Q4 2024 Packaging Corp of America Earnings Call
Good morning, everyone. Thank you for joining packaging Corporation of America's fourth quarter and full year 2024 earnings results Conference call.
Your host for today will be Mark <unk>, Chairman and Chief Executive Officer of PCA.
The conclusion of his narrative there will be a question and answer session.
Please also note today's event is being recorded.
This time I'd like to turn the conference call over to Mr. Costain. Please proceed when you're ready.
Thanks for the introduction, Jamie and good morning, everyone and thank you for participating in packaging Corporation of America's fourth quarter and full year 2024 earnings release Conference call again, I'm Mark holds an chairman and CEO of PCA and with me on the call. Today is Tom has further executive Vice President who runs the packaging business and Bob Monday are.
<unk> financial officer.
As usual I'll begin the call with an overview of the fourth quarter and the full year results and then I'll be turning the call over to Tom and Bob who will provide further details and then I'll wrap things up and we'd be glad to take questions.
Yesterday, we reported fourth quarter 2024, net income of $221 million or $2 45 per share excluding.
Special items fourth quarter 2024, net income was $222 million or $2 47 per share compared to the fourth quarter of 2023, net income of $192 million or $2 13 per share net.
Net sales were a fourth quarter record $2 1 billion in 2024, and $1 9 billion in 2023 total company EBITDA for the fourth quarter, excluding special items was $439 million in 2024 and $394 million in 2023 <unk>.
<unk> special items, we also reported full year 2024 earnings of $814 million or $9 <unk> per share compared to 2020 Three's earnings of $784 million.
Or $8 70 per share net sales were $8 4 billion in 2024, and seven $8 billion in 2023 <unk>.
Excluding special items total company EBITDA in 2024 was $1.6 billion in both 2024 and 2023.
Details of all the special items for the years 2024, and 2023 were included in the schedules that accompany the earnings press release.
Excluding special items, the <unk> 34 per share increase in fourth quarter earnings for 2024 compared to the fourth quarter of 2023 was driven by higher prices and mix 52 cents.
In volume 40 in the packaging segment.
Higher prices and mix two cents and volumes two cents in the paper segment.
Lower freight and logistics expenses.
Benefited our six cents.
These items were partially offset by higher operating costs of 48 cents as inflation remains a significant issue across most of our cost structure.
In addition, scheduled maintenance outage expenses were higher by <unk> <unk>.
Depreciation expense was also up <unk> <unk> and other expenses were higher by <unk> <unk>.
For the quarter were equal to our fourth quarter guidance.
Looking at our packaging business EBITDA, excluding special items in the fourth quarter of 2024, a $426 million with fourth quarter record sales of almost $2 billion.
Relative to the margin of 22% versus last year's EBITDA of $385 million and sales of $1 $8 billion.
And also a 22% margin.
For the full year 2020 for packaging segment EBITDA, excluding special items was $1 $6 billion with sales of $7.7 billion or a 21% margin compared to the full year 2023, EBITDA of $1 6 billion with sales up $7 $1 billion or.
22% margin.
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 continues to deliver impressive results, while helping to minimize the inflationary impact across most of our cost structure.
As we've seen throughout the year demand in our packaging segment remained very strong during the quarter, our corrugated products plants delivered record fourth quarter total shipments and an all time record shipments per day. The plants also set new annual records for total shipments and shipments per day.
Excellent operations throughout our mill containerboard system set new quarterly and annual production records as well that's allowed us to meet our customer service and quality demand needs in a timely manner as well as build some very much needed inventory ahead of this year's annual mill outage schedule that will take place the first half of 2012.
Five.
I will turn it over to Tom will provide further details on the containerboard sales and corrugated business.
Tom Has: Thank you Mark.
Tom Has: As Mark mentioned, continuing strong demand during the fourth quarter resulted in record breaking performance for our plants and mills total shipments and shipments per day were up 9.1% over last year's fourth quarter versus the previous record breaking third quarter of 2024 shipments per day were up three 2%.
Tom Has: Outside sales volume of containerboard was 9000 tons above last year's fourth quarter and down 18000 tons versus the third quarter of 2024, as we emphasized hitting our year end inventory targets.
Tom Has: For the full year annual corrugated shipment records were set as well both in total and per day up 10.5% and 10.1% respectively with one more shipping day compared to 2023.
Tom Has: Domestic containerboard and corrugated products prices and mix together were up 46 cents per share versus the fourth quarter of 2023.
Tom Has: Fourth quarter prices and mix, which were impacted by a less rich customer and product mix compared to the third quarter were up five cents per share versus the previous quarter export containerboard prices were up six cents per share compared to the fourth quarter of 2023 and flat versus the third quarter of 2024.
Tom Has: As we've indicated we have continued to see very strong demand and are continuing to experience inflation across most of our cost base. Beginning January 1st of 2025, we began invoicing a $70 per ton increase for linerboard and $90 per ton increase for medium. According to a recent price announcements.
Tom Has: These prices had been accepted by our customers and for our market containerboard purchases, we are paying higher prices to containerboard suppliers. They began invoicing us according to their recent announcements.
Tom Has: We were very surprised when as you're probably aware a couple of weeks ago. The risky pulp and paper week publication did not recognize any increase in the industry's benchmark prices breather linerboard or medium <unk>.
Tom Has: Industry sources, and the pulp and paper week publication itself have previously reported that at least 12 or around 90% of the top containerboard producers have issued January price increase announcements that.
Tom Has: The publication, even noted that certain box makers have postponed purchases of linerboard. This mobs to avoid the price increase.
Tom Has: Yet the publication left the reported prices unchanged.
Tom Has: As the industry's open market has shrunk over the years, we believe that the risky publication is gathering information from a very small sample of the containerboard market and using that to opine on market conditions for the entire industry.
Tom Has: Additionally, the publication often references comments regarding box prices when the relevant product is containerboard as you know boxes are highly customized customer needs and have different pricing attributes.
Tom Has: This continues to be a source of frustration not only for us, but for our customers who want predictability in their prices as mentioned previously we have been moving off of indexing our prices to the Ritchie publication as quickly as contracts allow however, this will take some time to complete I am sure you will have some questions for us on this topic.
Tom Has: We'll be happy to discuss them with you shortly I'll turn it back to Mark.
Tom Has: Tom.
Tom Has: Looking at the paper segment EBITDA, excluding special items in the fourth quarter was $39 million with sales of $152 million or 26% margin compared to the fourth quarter of.
Tom Has: 2020, threes EBITDA of $35 million and sales of $144 million or a 24% margin for.
Tom Has: For the full year 2024 paper segment EBITDA, excluding special items was $154 million with sales of $625 million or 25% margin compared to the full year 2023, EBITDA of $151 million with sales of $595 million or <unk>.
Tom Has: 25% margin.
Tom Has: Prices and mix were up 2% from last year's fourth quarter and up 1% from the third quarter of 2024, while volume was 5% above last year and down 5% versus the seasonally stronger third quarter of 2024.
Tom Has: Additionally, during the quarter, we notified customers of a $60 per ton price increase effective with shipments beginning January 13th.
Speaker Change: We're all office papers printing papers and converting papers.
Speaker Change: The management team and all employees of the paper business had done a tremendous job of optimizing our inventory and product.
Speaker Change: And remain highly focused on efficient and cost effective operations in order to deliver outstanding results throughout the year last year I'll now turn it over to Bob.
Bob Monday: Thanks, Mark cash provided by operations during the quarter totaled $325 million and free cash flow was $124 million.
Bob Monday: The primary payments of cash during the quarter included capital expenditures of $201 million does.
Bob Monday: Dividend payments of $112 million cash tax payments of $82 million and net interest payments of $37 million.
For the full year 2020 for cash from operations was $1 $2 billion.
Bob Monday: With capital spending of 670 million in free cash flow of $521 million.
Bob Monday: Our year end cash balance, including marketable securities was $852 million with liquidity of $1.2 billion.
Bob Monday: Our final recurring effective tax rate for 2024 was 24.4%.
Bob Monday: Regarding full year estimates of certain key items for the upcoming year.
Bob Monday: We estimate dividend payments of $450 million.
Bob Monday: Total capital expenditures to be in the range of $840 million to $870 million.
Bob Monday: And DD&A is expected to be approximately $565 million.
Bob Monday: Our full year interest expense in 2025 is expected to be around $56 million and net cash interest payments should be around $65 million.
Bob Monday: The estimate for a 2025 book effective tax rate is 25%.
Bob Monday: Compared to 2020 for the planned annual outages in 2025 include all of our larger mills with a higher number of outage days.
Bob Monday: Including lost volume direct costs and amortized repair costs. We currently expect the outages to total $1 18 per share.
Bob Monday: The current estimated impact by quarter in 2025 is 23 per share in the first quarter.
Bob Monday: 32, <unk> in the second 18 cents in the third quarter and 45 per share in the fourth quarter.
Bob Monday: Now I'll turn it back over to Mark Thanks, Bob.
Mark Holds: The hard work of our employees along with the strong relationships between us and our customers and suppliers delivered outstanding results for PCA for 2024 and.
Mark Holds: In our packaging segment, New annual company records for shipments and production were achieved in our corrugated products plants and mills, we successfully completed the number three machine conversion to containerboard at the Jackson mill.
Mark Holds: And many other key initiatives throughout the system. We also completed numerous high return inefficiency improvement projects in our corrugated products plants that will allow us to better optimize our entire packaging business for the future and deliver profitable growth and mix enhancement opportunities for our customers and shareholders and we still.
Mark Holds: We have many key strategic capital spending opportunities in progress or ahead of us in 2025.
Mark Holds: 2024 also saw our paper business matched the record margins from 2023, reflecting the capabilities of our employees to optimize our product mix.
Mark Holds: Inventory distribution channels and overhead structure, along with running very cost effective and very efficient manufacturing operations.
Mark Holds: We ended the year with $1 $2 billion of liquidity and a strong balance sheet, which maintained the financial flexibility to react quickly to most situations or opportunities in the future.
Mark Holds: We remain committed to a balanced approach towards capital allocation in order to profitably grow our company and maximize returns to our shareholders, while still adhering to our conservative balance sheet views as we've done in the past I'm very proud of our employees. These accomplishments and the very strong partnerships, we've built with our customers.
Mark Holds: Suppliers over many years.
Mark Holds: Looking ahead as we move from the fourth and into the first quarter in our packaging segment, although seasonally slower we expect volume in our corrugated products plants to set new first quarter records for total shipments and shipments per day contain.
Mark Holds: Containerboard volume will be lower with two less operating days and scheduled maintenance outages at the Counce, Tennessee mill in Valdosta, Georgia Mills.
Mark Holds: Domestic prices will be higher with an improved product mix together with our previously announced price increases ex.
Mark Holds: Export prices.
Mark Holds: Excuse me export prices are assumed to be stable and.
Mark Holds: In our paper segment, we forecast slightly lower volume with two less mill operating days and prices and mix to be fairly flat with the exception of recycled fiber prices, we expect price inflation across most of the direct indirect and fixed operating and converting costs along with a higher cost.
Mark Holds: Mix of mill operations in.
Mark Holds: In addition, wood energy and chemical costs will also increase due to the unusually cold seasonal weather negatively impacting usages and yields for these items.
Mark Holds: Labor and benefits costs will be higher due to the timing related items that occur at the beginning of a new year for annual increases the result of payroll taxes and share based compensation expenses first quarter rail rate increases at three of our mills will impact freight and logistics expenses.
Mark Holds: And we expect higher depreciation expense lastly, scheduled outage expenses should be slightly lower and we assume a lower corporate tax rate considering these items, we expect the first quarter earnings.
Mark Holds: Our $2 21 per share.
Mark Holds: 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.
Mark Holds: The statements were based on current estimates expectations and projections of the company and involve inherent risks and uncertainties, including the direction of the economy and those identified as risk factors in the annual report on Form 10-K, and subsequent quarterly reports on Form 10-Q filed with the SEC.
Mark Holds: Actual results could differ materially from those expressed in the forward looking statements.
Mark Holds: And with that Jamie I'd like to go ahead and open up the call for questions. Please.
Mark Holds: And ladies and gentlemen at this time, we'll begin our question and answer session.
Mark Holds: To ask a question you May press Star and then one using a touchtone telephone withdraw your question you May press star and two.
Mark Holds: If you are using a speakerphone please pick up the handset prior to pressing the key to ensure the best sound quality.
Mark Holds: Once again that is star and then one to join the question queue.
Speaker Change: Our first question today comes from George Staphos from Bank of America Securities. Please go ahead with your question.
Speaker Change: Hi, Thanks, very much good morning, everybody. Thanks for the details.
George Staphos: Mark I guess first thing I wanted to ask of you Tom and Bob can you talk a little bit about bookings and billings to start the quarter, what youre seeing and given how busy P. C has been over the last couple of quarters is that influx of volume, creating any sort of inefficiencies beyond normal.
George Staphos: You know that you would call out in that we should be at least considering in terms of our modeling for you on a going forward basis, and I had a couple of follow ons.
Tom Has: Hey, George it's Tom.
Tom Has: Bookings and billings are up 8% so far in January. So you know we're off to a very good start and we indicated that in our in our opening statements as well.
Tom Has: So that's very good.
Tom Has: The volume increase I think if you take it coupled with the capital initiatives that we have yeah that has caused some some cost inefficiencies quite frankly, because we got a lot of those projects going on a lot of plants and you ship them a lot of business around but.
Tom Has: Again, our people have done just done a tremendous job handling that and taking care of our customers.
Speaker Change: Yeah, George interesting Bob go ahead.
George Staphos: George George for last year for 2024.
Speaker Change: On the converting side.
Speaker Change: We accomplished 12 major new equipment installations on the converting side. These are major major reconfigurations of converting lines and then.
Speaker Change: Within corrugated.
Speaker Change: <unk> had major rebuilds or new corrugator installations at 12 locations and we finished building up the new Salt Lake City plant and then.
Speaker Change: Got ready to build out the new Glendale operation, but we continue at this pace I mean, the prior year and then last year you know we're on that pace of run 60 major projects within the corrugated business. It will continue that this year. So along with all the benefit there is some some short term disruption that occurs but.
Speaker Change: The capability that it gives us is just.
Speaker Change: Incredible.
Speaker Change: We would not be doing what we're doing today, if we hadn't been keeping up this pace of spending over the last half dozen years. So it's the gift that keeps on giving.
Speaker Change: So anyway.
Speaker Change: Didn't call it out because it's what enabling the growth is what you is kind of your answer there right.
Speaker Change: Exactly yes.
Speaker Change: Yes.
Speaker Change: It's truly the growth engine.
Speaker Change: Now can you help us a little bit in terms of the sequential move.
Speaker Change: Move from <unk> to <unk> in terms of some of the cost factors and in particular I'm thinking about you know whether usage.
Speaker Change: Input costs, what that might be.
Speaker Change: Causing you and for that matter on the incentive comp.
Speaker Change: And then.
Speaker Change: Since you had teed it up on pricing.
Speaker Change: We're out with your price increases effective in January others are as well I know it gets a little bit sensitive because you can't talk about what others may or may not be doing a forward looking but.
Speaker Change: How do you square the circle, there and if you're raising an effective in January and the.
Speaker Change: The arbiters or saying it hasn't happened yet are you, giving your customers at all any price protection or time delay between when it's effective when you actually when you announce and when you make it effective so two questions there.
Bob Monday: Let's start with let's start with Bob.
Speaker Change: Hey, George just on some of the cost movements from <unk> to <unk>.
Speaker Change: If you if you look at the buckets of what's what's higher there is theres a higher mill.
Speaker Change: Higher cost of.
Speaker Change: Relative to the mill mix Theres just.
Speaker Change: That's a component and then there is the weather seasonal items that we typically have but this is sort of exacerbated by the severe cold that the country went through.
Speaker Change: During the month of January and then there are those timing items that we typically talk about relative to wage increases and tax fringe benefits and so forth. So if you say that you know our cost.
Speaker Change: Round numbers somewhere between 50, and 60 <unk> higher on all operating and converting costs.
Speaker Change: 65% of those are are these items that.
Speaker Change: That typically will flip back the other way.
Speaker Change: Not totally but I would say 70% of that.
Speaker Change: Amount is we'll flip back in the second and third quarters.
Speaker Change:
Speaker Change: So that's that's sort of how we.
Speaker Change: We bridged the fourth to the first and then what we expect how much of that we expect to turnaround in subsequent quarters.
Speaker Change: Okay.
Speaker Change: Hey, George This is Tom Let me, let me let me, let me say a bank failure and a little bit on the on the pricing side. So for starters, let's let's make the distinction here, we're talking about linerboard and medium. So we're talking about containerboard alright.
Speaker Change: And.
Speaker Change: In the containerboard segment, we raised the prices.
Speaker Change: We are billing at those prices our customers are paying debt, we'll be paying those invoices at those higher prices and we will be doing likewise on the outside purchases that we have as well. So some of that is comes from overseas because its a specialty grade that may or may not be made here in the United States or certainly that.
Speaker Change: The products that are made here in the United States that we are a net buyer of and.
Speaker Change: We were paying we're paying those invoices as we go so that that is in place and that is sad alright.
Speaker Change: Frustration as I mentioned in.
Speaker Change: In the verbiage that I gave you in your opening statements is related to.
Speaker Change: <unk>.
Speaker Change: Discussions around boxes and things like that now we've always said our box price increases are between us and our customers those arent publicly announced but we do have some and it's a it's a relatively sizable amount that are still tied to.
Speaker Change: What happens in risky than what's reported in risky and as I said, we're moving away from that as fast as we possibly can because I think in a lot of ways and I've been at this a long time and if you go back in time, there was a pretty large open market and today. It's a very very small open market. So I think theres becomes some confusion in terms of.
Speaker Change: How the reporting goes and what the interpretations are.
Speaker Change: And so we're finding this.
Speaker Change: This vehicle a little less useful.
Speaker Change: Going forward and therefore, we're we're moving away from it as fast as we can hopefully that hopefully that kind of wraps up your question a little bit.
Speaker Change: That's helpful I'll turn it over thank you guys.
Speaker Change: Thanks, George next question please.
Speaker Change: Our next question comes from Michael Hoffman from true. Please go ahead with your question.
Michael Hoffman: Yes, Thank you Mark Tom and Bob for taking my questions and congrats on a strong year.
Tom Has: Thanks, Mike.
George Staphos: I just wanted to follow up can you give us a sense of the operating rate you're currently at would it be fair to say you're running full out given the strong demand you have and if that's the case can you help us understand the timeframe over which you expect to add capacity at Counce and Valdosta. So you mentioned that I think if you use that in the last earnings call.
George Staphos: What do you think those projects will be operational and what incremental capacity do they add.
George Staphos: We've got the opportunity to add capacity as time goes on.
George Staphos: We've always said we have tremendous flexibility on how we provide containerboard tons into the system.
George Staphos: Obviously, we are we completed the big Jackson reconfiguration.
George Staphos: Nevertheless, we also have a lot of opportunity on how we optimize the seven mill system right now.
Regarding what you mentioned between Counce and Valdosta those projects. If we go forward with those would be the next couple of years timing and so again, that's something that we haven't.
George Staphos: Decided to execute we're studying all opportunities as we always do and we have tremendous flexibility on how we bring new tons into the system when they're needed and so that's the beauty of where we are the high integration and the continuation of our.
George Staphos: Our demand growth presents the high opportunity high return for these projects in our mills as we go forward. So we'll let you know when when the decisions get made.
Mark Holds: Got it I appreciate that Mark and if so how much can you just comment then.
Speaker Change: The system is right now in terms of operating rate and how much.
Speaker Change: How much ability of how much flex you have in the system right now to to meet what seems to be really growing demand.
Speaker Change: Yes.
Speaker Change: We are running I'm not going to say, we're running full out we're just we're running hard.
Speaker Change: Which is a good place to be we run best win when the when the pressures on but again, we've got room to optimize the system and the grade mix and also as we've always done we did this back over the years the.
Speaker Change: The ability to buy some open market tons within a region.
Speaker Change: We're it's it makes sense so we have those opportunities.
Speaker Change: So again.
Speaker Change: The ability to really utilize our capacity right now and whether you call it running full out.
Speaker Change: We always find ways to too.
Speaker Change: Two two.
Speaker Change: Squeeze more tons out of the system and we'll continue doing these projects. These are the high class opportunities we engage with.
Speaker Change: Got it and one last question just before turning it over can you give us a sense of the volume cadence you're expecting through 2025 should we expect some more pronounced volume growth in the first half and then maybe lessening as you get towards mid year in the back half, partly due to tougher comps.
Speaker Change: Sure.
Speaker Change: Well I'll tell you Mike that the comps are going to get much tougher as the year goes on and if you look at if you look at last years, so, but we are but we see we see continued volume growth throughout the year.
Speaker Change: Steady growth, but it will be but obviously the the numbers come down a little bit on percentages compared you know when you do a year over year comparison, as we move throughout the year, but but we have plenty, we have plenty of growth opportunities and lots of things that we're already putting in place and we will continue to put.
Speaker Change: In place as some of our capital projects come on board and we're able to produce more.
Speaker Change: Thanks, very much Tom good luck in 2005.
Speaker Change: Thank you Thanks, Mike next question.
Speaker Change: And our next question comes from Gabe <unk> from Wells Fargo. Please go ahead with your question.
Speaker Change: Yeah.
Speaker Change: Mark Tom Bob Good morning, Alright.
Speaker Change: Alright, good morning Gabe.
Speaker Change: Start with.
Speaker Change: The sequential numbers and you kind of give us on a quarterly basis in terms of the.
Speaker Change: Split corrugated price realization and export.
Speaker Change: And if I'm doing my math right I'm seeing about $50 a ton of price realization in the fourth quarter.
Speaker Change: Arguing in 'twenty, 'twenty, four which would imply sort of $30 million of unfavorable mix and that in my mind. It seems a bit punitive and probably uncharacteristic of of how PCA would operate so I'm. Just curious if you guys have thought about it that way.
Speaker Change: And if you're still realizing any price in Q1 25 from movements that transpired in 2024 on a sequential basis from Q4 Q1.
Speaker Change: Yeah, Yeah, Yeah gave us Bob Yes, there is some of that.
Bob Monday: It does.
Bob Monday: Some things that just move on an annual basis.
Bob Monday: So there is some movement relative to that as you as you as you said regarding these price increases of 2024, but the other thing you have to look at is if you sort.
Bob Monday: Do the math and make sure you account for the new inventory change and what's the export volume in which domestic volume.
Bob Monday: I think its somewhere around the mid 50 something dollars ton change.
Bob Monday: And then you have to compare rather than comparing to 80, which were the two increases at the beginning of 2024 you have to remember there was a $20 per ton dropped late in the year in 'twenty. Three so you sort of look at it that way and that's a that's a net $60 a ton and like I said I think we are in mid fifties.
Something like that and similar to your math and then you do have mix changes you have customer mix product mix and seasonal mix things like that that way into it. So we feel we feel good about capturing the price based on those index changes that you referenced.
Bob Monday: Okay. Thank you.
Speaker Change: And I guess for the avoidance of doubt in the first quarter are you telling us that.
Speaker Change: Included in the guidance that you gave US 221 includes price increases on open market tons and not on.
Speaker Change: On the converting bauxite or are you embedding in the what was been amounts on both the corrugated and.
Speaker Change: No there's definitely definitely some open market is as we've always said you know those those things happen what happens immediately when theres, a price change up or down.
Speaker Change: But there are some things relative on the box side that regarding those price increases from last year that now will take effect in the first quarter. So that's embedded in there too along with.
Speaker Change: What we feel like we will realize from this year's January price increases.
Speaker Change: Considering the impact of Ritchie as Tom was talking earlier risky not picking it up in January so if you adjust for that a little bit but there is some of that in our number as well.
Speaker Change: Understood Okay.
Speaker Change: Last one on Capex you did signal on the Q3 call that it would be up.
And the 25, it's probably up a little bit more than what we were modeling I don't know how others are thinking about it but.
Speaker Change: The Glendale, I think box facility should we sort of pencil in numbers that we see are $240 million to $260 million for new box plant, depending if it's outfitted with our corrugator.
Speaker Change: But even if I adjust for that when I look at our maintenance I think that was also supposed to be down in 'twenty five and that's actually up.
Speaker Change: So Marc are you telling us there is no incremental capacity on the containerboard side in 2025, no debottlenecking or anything like that in that Capex number.
Speaker Change: There certainly is theirs.
Speaker Change: There is work going on in the mills.
Speaker Change: Again, there is no one big project Theres, just a whole host of small projects that we always do every year to.
Speaker Change: Enhance what we have one of the challenges that we've.
Speaker Change: We've laid out to the team over the last year is that.
Speaker Change: Over the last six or seven years of all of these conversions that we've done at a blistering pace now is the time to step back in and really optimize what we have.
Speaker Change: And so we were doing these conversions and moving on to the next mill at such a pace, we've never really taken the time to really drill down and make sure. We're getting all the benefits from all the spending that was what's taking place. So so now we've got the technology organization step.
Speaker Change: Stepping back in and engaging with the mills and making sure that what we are are doing is is extracting all the value. We can so that gives us a good return, but as far as.
Speaker Change: Capital spending this year, if you think about the Glendale project down in Arizona, we're finishing up that box plant and and there is some number of the <unk>.
Speaker Change: 10 years ago, you could build a box plan for $50 million and now.
Speaker Change: A big full line.
Speaker Change: Box plant, you're talking 200 plus million.
Speaker Change: We've also just this week, we broke ground in Newark, Ohio for another big New box plant.
Speaker Change: Been in the works for the last few years, we actually bought the land three years ago, and so that box plant will be under construction and hopefully have everything ready to run by the end of next year.
Speaker Change: We also with this 800, a high 800 capital call out that we're we're talking about right now there is a major rebuild the taking place at another plant in the northeast it's if.
Speaker Change: It's not a new box plant, but essentially it will be like new and we're done with it inside and then there is another reconfiguration.
Speaker Change: On the East coast.
Speaker Change: Our major enhancement major rebuild of that plant. So this is for big activities going on within the corrugated products side of the business along with I'll call out right now.
Speaker Change: Probably right, there's probably another 50 projects going on for the year that'll be the smaller projects.
Speaker Change: It evolves.
Speaker Change: Okay.
Speaker Change: The single converting line replacements that will just continue forever and so that's all baked into that.
Speaker Change: Capital call out, but there is there's a good portion of our new business growth in that capital along with optimization.
Speaker Change: Just enhancing the business not just maintenance.
Speaker Change: Maintenance is a small portion of that capital.
Speaker Change: And Gabe relative to your your question on the maintenance expense thinking it was down.
Speaker Change: If you're recalling something from the last our last quarter's call. There was a question about what's what's normal relative to what we had as outages in 2024.
Speaker Change: But it was not an indication of what our plan was for 2025 regarding outages and the reality is.
Speaker Change: There's a couple of things one is we have more.
Speaker Change: Larger mills with more days down in this year's plan versus last year larger meals more expensive four days down.
Speaker Change: So on and so forth the other thing is.
Speaker Change: In the second half of 'twenty, two all of 'twenty three and then for the first part of 2020 for certainly in the first quarter 'twenty four.
Speaker Change: We were still taking you know running to demand. So we had you know.
Speaker Change: Market downtime.
Speaker Change: The way, we sort of bucket. Our you know our variances. If you know if you are in market downtime and you have a maintenance outage you would not include the profit per ton of those in your you shouldn't you Wouldnt penalize your outage for that because your market downtime you couldnt sell the ton anyway. So those those the negative impact of that shows up in your volume variances that.
Speaker Change: We talk about whereas this year, we have none of that so that profit per ton is in our outage calculations for every ton thats down that's another reason, it's going to be higher.
Speaker Change: Relative to 2024th if you follow me.
Speaker Change: I do think you guys for all the detail and I appreciate the investment in Ohio.
Speaker Change: Next question.
Speaker Change: Our next question comes from Mike Weintraub from Seaport Research Partners. Please go ahead with your question.
Speaker Change: Hi.
Speaker Change: Good morning.
Speaker Change: So to the extent you can help us just trying to understand how much of the higher box prices that would come as a part of the containerboard price increase initiative.
That's been announced for January I would isn't.
Speaker Change: It is incorporated in your <unk> guidance, just really trying to understand how much additional upside there could be through the balance of the year if that price increase gets fully implemented.
Mark Holds: Yes, Mark this time.
Mark Holds: What happens is is that it's a timing issue, especially relative to the contracts that we have left that relate to to risky. So we got to take a relatively conservative approach in the first quarter to what to how those contracts would roll through however, we are implementing right now.
Mark Holds: The non contractual business, where we're going ahead and putting in place, but again those those amounts in those sorts of things you know is between us and our customers when it comes to boxes. So.
Mark Holds: We take a.
Mark Holds: We don't we don't publicly come out and announce some of those things that.
Mark Holds: Those agreements that we've got with our customers, but I think what you're really referring to is the index and what's left tied to the index and like I said that that rolls through at a different at a different rate and.
Mark Holds: Until that index indicates.
Mark Holds: The prices of liner medium going up.
Mark Holds: Won't trigger some of those some of those contracts.
Mark Holds: So is it fair to say.
Mark Holds: And again I'm really trying to get.
Mark Holds: Upside beyond the <unk>, but in another way to maybe ask the same question is so if for whatever reason risky didn't publish the containerboard price increase.
Mark Holds: In February or March.
Mark Holds: How significant an impact would that have on.
Mark Holds: What you provided in the guidance versus what you would expect if that's a question you can ask well again again.
Mark Holds: As I said, we'd say, we're taking a pretty conservative approach here. So.
Mark Holds: Is there upside going forward, yes, I mean theres no question about it once this once this.
Mark Holds: Once this is indicated and risky.
Mark Holds: Okay.
Mark Holds: And then can you give us any more color in terms of like the process of moving customers off the indexes and or or or what type of.
Mark Holds: Variables are being put in place.
Mark Holds: Or is it just like I know negotiation each time or is it being tied to various costs or things like that just to help us begin to understand is we want to kind of be able to forecast in the future what might happen to your your pricing et cetera.
Mark Holds: Well, it's going to be it's probably going to be a little more of a mixed bag.
Mark Holds: The as.
Mark Holds: As I mentioned, our customers have been very very frustrated with this process and so have Wade so and I think at the end of the day.
Mark Holds: It's more of a more of a discussion with our customers about what's what's going to happen going forward with pricing and an agreement that would come to.
Mark Holds: Sure.
Mark Holds: We've not found any other.
Mark Holds: Indicator out there that we feel comfortable with so I think it's going to be it's because it's got to take a little time to unwind, but but we feel very comfortable in our discussions with our customers about where we're going to end up going forward.
Mark Holds: And it's going to be a little different per customer but.
Mark Holds: But I think that the discussions have gone very well.
Mark Holds: Mark our customers. They are undergoing the same inflation that we undergo the same cost pressures. They appreciate what we're talking about every day. They also appreciate and they understand the.
Mark Holds: The capital spending that we do and we expect a return for our capital spending that capital spending provides incredible benefits for.
Mark Holds: For the customers in terms of quality and on.
Mark Holds: On time delivery. So so there is.
Mark Holds: That discussion is truly a customer.
Mark Holds: Driven discussion one on one.
Speaker Change: Thank you for the color.
Mark Holds: Next question please.
Speaker Change: Our next question comes from Anthony Pettinari from Citi. Please go ahead with your question.
Mark Holds: Yes.
Speaker Change: Good morning.
Speaker Change: Just following up on Mark's question is it possible to say just kind of order of magnitude what percentage of customers you've moved off of <unk> as it is at 5% or 25%.
Speaker Change: And then you know.
Speaker Change: Given the.
Speaker Change: The turnover of customer contracts like how long it might take for you to get maybe a large majority of customers off the index.
Anthony Pettinari: Well Anthony this endeavor didn't didn't start five.
Speaker Change: Five years ago, it started about a year ago. So.
Speaker Change: This is as I said this is going to take some time to unwind those contracts. Some of those are long term contracts and obviously you know as we've stated many many times I mean, we've dealt with these customers for decades.
Speaker Change: Decades and.
Speaker Change: We've got long long term relationships. So we're very sensitive to those relationships and we're making sure that we're doing what is in the best interest of ourselves and our customers as we move forward. So this is going to take a little time to unwind I'm not going to give you percentages.
Speaker Change: Of how this is going to sequentially fall into place here, but.
Speaker Change: Bob.
Speaker Change: It's going to take some time, but we're moving in that direction.
Speaker Change: Sure.
Speaker Change: And then just switching to the Capex Guide I think you talked about four big box plant projects, Ohio, Glendale, and then two maybe reconfigurations in the East coast is it possible to say what.
Speaker Change: The $8 40 to 870 <unk> how much of that is those four big box plant projects are there any that you'd call out, whether its ohio, or glendale or others as being.
Speaker Change: Especially large component.
Speaker Change: <unk> hundred 40.
Speaker Change: Yes hold on one second let me, let me get some numbers here.
Speaker Change: Probably $250 million.
Speaker Change: Is.
Speaker Change: Is go into that.
Speaker Change: This year.
Speaker Change: Got it got it is the Ohio Greenfield.
Speaker Change: Just.
Speaker Change: Roughly are.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Great.
Speaker Change: That's very helpful I'll turn it over.
Speaker Change: Again, there is another.
Speaker Change: One of the.
Speaker Change: <unk>, it's about a $70 million project to reconfigure one of our plants and that's a.
Speaker Change: A discrete project that we'll see this year also that's in that number.
Speaker Change: Got it got it.
Speaker Change: Thank you.
Speaker Change: And again just to just to remind you of the.
Speaker Change: 445 million that was allocated to the corrugated side for 2024 $370 million of the three of the 445 was for growth opportunities.
Speaker Change: So again most of this capital spending that's going on is is to enhance our capability to go to market and work with the customer and let me remind you Anthony also that.
Speaker Change: As we've said many many times.
Speaker Change: These this is these are already growth opportunities that are in place. These aren't we're not expanding or doing any of those sorts of things in hopes that we get business. This is growing with the existing customer base we have.
Speaker Change: Yeah.
Speaker Change: Thank you alright.
Speaker Change: Alright next question.
Speaker Change: Our next question comes from Philip <unk> from Jefferies. Please go ahead with your question.
Philip: Hey, guys good morning.
Speaker Change: All of these growth projects, Mark I guess, perhaps help us think through how the contribution kicks in.
Speaker Change: Phoenix, Arizona at box plant lease was scheduled to come on I think late <unk>.
Speaker Change: It's probably gonna be contributing this year, but the other projects you've called out the reconfiguration, Ohio help us size up what that could actually drop to the bottom line do we see any of it this year or is this more of a 2025 you than where he cuda accelerated.
Speaker Change: The Arizona project should startup this spring as scheduled.
Speaker Change: That new project will take the place of three.
Speaker Change: We've been running a business down in Phoenix, three years, but to run that business. We've been operating out of three different locations within the kind of the neighborhood so to speak.
Speaker Change: Not the most effective way to run a business and so this new plant will allow us to consolidate all the operations to one state of the art high efficiency operation.
Speaker Change: In terms of.
Speaker Change: Unit labor efficiencies it will add tremendous.
Speaker Change: Mendes efficiencies.
Speaker Change: Probably will.
Speaker Change: Probably triple or quadruple the production capability of the of the region down there now coming out of this one plant.
Speaker Change: And again the quality cost structure, we will see immediately this year.
Speaker Change: I'm not going to attempt to give you a number but it's so it will be immediately accretive.
Speaker Change: To the system when we bring the plant down and we exit the old operation.
Speaker Change: <unk> employees are moving over from the existing operation right into the new operation.
Speaker Change: And then a ramp the ramp up of some of these other projects you've called out New Jersey.
Speaker Change: Bigger reconfiguration.
Speaker Change: There is there is a new York and Pennsylvania project going on in there.
Speaker Change: Again.
Speaker Change: Those will be more disruptive type of projects that Tom spoke of and that I spoke of those are the type of projects that you suffer a little bit of pain, while you're doing them, but then once they are done.
Speaker Change: They provide incredible opportunities for the for the next 10 years for us.
Speaker Change: <unk>.
Speaker Change: But any color on the timing of that ramp Mark has added 20, well. It just again, we'll finish those projects will finish those projects this year and then.
Speaker Change: Get them.
Speaker Change: Get them running and get the bugs worked out and then.
Again.
Speaker Change: But we will see immediate benefits out of those also Philip I'll add I'll add just a couple of things to this.
Speaker Change: Don't forget that any one of these projects.
We're building in.
Speaker Change: As Mark mentioned, a lot of efficiency in these projects, including.
Speaker Change: Closures of inefficient box plants and things like that where we can consolidate some operations under one but in addition that it gives us a lot more capacity to satisfy those customers that I talked about earlier, who want to do business with us want us to supply them.
Speaker Change: Have agreements for us to supply them, including different markets that we haven't been in <unk>.
Speaker Change: Especially when you consider Phoenix, because we had a smaller three building operation that they couldn't and didn't have a lot of reach.
Speaker Change: This will give us provide us a lot more opportunities and in the one in Ohio is the same I mean, which we where we've got a very large footprint.
Speaker Change: And this will be able to consolidate that footprint a little bit in terms of numbers of plants, but also more importantly, create a lot more efficiency and a lot more reach for us in terms of our customer base.
Speaker Change: Super and then.
Speaker Change: From a demand standpoint in time.
Speaker Change: Box shipments in 'twenty, four and that momentum it sounds like it's continued into January so far yes help us victory.
Speaker Change: It's obviously the market's recovery.
Speaker Change: Outpacing the market, you're taking share called out some share gains on the brown side of things.
Speaker Change: Certainly still a lot of disruption to marketplaces consolidation in the making.
Speaker Change: Do you see that as a big driver and it's a catalyst in terms of the momentum you've seen thus far this year like how should we think about share gain opportunities. This year for you guys.
Speaker Change: Well I think as I've mentioned, many times I said, we've got we've got our core customer base.
Speaker Change: If you if you position yourself as the best supplier and the most reliable supplier to that customer base.
Speaker Change: It presents it presents many internal opportunities for you to continue to grow your.
Speaker Change: Grow your volume and.
Speaker Change: Traditionally a lot of a lot of the corrugated customers have have split their business and done other things because they just couldn't couldn't get comfortable with sole supplier ship and things like that but that's changing dramatically over time and.
Speaker Change: And we are proving and a lot of cases that we're just we're.
Speaker Change: We are a great supplier incredibly.
Speaker Change: Incredibly reliable got get the beds, we considered the best quality and the best service of anybody in the business and for.
Speaker Change: We're great partners for our customers.
Speaker Change: <unk>.
Speaker Change: We positioned our business around those customers and about and about their game plans. So.
I think that gives us a competitive advantage and.
Speaker Change: And Fortunately, we've got the financial flexibility to be able to expand at a rapid rate to be able to do some things quicker than maybe some others can do it.
Speaker Change: And I see nothing but.
Speaker Change: Solid runway for those opportunities going forward.
John: Got it and then John one.
Speaker Change: Quick one mix was a modest drag last year on the Brown said.
Speaker Change: Do you anticipate mix be much of a good guy or bad Guy when you think about 25.
Speaker Change: Got it.
Speaker Change: The fourth quarter, we had that mix impact.
Speaker Change: A lot more e-commerce activity quite frankly in the fourth quarter.
Speaker Change: Yeah.
Done now and so I think the comment was made during the call earlier that we expect an improved richer mix <unk> versus <unk> and so so we'll probably see that better mix through the first half of this year and then as the year rolls on we'll see more e-commerce into the fourth quarter again I expect.
Speaker Change: Yes, I think our mix is I think our mix is pretty steady compared to what it's always been.
Speaker Change: Okay I appreciate the call.
Speaker Change: Okay.
Speaker Change: Next question please.
Speaker Change: The next question comes from Charlie Muir Sands from BNP Paribas. Please go ahead with your question.
Speaker Change: Yes.
Speaker Change: Good morning, guys. Thank you very much for taking my questions just returning to the capital expenditure.
Speaker Change: I Wonder if you could give us an estimate.
Mark Holds: Hi, Mark.
Speaker Change:
Speaker Change: Considered to be genuine maintenance capex budget.
Speaker Change: Budget for this year.
Speaker Change: Yes. Charles this is Bob you know typically that that's about it runs 60% 65% of our of our total spend.
Speaker Change: <unk>.
Speaker Change: I think thats, probably just a good way to think about it year to year, it's different but I would say that's.
Speaker Change: This year this year, we've got a few bigger discreet nevertheless, with the.
Speaker Change: Yes, it's going to be on a percentage basis. It will be less this year, because we've got four big discrete projects going on in the packaging side of the business but.
Speaker Change: <unk>.
Speaker Change: As I said earlier.
Speaker Change: The bulk of the spending is going towards growth opportunities are not just maintaining what we have we've been fortunate that over over the decades. We've we've done a good job of maintaining our assets and continuing to.
Speaker Change: Make sure we stay on top of the.
Speaker Change: The asset preservation, so we're not playing catch up.
Speaker Change: Yeah.
Speaker Change: On the weather impact that you called out.
Speaker Change: A record January 2010 before that was.
Speaker Change: Some pretty severe cold weather as well.
Speaker Change: What shortly.
Speaker Change: So maybe I'll, let bookmakers called that out as an impact in Q1 last year. So just I just wanted to.
Speaker Change: Whether you are talking about.
Speaker Change: Something that you see is at best just on a quarter on quarter basis, almost like more challenging.
Speaker Change: More cost than last year.
Speaker Change: Yes, let me comment and then Bob can fill you know we've obviously, we've just gone through the month of January we're wrapping up here, but we've had a couple of couple of weeks of severe weather and not just severe normal weather, but we've had more colder snowy weather and in the very deep South region.
Speaker Change: You all know last week, along the Gulf coastal area. Interstate 10 was shut down from from Houston, All the way over to Florida for a couple of days and so that was very disruptive.
Speaker Change: So it wasn't just the cold.
Speaker Change: Weather impacting energy usage, and raw material consumption and yield, but it was actually impacting our business in general commercial.
Speaker Change: Commercial activity. So so there'll be a volume impact there with the cold weather, but again, we've just had and generally without a colder winter right now.
Speaker Change: We're running well, we're operationally, we're running very well, but it's more.
Speaker Change: More expensive to run well under these conditions and again.
Speaker Change: Last week in particular, we saw some.
Speaker Change: Volume impact from that weather.
Speaker Change: Thank you very much.
Speaker Change: Next question please.
Speaker Change: Our next question comes from Brian thoughts from Bloomberg. Please go ahead with your question.
Brian: Hey, good morning, Good morning, Gabe I think asked this question, but maybe he asked it a different way I was hoping you could clarify.
Brian: If we look at the revenue per produced ton and 23 versus 24, it looks like 'twenty four is down about $50 per ton.
Brian: While the index is up about $35, a tonne, creating a margin of about eight.
Brian: $85, how do you how can you help us understand that.
Brian: Run that should say that again, Ryan yeah. So revenue if we look at revenue.
Brian: Compared to the produce tonnage over year over year.
Brian: That number is down about $50 per ton, even while the index.
Brian: Has gone up.
Brian: For containerboard.
Brian: Which period are you talking Hey, Ryan, which period, you're talking about but it has gone down $50 a ton.
Ryan: 23 to 24, so full year 2023 to four year 'twenty four.
Speaker Change: Yes, well if you adjust I think what youre doing youre using produce tons. So you have to account for inventory change, but directionally I would say, it's probably closer to $40 50, but go ahead.
Ryan: Okay.
Ryan: I guess just in light of the fact that the.
Ryan: There were two price increases last year for about $80 and I realize that there was a 20 dollar slide at the end of 'twenty three.
Ryan: But if you look just look at the averages for containerboard over those two years, even that's up so theres about it you know.
Ryan: Well I I call it an $85 could be a little bit less than that but there is there is a differential where prices are going the opposite direction of where the index is going I'm just trying to figure out how do we how do we square that.
Ryan: Yes.
Ryan: There is also in the way Youre looking at it that is <unk>.
Ryan: Export.
Ryan: A good chunk of export volume in that in <unk>.
Ryan: That period, I think export was was definitely going down.
Ryan: So that's sort of getting into your math, a little bit I think if you sort of you know.
Ryan: Accommodate for that as well as some inventory change thing and some mixed mixed things.
Ryan: I think we're right there we would expect to be based on how that index moves and let me let me just add another another element to this too because.
If.
Ryan: We don't we don't actually sell tonnes, we sell msf.
Ryan: And if the basis weight.
Ryan: Is working its way down on Msf, that's going to that's going to trigger a different situation in tons and.
Ryan: So there's a lot of variables that go into this and.
Ryan: Again, that's a.
Ryan: That's a whole another subject that.
Ryan: You know that we could get into but again, we've got it we have an industry that is measuring something they don't even sell which is.
Ryan: Which is tons and.
Ryan: Here, we sell Msf so.
Ryan: When you when you're factoring everything around a ton.
Ryan: There are a lot of variables that go into that.
Ryan: And that has to be taken into consideration.
Speaker Change: And then just lastly, Ryan as you know prices started moving down at the end of 'twenty two.
Ryan: So we had a good part of 'twenty three.
Speaker Change: All the way into late 'twenty three in just the way.
Ryan: Those that affects our box.
Ryan: You've got to overcome all that prices come up $80. Since then but it was down 110 with all those decreases so its just the way the timing and the way those things when they start to appear sort of impacting impacting.
Ryan: What you're doing which is just taking a high level revenues by tons.
Ryan: Yes.
Ryan: My other question for you is <unk>.
Speaker Change: Talked a little bit about how your customers are frustrated are you referring to box customers or.
Ryan: Our containerboard customers both.
Speaker Change: Both.
Speaker Change: Interesting.
Speaker Change: Okay.
Speaker Change: I guess last I guess last question help me understand I mean in the U S. The mill operating rates are about 90%.
Speaker Change: I mean, we're going to be on pace to export nearly 5 million tonnes and 24.
Speaker Change: <unk>.
Speaker Change: Why why would an open market somebody who maybe doesn't have a mill why would they be wanting to pay higher prices for containerboard with such overcapacity.
Okay.
Speaker Change: You'd have to you'll have to ask them.
Speaker Change: I can tell you that our customers our customers don't see it the same way you are calling it out again I'm going to I'm going to refer to something that you're measuring in terms of tons, but we don't sell any tonnes, we sell msf. So.
Speaker Change: There's a there's a large disconnect in my opinion, two to whats to what's really going on in the marketplace and and what exists out there in terms of numbers I'll give you. Another example.
Speaker Change: There's a there's a relatively large mill.
Speaker Change: That produces that is producing everything they can produce in their outputs about 50% of what is projected for that particular mill, so that the projections and the realities are very different as well.
Speaker Change: And although we can although we can buy some.
Speaker Change: <unk> in the open market.
Speaker Change: The type of tons that we need to produce the boxes that our customers require is very limited.
Speaker Change: And we've had long term relationships to be able to do that.
Speaker Change: If those if those relationships did not exist I would have I would have some difficulty buying the Brian the proper tons.
Speaker Change: Yeah, obviously with the lighter basis weights that definitely creates a some disparity in the contribution per machine hour on your on your mills.
Speaker Change: Is that lighter weight is that or is that I think that youre going to continue to see in the future, where it's going to be a drag there.
Speaker Change: Well I wouldn't call. It a drag I think I just think it's a.
Speaker Change: It's a fact of life.
It becomes an opportunity, we're making we're making more product with less fiber.
Speaker Change: And that's part of the capital investment over the over the last decade is to run these mills are.
Speaker Change: On a lighter weight grade mix much more efficiently and so.
Speaker Change: It Hasnt impacted.
Speaker Change: The mill profitability and the mill capability.
Speaker Change: Great. Thank you so much.
Speaker Change: You.
Speaker Change: I know we're out of time, but I know there was one one more question I think George Staphos May have had a question if youre still on George.
Speaker Change: Yes, Sir our next question is a falloff from George Staphos. Please go ahead with your follow up.
George Staphos: Thanks, guys I'll try to make it painless mark thanks for taking it.
Speaker Change: To wrap up all the pricing discussion when.
Speaker Change: When we look at fourth quarter last year fourth quarter. This year prices are up per ton theyre not down they are up about 43, recognizing it's tons.
Speaker Change: Produced and what you are saying is when we consider the price drop the entered last year and in fact, you're building back from that and you look at mix you are pretty much where you expect to be is that a fair statement.
Speaker Change: Yes, George with my math, I can say, we're closer to $55 a ton something in the mid fifties rather than go ahead.
Speaker Change: Understood. Okay, and then the other question I had.
Speaker Change: Aside from fiber where are you seeing the most cost inflation because when we look at cost per ton, it's been trending steadily higher over time. Despite the fact that you are spending.
Speaker Change: Good amount of capital to become more productive and more efficient so you know.
Speaker Change: Looking at your return on capital history over time, you don't spend bad dollars, so youre being coming more efficient where are you seeing the most pressure on your cost and what are you going to do about that on a going forward basis, what kind of products do you have that will take us bend.
Speaker Change: Bend the curve back the right way on cost per ton. Thanks, guys late in the quarter for the first quarter energies.
Speaker Change: Obviously, a glaring factor, but don't forget over time.
Speaker Change: Labor has become less of a component you got all of your labor medical benefits all of that.
Speaker Change: Element transportation is another example, all of your service costs.
Speaker Change: Services in general all the lease expenses everything is up dramatically we called this out on the call earlier, we got rail increase has taken place significant rail increases again, taking place.
Speaker Change: This first quarter and so.
Speaker Change: The fact that we are fortunate in the ability to effectively spend capital.
Speaker Change: It helps us maintain our position, but it certainly is not able to overcome all of your inflation.
Speaker Change: And so that's why you have to have price along with a very very effective capital spending program to stay ahead of the curve here.
Speaker Change: But energy right now is probably the big.
Energy as far as your direct items, George I mean, even chemicals chemicals or going to be up and you look at just pretty much across the board.
Speaker Change: For the types of chemicals, we use.
Speaker Change: We're seeing price increases in the first quarter and those will stay with us throughout the year, but but as mark alluded to.
Speaker Change: 65, the majority of the of the of the inflation. We're seeing is in those items below all your direct cost.
Speaker Change: The things that Mark was referring to that's where the biggest that's where the biggest hit will be.
Speaker Change: It also means you need to be given the expense infill.
Speaker Change: Inflation on Labor Medical services rail, which you cant control necessarily you've got to be very very precise very strategic about where you put that next box plant. So that you optimize around those those various factors, but less than that.
George Staphos: And George.
George Staphos: That's what we've been doing anything about the rate of spending over the last seven or eight years now, especially the last six years.
George Staphos: You know.
George Staphos: The benefits that we've gained from from this activity are immense.
George Staphos: It's allowed us to do what we do and be where we are.
George Staphos: No. Good news is we're going to continue at this pace and we'll continue to take advantage of this but nevertheless.
George Staphos: With this comprehensive inflation across the board.
George Staphos: It doesn't matter how much capital you spend.
George Staphos: Yes.
George Staphos: Will you will never.
George Staphos: Unless you see.
George Staphos: Appropriate pricing.
George Staphos: Can't keep up with all of the inflation.
Speaker Change: Thank you Mark good luck in the quarter talk to you soon thank.
George Staphos: Thank you. Thank you I appreciate it.
Jamie: Jamie I think that may be wrapping things up you want to conclude this.
Speaker Change: Absolutely Mr closing and I do see that there are no additional questions. If you have any closing comments feel free to proceed at this time.
Speaker Change: Thank you everybody for joining us and look forward to talking with everybody at the end of April.
Speaker Change: Take care have a good day bye bye.
Speaker Change: And ladies and gentlemen, with that we'll conclude today's conference call and presentation. We do thank you for joining you may now disconnect your lines.
Speaker Change: Yeah.