that paper segment did phenomenally in the quarter the EBITDA margins.
Speaker Change: I guess, it's now just the I falls and that's always been.
A great facility for you how much of it is it that you know.
Speaker Change: Everything that's now gone through I falls versus what else might have been going on that you basically at least based on my numbers were as strong as you've ever been margin wise and in the paper segment.
Speaker Change: I believe we had one quarter a couple of years ago that was Oh at the same 27% level.
But no you know we have I falls, it's a it's the one mill. It's you know it's producing you know close to the 500000 tons a year of uncoated freesheet production.
Speaker Change: Blend of the converting grades and probably 75% of that is cut size for copying machine type Oh paper, but that mill is hitting on all eight cylinders and it's in a great place and well capitalized.
Speaker Change: Great management, great employees so.
Speaker Change: You know, we we rationalize that paper business as we were converting the Boise assets and we're in a good place with the market and and we'll just continue to take advantage of that.
Speaker Change: I appreciate your one last real quick one I think you mentioned 87 cents from maintenance outage. This year, if I heard you right, you're saying that might be lower next year, what would normally be for annual maintenance outages.
Speaker Change: Yeah.
Yeah, Mark its normal.
Mark: Normal I don't know if it's you know this year, obviously with Jackson included in that it was you know higher higher than normal, but yeah, we'd anticipate and mark so it sort of touched on it earlier with just incremental volume next year. If you just look at it from a from a change in our outage scheduled this year to next year.
Mark: Now at a high level, there's probably close to 100000 tons of.
Mark: Additional production next year. So you know using that as sort of a way to get at you know what's normal.
Mark: Take that off of the 87 cents and that's probably a good ballpark.
Speaker Change: Okay Super I appreciate it thank you.
Speaker Change: Thank you next question please.
Our next question comes from <unk> from Jefferies. Please go ahead with your question.
Speaker Change: Hey, guys congrats on another strong quarter.
Speaker Change: Youre, certainly lapping tougher year over year comps, but operating costs stepped up noticeably any color Bob I guess, perhaps what you're seeing where it's a little bit more elevated and are you starting to see that level off and then I think you guys called out how you know Jackson and maybe some of the inefficiencies some shut downs.
Speaker Change: It was a drag this year won't kind of look at the 2025 could this flip it would be a good guy.
Speaker Change: Well I think your first question feel it you know to answer that you know we said you know on the last the last quarter's call and it played out that way that you know sequentially cost we didn't see a lot of increase you know, obviously sort of somewhat stable and slightly higher but obviously at a very high.
Speaker Change: High level with all of the inflation, that's been going on for several quarters.
Speaker Change: You know if you're if you're referring to year over year, you have to keep in mind that the third quarter of last year, we did not run well.
Speaker Change: Lula and and we did this year. So this year, we brought in you know.
Speaker Change: Our highest cost direct variable mill, along with a lot of indirect and things that you don't incur when you shut down and you bring that on and you know, there's there's probably close to $30 million of cost just for that alone third quarter this year versus last.
Speaker Change: Okay, and when you think about 2025, if all that kind of level set and as you kind of pointed out you are starting to see that level off could that operating cost would be a good guy next year.
Speaker Change: I mean, we will have to see obviously you know keep in mind you know the first quarter was always you'll see a big jump because you know as.
Speaker Change: As we talk about every year with the sort of the reload of a lot of the fringes and benefits on the salary side of things you have you know increases that go into effect.
Speaker Change: In that first quarter, you know so you'll expect a jump for that reason alone fourth to first but right. Now obviously, we don't get too far ahead of ourselves regarding guidance, but hopefully if.
Speaker Change: We don't see a lot of costs going down, but hopefully yet they have moderated for a while for the next for the next few quarters and that would that would bode well for us next year.
And just some of the big inputs as she has come down a little bit Archie has been a little more favorable anything else to call out in terms of cost that youre seeing them go to that trend wise.
Speaker Change: No like I said other than the two you mentioned things.
Speaker Change: Things are seem to be fairly somewhat stable right now feel oh, that's great.
Speaker Change: And when we think about your <unk> price mix as you kind of pointed out was.
Speaker Change: Better than we expected I think a little better than you anticipated as well was that more mix or is that more of a box price realization come through perhaps a little quicker than you expected in the fourth quarter. You know per your guidance are you pretty much have all of the box price increases fully implemented by now.
Speaker Change: Yeah.
Speaker Change: Phil This is Tom on relative to the box price increase you know I'm going to remind everybody here because there was some discussion about this earlier are you know we have a very disciplined approach to our box price increase and we'd do it by customer by item and we track every single one of them and make sure that they get implemented properly.
Speaker Change: And and the a the timing of that Hasnt changed its the same timing we've always gone through we will have the lion's share of it through the third quarter, we will have some tracking into the fourth quarter and actually you know a couple of contracts that are the trigger annually. So you know we'll have a we'll have it.
Speaker Change: You know pretty much implemented are certainly by the end of the fourth quarter.
Speaker Change: And you know.
Speaker Change: It's that that certainly has had an impact and and I think our mix are you know if if we've done a very very good job of as this mix has changed a little bit figuring out how to produce that very effectively and efficiently and that's helped us as well.
Speaker Change: These are annual contracts triggering that trigger in three keywords that triggers in the fourth quarter I just want to make sure I understand that comment.
Speaker Change: Are the couple of annual ones or are on a calendar year. So they they'll they'll trigger they'll trigger at January 25, Oh gotcha. Okay. Thank you I appreciate all the color.
Speaker Change: Yeah. Thank you next question.
Speaker Change: Our next question comes from Anthony Pettinari from Citigroup. Please go ahead with your question.
Speaker Change: Hi, good morning.
Speaker Change: Good morning.
Anthony Pettinari: Tom you talked about growth that maybe some business wins in E Commerce and I'm curious you know historically PCA, it's been really Virgin weighted.
Anthony Pettinari: The ability to swing into recycled.
Anthony Pettinari: This new business like a bit more you know recycled base than your existing business.
Anthony Pettinari: If you think about adding maybe some incremental.
Anthony Pettinari: Hans or Debottlenecking over the next few years do you think about the kind of Virgin versus recycled mix, maybe differently than you would have 510 years ago or just kind of wondering if you can comment on that and maybe just that industry trend in the U S whether that.
Anthony Pettinari: You know the kind of mix in the lightweight recycled has really taken hold or maybe it's overhyped or how you're positioned there.
Anthony Pettinari: Anthony We really you know we we look at whatever the performance is that any customer needs and we have done. We you know as we've talked about in the past we've done some significant things in the mills to put us in a much better position to be able to oh run, even lightweights and things like that and and.
Anthony Pettinari: That's been that's been important to US now we don't take that directly to the any particular market or anything like that we just we just are able to now react very well to whatever whatever the customer needs and whatever their demands are and we're able to do it on a performance basis that are that is most important and that's that.
Anthony Pettinari: And that really has always set us apart from the recycled industry are the 100% recycled boards.
You know and and I think is gives us somewhat of a competitive advantage, but but again, it's not it's not a we're not purposeful about taken a particular grade or anything like that to the market.
Anthony Pettinari: We actually work the other way and do whatever the customer needs and meet those and meet those needs.
Speaker Change: Okay. That's helpful and that makes a lot of sense.
On inventories.
Speaker Change: You talked about you know your plan to build inventory in <unk> ahead of the October Deruiter outage, but you talked about inventories kind of still below target levels I just want to make sure I understand like is that really driven just by stronger than expected demand were there any other.
Speaker Change: Operational issues technical issues that.
Speaker Change: Led to that kind of shortfall relative to maybe earlier expectations on inventories.
Speaker Change: Yeah, I mean, it was it was driven by demand we did not expect to see the kind of growth. This year that we are experienced and we've been talking about building inventory all year and we've not yet succeeded in coming anywhere near close to where we should be and so in some ways, though it's not a bad place to be.
Speaker Change: With lower inventories it keeps everybody on their toes and it's that's not a bad place to be everybody knows how how critical every minute of machine production as to the system. So everybody's fully.
Speaker Change: Really engaged.
Speaker Change: Okay. That's very helpful I'll turn it over.
Thank you any other questions. Please.
Speaker Change: At this time once again, if he would like to ask a question. Please press star and then one to withdraw your question you May press Star and two.
Speaker Change: And our next question comes from Charlie Muir Sands from BNP Paribas. Please go ahead with your question.
Speaker Change: Hi, Good morning, Thank you very much for taking my questions. So I just got one remaining actually.
So a little bit on it earlier, but just in terms of the strength of volumes.
Speaker Change: Sequentially, and particularly core strong quarter could.
Speaker Change: Could you share any insight as to whether or not they seem particularly coming from existing clients existing business. So.
Speaker Change: Existing clients, new business or indeed, new new clients I. Appreciate we haven't got the industry data yet oil pays haven't reported either but just want to get some color around.
Speaker Change:
Speaker Change: That incremental growth is.
Speaker Change: He's coming from do you think.
Speaker Change: Charlie Ah I will tell you that number one is it comes from our existing customers and growing within our existing customers. That's our primary target, but we have we have been fortunate enough to add other clients as well.
Speaker Change: And you know that's that's played played very important because I think that our reputation we have in the marketplace is such that our customers really do recognize the value you bring when you produce a quality product and you actually deliberate when you say youre going to be there.
Speaker Change: Okay. Thank you.
Speaker Change: Thank you any other questions. Please.
Speaker Change: And our final question today comes from nine thoughts from Bloomberg. Please go ahead with your question.
Speaker Change: Good morning, guys can you maybe elaborate a little bit more about the higher operating costs and converting costs. I think you had mentioned a majority of that may have come from more lula, but that may have really attributed to maybe two thirds of that just curious to see what else was hanging out there.
Yeah Ryan.
Speaker Change: Obviously, the other pretty much is high OCC cost versus last year. That's you know that's a that's a large number.
Speaker Change: And then labor and benefits.
Speaker Change: Would be another component and those things that don't get talked about a lot.
Speaker Change:
Speaker Change: Part of them.
Speaker Change: Building rentals professional fees, you know all the outside outside service costs.
Speaker Change: They incur higher costs as well and they pass those on to US and you know on a lot of fronts insurance taxes.
Speaker Change: A lot of those types of things or that would be the other component.
Speaker Change: Got it and I guess lastly seems like a record quarter for containerboard production, almost one 3 million tons.
Speaker Change: How much more do you have available per quarter kind of theoretically.
Speaker Change: We won't get into that we just just suffice it to say that we've got plenty of capability to take care of our customers for the next few years.
Speaker Change: Excellent. Thank you very much.
Speaker Change: Thank you.
Speaker Change: And then the other follow up.
Speaker Change: We do have a follow up question from George Staphos from Bank of America. Please go ahead with your follow up.
George Staphos: Hi, guys a quick one thanks for letting me sneak in to the extent that you can comment if we think about the next two years and you had to stack rank, where you do expect to be able to get the paper to serve the growth.
Speaker Change: And we think about three or four categories.
Speaker Change: Existing optimization and productivity across your mills like you said with counts and Valdosta.
Speaker Change: Conversions or outside purchases, how would you stack rank those in terms of how you will supply the paper, thanks, guys and good luck in the quarter.
Speaker Change: For the next year it will be just optimizing what we currently have and then over the next few years, it's doing some some bigger projects within our system and so again, we've got a good runway for the next few years.
Speaker Change: We've already thought out here.
Speaker Change: Thank you Mark.
Speaker Change: Okay with that I believe are there.
Speaker Change: If there are any more questions, we've got time, but Jamie if if.
Speaker Change: Body else out there.
Speaker Change: Mr calls and I see there are no more questions. At this time do you have closing comments.
Speaker Change: Yep.
Speaker Change: Thank you for joining us today I really appreciate everybody's time and look forward to talking with you at the end of January when we review the full year 2024 and in the fourth quarter.
Speaker Change: Have a good rest of the day and a great holiday season. Thank you.
Speaker Change: Ladies and gentlemen, with that we'll conclude today's conference call and presentation, where do you. Thank you for joining you may now disconnect your lines.
Speaker Change: Yeah.