Q1 2025 Packaging Corp of America Earnings Call
New York's most eye-catching horror movies Two out of ten Survival of the finentest
Speaker Change: Good morning, everyone. Thank you for joining Packaging Corporation of America's first quarter, 2025, and this results conference call.
Speaker Change: Your host today will be Mark Kowlzan, Chairman and Chief Executive Officer of PCA.
Speaker Change: Upon conclusion of his narrative, there will be a tuning session.
Speaker Change: I would now like to turn the comments call over to Mr. Kowlzan. Please proceed when you're ready.
Kowlzan: Thank you, Jamie. Good morning, everyone, and thank you all for participating in Packaging Corporation of America's first quarter 2025 earnings release conference call.
Kowlzan: Again, I'm Mark Kowlzan, Chairman and CEO of PCA, and with me on the call today is Tom Hassfurther, President of PCA, Bob Mundy, our Chief Financial Officer.
Kowlzan: I'll begin the call as usual with an overview of the first quarter results, and then I'm going to turn the call over to Tom and Bob who provide further details.
Kowlzan: After that, I'll wrap things up and then we'll be glad to take questions.
George Staphos, Philip Ng, Anthony Pettinari
Yesterday, we reported first quarter net income.
Kowlzan: Excluding special items, first quarter 2025 net income was $208 million or $2.31 per share, compared to the first quarter of 2024 net income of $155 million or $1.72 per share.
Kowlzan: First quarter net sales were $2.1 billion in 2025 and $2 billion in 2024.
Kowlzan: Total Company EBITDAF of the first quarter excluding special items was $421 million in 2025 and $333 million in 2024.
Kowlzan: First quarter net income included special items expenses of five cents per share, primarily for the closure costs related to corrugated products facilities.
Kowlzan: Details of special items for both the first quarter of 2025 and 2024 were included in the schedules that accompanied the earnings press release.
Thank you.
Kowlzan: Excluding the special items, the 59 cents per share increase in first quarter 2025 earnings compared to the first quarter 2024 was driven primarily by higher prices and mix of 78 cents per share and volume 27 cents per share in the packaging segment.
Kowlzan: Higher prices and mix in the paper segment, one cent, lower freight and logistics expenses, one cent, and lower schedule outage costs, one cent.
Kowlzan: Partially offsetting these improvements, operating costs came in about where we expected at 37 cents above last year's level.
Kowlzan: Although we did see lower fiber prices during the quarter, we continued to experience inflation across most of our cost structure.
Kowlzan: Our focus on operational efficiency, cost reduction initiatives, capital project execution have helped minimize the negative impact of the persistent inflation.
In addition, paper segment volume was lower by two cents.
Kowlzan: Depreciation and other expenses were higher by three cents per share. Our tax rate was higher by four cents per share, and we had higher interest expense of three cents per share.
Kowlzan: The results were ten cents above the first quarter guidance of $2.21 per share, primarily due to higher prices and mix in the Packaging segment.
Looking at the Packaging Business
Kowlzan: EBITDA excluding special items in the first quarter of 2025 of $409 million with sales of 2 billion resulted in a margin of 21 percent.
Kowlzan: versus last year's EBITDA of $326 million and sales of $1.8 billion or an 18% margin.
Kowlzan: Excellent margin improvement for the quarter was driven by sound execution and our price increase implementation, solid box shipment volume, record container board production and outstanding operational performance at our mills and box plans.
Kowlzan: We're also able to end the quarter at targeted inventory levels, which puts us in great position compared to last year's historically low inventories.
Our employees continued to deliver on numerous cost reduction initiatives.
Kowlzan: Efficiency Improvements, Integration and Optimization Enhancements and Capital Project benefits to not only minimize the negative impact from the persistent inflation, we currently see across most of our cost structure, but also to capitalize on our longer term strategic goals.
Kowlzan: I'm now turning it over to Tom, who's going to provide further details on container board sales and the corrugated business.
was a significant contributor to this year's first quarter results.
Kowlzan: Domestic Container Board and Corregator Products Prices and Mixed were 72 cents per share above the first quarter of 2024 and up 41 cents per share compared to the fourth quarter of 2024.
Kowlzan: Export Container Board Prices, we're up 6 cents per share, versus last year's first quarter, and down 1 cent per share, compared to the fourth quarter of 2024.
Kowlzan: Although we began to see some pullback in the middle of the quarter related to the uncertainty created by trade tensions around the world, box demand was solid and exceeded a very strong comparative period in last year's first quarter.
Kowlzan: Total volume and shipments per day in our corrugated products plants were up 2.5% versus last year's
Kowlzan: When per day shipments were up 11% over the previous year.
Kowlzan: Also, in addition to supplying record container board production volume to meet the integrated needs of our box plants, outside sales volume of container board was 30,000 tons above the first quarter of 2024 and 6,000 tons above the fourth quarter of 2024.
Kowlzan: As we look ahead to the second quarter, we expect the economic uncertainty to continue weighing on demand However, we still believe the box shimmings will be higher than the first quarter and above last year's tough comp which was up 9.2% over the previous year
Kowlzan: Regarding the Strategic Capital Plan for our converting plants, I'd like to mention that in March, we had a successful start-up of our new state-of-the-art high-efficiency full-line box plan in Glendale, Arizona.
Kowlzan: Previously, we were limited in our ability to serve and grow with our customers in this key marketplace due to the plant's limited capability and aging equipment that required us to pull from several different locations.
Some of which were quite far away geographically.
Kowlzan: Our new plant will increase box capacity by almost two billion square feet, significantly increase productivity on a unit labor hour basis, reduce costs and allows us to optimize our service capabilities, not only in the Phoenix area but also in the growing markets in Las Vegas, in Portia, California.
Kowlzan: Now turn it back to Mark. Thanks Tom. Looking at the paper segment, EBITDA, excluding special items in the first quarter was $40 million, looks sales of $154 million, or a 26% margin, compared to the first quarter of 2024, EBITDA of $41 million.
Kowlzan: and sales of 164 million or 25% margin. The employees of our paper business continue to deliver excellent customer service and remain focused on efficient and cost effective operations in order to deliver outstanding margins for the quarter.
Kowlzan: Similar to the industry, sales volume was 7% below a particularly strong first quarter of 2024 along with current economic uncertainty. Volume was 2% above the seasonally weaker fourth quarter of 2024.
Kowlzan: Paper prices and mix were 2% above the first quarter of 2024 and flat versus the fourth quarter of 2024.
Kowlzan: Our previously announced price increase began to be implemented during the quarter for all office printing and converting grades.
Kowlzan: Prices have begun to move up according to the terms of our customers, and we expect to begin seeing higher prices in the second quarter results. I'll now turn it over to Bob.
Bob Mundy: The primary payments of cash during the quarter included capital expenditures of 148 million and dividend payments of $112 million.
Bob Mundy: was $914 million with liquidity of just over $1.2 billion.
Bob Mundy: As mentioned in our earnings release last night to help manage the current economic uncertainty and its impact on our demand, we have adjusted our plan maintenance out of schedule and pulled up into the second quarter an outage that was scheduled for later in the year.
Bob Mundy: This will result in a 16 cents per share increase in plan outage expenses for the second quarter versus the first quarter.
Bob Mundy: The revised total company estimated cost impact for the year is now $1.22 per share versus $1.18 per share previously.
Bob Mundy: The actual impact in the first quarter was $0.23 per share, and the revised estimated impact by quarter for the remainder of the year is now $0.39 per share in the second quarter, $0.16 in the third, and $0.44 per share in the fourth quarter.
Bob Mundy: I'll now turn it back over to Mark. Thank you, Bob.
Mark Kowlzan: Looking ahead as we move from the first and into the second quarter, as always our attention will remain on what we can control.
Mark Kowlzan: Our North American focus together with our balance sheet strength, well capitalized mills and plants.
Mark Kowlzan: A commitment to strategic goals and our proven ability to respond quickly and effectively to external factors will service well during the period of economic uncertainty.
Mark Kowlzan: We anticipate continued ambiguity relative to domestic and foreign tariff actions and their effect on global trade and our demand trends.
Mark Kowlzan: Therefore, we've made certain assumptions in our guidance to recognize potential negative impacts to volume and cost from the uncertainty.
Mark Kowlzan: In the Packaging segment, we expect domestic prices to improve with continued implementation of our price increases, along with fairly flat export prices [inaudible]
Mark Kowlzan: Although we see box shipments improving, operating costs will be negatively impacted due to lower container board volume as we run our operations to match demand assumptions.
Bob Mundy: Also as Bob mentioned, adjustments to our Plan Maintenance Outage Schedule will result in a 16-sense per share increase in outage costs compared to the first quarter.
Bob Mundy: In the paper segment, implementation of a higher published price index prices from the first quarter will continue although volume will be lower with the planned maintenance outage at our international falls, Minnesota Mill
Bob Mundy: Rail contract rate increases at six of our mills during the first and second quarters will result in higher freight and logistics expenses and depreciation expenses assumed to be higher as well.
Bob Mundy: 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.
Bob Mundy: The statements were based on current estimates, expectations, and projections of the company, and involved inherent risks and uncertainties including the direction of the economy, and those identified as risk factors in our annual report on form 10K on file with the SEC.
Bob Mundy: The actual results could differ materially from those expressed in the forward-looking statements.
Bob Mundy: And with that, Jamie, I'd like to open the call to questions, please.
Bob Mundy: And ladies and gentlemen, at this time, if you would like to ask a question, please press star and then one using a touch on telephone to withdraw your questions you may press star and two.
Speaker Change: If you are using a speaker phone, we do ask that you please pick up the handset prior to pressing the keys to ensure the best sound quality.
Speaker Change: Let's get out of star and then one to join the question, Q.
Speaker Change: Our first question today comes from George Staphos from Bank of America Securities. Please go ahead with your question.
Speaker Change: and you mentioned that you had made some change in how you're
Speaker Change: Looking at your guidance and forecasts, you laid out a couple of things where there's some other points that you wanted to delve into in terms of how you're adjusting how you're looking at forecasting guiding for the year and relatedly, what are the early bookings and buildings for 2Q?
Speaker Change: Everything we just talked about in the way we're looking at the quarter is based on, and I'll use the term caution that's being exercised by our customer base.
Speaker Change: Thanks. You know, a lot of our customers are looking at their business and everybody is being very deported. And so, therefore, on the EF.
Speaker Change: You know, how the ordering is flowing through everybody just again being very cautious about how they present their business to the marketplace. So, again, across the board our business is still robust, but it's just, again, I'm just going to use the word cautious.
Speaker Change: Tom, you want to talk about cut-up for these? Yeah, George, you know, our bookings and billings are up 4.1% starting out the quarter, so we're starting out well about what we expected.
Speaker Change: I think the caution relates to a number of different things, you know, you've got obviously the tariffs and these sorts of things and you can listen to all the experts and talk about it but there is no real expert in this arena right now because there's attempting to do things that haven't been done for a long, long time.
Speaker Change: So I think there is some caution related around that and also this is happening at the same time we're fully implementing a price increase and in addition you know the mix is changing somewhat what
Speaker Change: in Corrigated in total, because ECOM continues to be a growth engine for Corrigated, and that's really related to the second half of the year.
Speaker Change: More so than the first half. So a lot of moving parts and that's what we're reflecting.
Speaker Change: Yeah, George, I'll just add one other thing, George, you have to also consider that and we mentioned last night that we exceeded our guidance because of a better price realization in our packaging segment.
Speaker Change: That number, the amount we exceeded that our internal guidance by was more than the tensent beat we had in the first quarter. So another way, that was something we thought we would get more likely in the second quarter, so you had to consider that as well when you looked at our second and first quarter together.
Speaker Change: I see, I see. I appreciate that. That had some good color. Relatedly, so you said that inventors are where you'd like them to be. You're seeing an increase in box volumes.
Yet, we're saying...
Speaker Change: Container Board Production, I think you're applying coming lower to Q versus 2Q. Help me understand if there are any missing parts in what I've just relayed, and if not why you're reducing production.
Speaker Change: If your inventory's in good shape, as your box fives are going up, and I recognize things are pretty cautious out there overall, which you mentioned. And then lastly, you mentioned in fourth quarter reporting that you were anticipating a richer mix or one cue.
Speaker Change: From our numbers, you know, Prof. Proton produced this up a couple bucks, which is fine from 4Q. Is that where you expected it? Was it up or downverse expectations? Thank you guys and good luck in the quarter.
Speaker Change: Let me talk to the first part there. As far as, you know, again, based on what we're seeing in the marketplace, as we've always done, we're running to our expected demand across the board, what we see with our customer.
Speaker Change: Debate going on, we have pulled back from a very small amount of export.
going... Got it.
Speaker Change: specifically to China. And it was just, and again, it's a very, very small amount. But, but again, just as we've always done, we're running to our customer demand, that being said we anticipate.
Speaker Change: The month of May we'll probably have two of our smaller machines.
down for the month, unless something changes dramatically.
And so that's how we're going to manage our inventory.
Speaker Change: That has something to do with some of what we talked about would be a cost impact on these outages.
Speaker Change: We're taking the mills down for their annual outage, we're pulling up the outage we referred to, that we're pulling up from the latter part of the year, is that Filer City Michigan, that was planned for the fall and we're pulling that up to the month of May. We're pulling up from the latter part of the year,
Speaker Change: But that will probably keep one of the small machines down for the extra number of weeks.
Speaker Change: as we see the inventories and demand move around. And so we're just, we're being cautious in our own right on how we look at the world and but that's again we have that ability to move very quickly if we need to.
Speaker Change: There was another part of the question that you had there. Refresh me on what was that second word? Mix. Yeah.
Well, I don't, I don't, go ahead.
Speaker Change: I don't remember really talking about Richard Mix in the first quarter because the first quarter is...
Speaker Change: is just a pretty stable mix and of course you're not going to have a tremendous amount of graphics or anything like that in the first quarter.
so you know the one
Speaker Change: Couple of things that did impact us though in the first quarter that we hadn't really even talked about and that is we did have we did a more weather related closures you know than we would typically have in any in any winter so that was that was impactful. And then also in in southern Texas the weather did impact the ag the ag business down there to a large extent, but I think also what we're talking about when we talk about the middle the middle outages and moving those up. And so we're talking about the middle the middle the middle the middle the middle the middle the middle the middle
Speaker Change: is because we do see the second half demand being significantly higher than the first half, so we see an opportunity to get that done and so it just makes good sense so we can run full out in the second half of the year.
Thank you.
Thank you, Tom. Makes a good sense. I'll turn it over
Next question please.
Speaker Change: Our next question comes from Mike Roxland, from Truist. Please go ahead with your question.
Mike Roxland: Yeah, thank you, Mark Bob, for taking my questions and congrats on good results in a top-offering environment.
Um...
Speaker Change: The Kenya survival and recovery, respect your operations, when something specific, specifically the way you ran your nose, when something with the contracts, when they were able to price was able to slow it too fast, you just want to get a sense of how you are able to be on expectations by 10 cents in one kill.
Speaker Change: As I called out on my portion of the script, we operated exceptionally well, but we also moved our price increase through very effectively. Time you want to comment?
Tom Hassfurther: Well, I just, the only comment I would make is that we implemented the press increase exactly as we said we would in our announcements.
Tom Hassfurther: and I think that's very important, so there was a larger portion, obviously the price increased related to our outside sales of
Liner and Medium .
along with the non-contract box price increase.
Tom Hassfurther: and the rest of the contractual box price increase will continue to be rolled through in the second quarter.
Tom Hassfurther: and we'll be completed by July . So that'll have that normal 90-day cycle that we typically see.
Tom Hassfurther: Got it. We'll let each other call their time. And just follow you up on your comments on e-commerce.
You know, you've gained some share, any, any, any commerce, I believe.
Thomas Hassfurther, Robert Mundy
Tom Hassfurther: Is that the business that you picked up on the e-commerce, vantage point, or 20% tidied with Don Margin's call, it made up for teams, returned to the capital type business.
Speaker Change: Well, Mike, I would say we picked up, our volume growth is primarily result of our existing customers, number one, number two is we did, we did add some additional outside customers.
Speaker Change: We don't typically target any particular segment. We target customers that we know will be around for the long haul and that we've done business with.
Speaker Change: for decades. Now, that said, ECOM is the number one growing segment in corrugated, and obviously that becomes a larger segment for us as well since we do business with the ECOM providers.
Speaker Change: Are the margins better or worse, whatever? No, the margins are what they are and we don't take on business just for the sake of taking on volume. I think we've said that many, many times.
Speaker Change: We have a business to run, our customers have a business to run and we both expect to be able to make good returns in our businesses.
Speaker Change: So, you know, we've, you know, we've, we've done a lot of things in our meals that we've talked about in terms of, you know, customizing our boards for, for different industries and different demands. And, you know, so I think that a lot of there's been, there's been discussion about.
Speaker Change: Let's say as an example, you know, well, Price doesn't seem to move as much for certain industries or, you know, your mix is getting more towards brown, that it is towards graphics, things like that. Well, that's really just a result of what's happening in the marketplace.
Speaker Change: If e-com is growing, that means big box is probably going the other way, which also means there's less...
Speaker Change: There's less graphics and displays and things like that and some of that other which you call rich or mix so we're just adapting to whatever the marketplace is and you know that's demonstrated also in what we've talked about what we're doing in the second quarter.
Got it, thank you very much [inaudible]
Thank you. Next question.
Robert Mundy, George Staphos, Philip Ng,
Speaker Change: Our next question comes from Gabe Hyde from Wells Fargo Securities. Please go ahead with your question.
Mark, Tom, Bob, good morning. Morning.
Gabe Hyde: Tom, I want to challenge maybe a little bit of what you said. But I mean,
Gabe Hyde: and trying to extract more from customers maybe, I don't know if they're talking about retail-ready packaging, or figuring out ways to upsell customers maybe.
Gabe Hyde: You know, while them, when they get that package on their porch and when they, you know, the opening experience and things like that, I'm just curious if you all are seeing that as you talk to your sales force.
Gabe Hyde: across the different channels. Those types of opportunities, or if you've seen any change of behavior, or if there's anything that you're seeing when you're going out for RFPs, things like that.
Gabe Hyde: Well, Gabe, I think that some of that's a little bit of G-Wiz, if you ask me, but, you know, what we see, we lead in this area in my opinion.
to offer our customers.
Gabe Hyde: The very best value and the very best options that they may use the box for and that's what makes the box very unique is that you know we can it can advertise it can protect it can do all these other sorts of things is the greatest. It's the best.
Gabe Hyde: Probably the greatest product and history of mankind from a sustainability and recyclability standpoint too. So our customers are very sensitive to those sorts of things. They want us to bring the innovation and the ideas to them which is what we do always.
Gabe Hyde: So I don't want you to misinterpret what I'm saying that PCA is headed towards nothing but brown, because that couldn't be further from the truth, but at the same time we accept the realities of what's happening in the marketplace.
Okay. In the press release, you mentioned
Gabe Hyde: some rail increases. I know those are typically timed around April 1, you know, the day before liberation day. I'm just curious, it sounds like there were some some increases that from a contractual standpoint that were put through if you are willing to comment that they're more or less than what you are anticipating.
Gabe Hyde: And then if I could flip one other one in, I think you talked about CAPEX at 148. The guide I want to say from memory was 840 to 870.
Gabe Hyde: Tracking a little bit below if we were to annualize it. I know things are lumpy. Just curious that that 84870 numbers is still what you're tracking towards. Thank you.
Gabe Hyde: Yeah, on the CAPEX, we're still tracking on that 8th.
Gabe Hyde: 800 million level of spending. We broke ground on the new plant in Ohio back in February , so that's well underway and we've got some other big projects going on. One big project at one of our mills and then just the numerous projects reconfiguring a couple of the other box plants on the East Coast.
Gabe Hyde: What a good activity happening there on the Capitol side.
Gabe Hyde: Yeah, and on the railing creases gave, we had three in the...
Gabe Hyde: First quarter, so you'll get a full quarter's worth, you know, of those in the second quarter. They happy to happen around midway, a couple of very marks. And then we have three additional that will take place in the second quarter. So that's what drove our comment around Freight.
Thank you. Good luck.
Thank you. Next question please.
Speaker Change: Our next question comes from Mark Weintraub from Seaport Research Partners. Please go ahead with your question.
Thank you. Good morning. A few follow-ups. First off,
Mark Weintraub: on the sequential pricing, which, as you know, was very strong. Can you share kind of roughly speaking how much of your box business is non-contract and or has that share increased meaningfully over time?
Mark Weintraub: Our non-contract is about 30% and 70% on contract and that's been pretty consistent for years.
Mark Weintraub: Okay, and so I guess just can you help us a little bit more?
Mark Weintraub: in explaining how you were able to get as much as you got.
in the first...
Mark Weintraub: Quarter, and I think you noted it was better than you had expected too.
Mark Weintraub: and so I'm just sort of trying to understand what you'd be able to do. Was that because you were also recouping kind of inflation outside of just the price increases in some of your negotiations or any more color you could help provide?
Let's just put it this way. We announced...
Mark Weintraub: Whether the publications picked it up or not, we made an announcement online or board a medium as to what we were going to do in terms of raising price, which we did.
That's one.
Mark Weintraub: Another factor is what we've done in the noncontractual area and we got that through in very quick fashion. So that that prob from a timing standpoint that was that was better.
Mark Weintraub: And, you know, although we've expressed some disappointment in terms of the amount...
of the contractual side that's tied to the publications.
Mark Weintraub: You know, that's rolling through and it's normal cycle over a 90 day period, like I said, so the majority that will be recouped in the second quarter and then sum into, indeed in the month of July .
Speaker Change: Okay, thank you. And then, second, you mentioned, are you expected volumes?
Mark Weintraub: to be significantly higher in the second half than the first half.
Speaker Change: Maybe a bit more color there. Are there customer wins that are part of that equation or is that largely a macro view? What was sort of behind that comment?
Speaker Change: That's more of a macro view, but furthermore, you know, in addition, I mean, we know what's coming on, as I mentioned,
Speaker Change: You know, we don't we don't build these facilities like like the Glendale Arizona facility.
Speaker Change: We don't build these things and then hope the customers will come. We've got them lined up and we built it because
They have the demand for it.
Speaker Change: and of course that plant will be ramping up and will be, you know, it's doing incredibly well starting out and I've got to call out.
Speaker Change: All of our engineering and technical staff as well as our plant staff and leadership teams. They've just done an unbelievable job and
Speaker Change: I'm very proud of the fact that, you know, we can...
Speaker Change: We can start up a plant literally with no hiccups and just, you know, head of schedule below cost and be fully operational like that. But we'll build into that plant as an example. And furthermore just on a macro basis, the...
Speaker Change: The mix continues to be a little more second half loaded than you know steady year round which is not unusual for our mix by the way but it's just as we've gotten bigger it becomes a little more impactful.
Thank you.
Mark Weintraub: The last quarter's call you talked about, you know, big cost increases, 1QV4Q, you'd indicated that you probably, Bob, I think you'd indicate you'd probably get close to half of that back in the second quarter. I recognize you've layered in a whole bunch of other factors too, but is that still conceptually true that, you know, about half of the types of costs that you were seeing in 1QV4Q would be recouped in 2QV4Q?
Yeah, Morgan, see, that is correct, but-
Mark Weintraub: As you also mentioned, the other things that we talked about relative to, you know, running our meals according to to demand and pulling the outage, an outage into the second quarter and those types of things, you know, obviously, you know, overshadowed that improvement you would have seen otherwise.
Mark Weintraub: and then lastly, just so you mentioned changes in the marketplace, e-commerce being a bigger part of the market.
Mark Weintraub: What implications does that have on your kind of views about light weighting and how important it is to increase that capability as that part of the market grows faster.
Mark Weintraub: We'll mark, as I've mentioned in the past, and I think it's a competitive advantage we have, and that is that the investments that we have made in the mills.
Mark Weintraub: The investment we made in the box plants, what we've done in the marketplace.
Mark Weintraub: I mean, we are literally tailoring everything to what meets the needs and the demands of our customers. So, you know, the short answer is yes. I mean, a lot of light weighting has taken place. Not only with PCA, but in the entire industry.
Mark Weintraub: and that's why I think, you know, that, as I've said before,
Mark Weintraub: When you use tons now as a measuring stick, and if you don't make the adjustments for lightweighting, I think you can begin to fool yourself as to what to expect.
because...
You know, as you know, this...
You just can't light weight.
Mark Weintraub: for the sake of light weighting and you can't just continue to run heavy weight board if that's not going to fit the demands of the customer. So this is all very very customer driven and we've been on the we've been on the cutting edge of this for quite some time and very very happy with the position we're in.
Mark Weintraub: and we measure what we sell, which is MSF, and that's really important to really understanding what's changing in the marketplace and what your margins really look like.
Mark Weintraub: One thing I was thinking about with the new Jackson No. 3 machine running, that one machined
Mark Weintraub: and we'll have to calculate, but probably that one machine now is making more square feet of board than if you went back 15 years ago, then Council and Valdosta used to run combined with the machines that they had.
Mark Weintraub: And so it's just a testament that again we've gone significantly into taking advantage of the marketplace and the lightweight have been very beneficial for us.
Speaker Change: But machines also like Jackson have enabled us to do that. Well, I think one other thing I'll add to that Mark is that we have to be, we have to have performance.
Speaker Change: And that's the technology that is, is I think, you know, unique to PCA that we've been able to really light weight and get tremendous performance out of our, out of our boards. And, you know, we spent a lot of capital to be able to do that.
Thank you.
Bob Mundy: I appreciate all the color. And Bob, I'm not sure if your plan is on next quarter's call. If not, thank you for all your help. If you are, chat next time around.
Thanks, Mark, appreciate it.
Next question, please.
Speaker Change: Our next question comes from Anthony Pettinari from City. Please go ahead with your question.
Anthony Pettinari: Good morning. Mark, you talked about cost inflation and I'm just wondering is there any tariff impact on any cost categories, whether it's...
Anthony Pettinari: Steele or Equipment from Europe or China and then maybe falling up on Gabe's question on just these box of plant projects. I guess you kind of reiterated the full of your CapEx guide, but is the sort of timeline for these projects?
Anthony Pettinari: Maybe it all impacted by some of the cost inflation that you're seeing.
Steele in particular with a few of the equipment.
Anthony Pettinari: Purchases that we've been involved in. And so we've got our eyes wide open and our purchasing teams.
is really working with the supplier base.
Anthony Pettinari: and understanding what the implications are in real-time fashion. And that's something that, again, it's been all hands on depth trying to understand.
Thank you.
Anthony Pettinari: If you're ordering a piece of equipment that's coming from Germany or coming from Finland or France or Japan
Anthony Pettinari: You know, they're probably sourcing the steel and it's very types of steel the different alloys where is that coming from and so there's a lot of moving parts here on on on the complexity of what's been happening with the. Yeah.
Anthony Pettinari: with the tariff discussions out of the marketplace. But we've been watching that, we haven't had anything substantially that's, you know, we've had to change, we're just, we're making sure that we understand what the implications are.
That's pretty much thumbs it up. [inaudible]
Speaker Change: and I'm going to be talking about the the the the the the the the the the the the the the
Speaker Change: Okay, that's very helpful. And then I'm wondering, you gave that very helpful example on Jackson and just kind of the productivity that you've been able to drive maybe at the mill level. I'm curious with Glendale.
Speaker Change: with whatever metric you'd think about whether it's through put or cost, or just if you could help us kind of understand sort of the capabilities and how it compares versus sort of a quote-unquote average box blend.
Anthony Pettinari: Probably the simple answer, Anthony, is that a glendale is going to give you two times the output at less labor cost.
So that's then your average box plan.
Anthony Pettinari: Now, huge investment to do so, don't forget that, and we have to recoup those capital investment, no sorts of things, but...
Anthony Pettinari: That's in order to get that, you're going to have to pay for that but that in the nutshell is probably the easy answer.
Anthony Pettinari: And then don't forget, if you go back over the last...
Speaker Change: Eight years, we have significantly recapitalized the majority of our converting operations.
Speaker Change: I throw a number, probably 80% of our converting operations have been modernized and recapitalized to provide the type of efficiencies that a Glendale provides, only in a smaller footprint, and so we take an advantage of our technical capability to...
Speaker Change: to put the needs of what these plants are required to service the customer. So we're in a very strong position.
Speaker Change: Nationwide, even though you might look at our operations and go with those plants are 50 years old.
If you walk in the door...
They've been capitalized.
Speaker Change: So that they're modern infrastructure and they perform in that manner Right, and we've consolidated a lot of facilities over the years too as a result of this Yeah, so that we're not operating we're not operating you know, we're virtually not operating any really what I'd call inefficient
Speaker Change: Small footprint, inefficient operations that we used to have a lot of, though.
Those have all been consolidated over the years. I think if you went back over the last 15 years, we made 24 acquisitions and
Speaker Change: We've built a number of new plants, but we've probably closed what, 20 plants are so tiny? A little more than 20, yeah. So people tend to forget that, that we've closed and shut down a number of plants and really rationalized business.
Speaker Change: The PCA footprint today is unrecognizable to anybody that was looking at it 20 years ago.
Okay, that's extremely helpful. I'll turn it over.
Next question please.
Speaker Change: Our next question comes from Phil Ng from Jeffries. Please go ahead with your question.
Speaker Change: Hey guys, Bob, congrats and thanks for all the help over the years.
Thanks, Phil.
Speaker Change: Yeah, I guess first question, Tom, it sounded like you're pretty confident in back at the man's going to be better than the first half with...
Speaker Change: Perhaps I'm the wins from the investments you've made. So let's say that demand outlook does play out as you anticipate. Will you need to be drawn down production in the back half? You know, part of the reason the 2Q outlook is a little more muted, you know, pull forward with maintenance and then...
Speaker Change: Running Containable Production with Demand, so if demand is better, like you expect, will you need a kind of drawdown production, back at F?
Speaker Change: Well, I think in the back half, we're trying to, we're trying to, you know, match our meal production with what we expect the demand to be and that's why we're pulling forward.
Speaker Change: You know, an outage in the second quarter that we would have had in the second half of the year and that's you know we'll we you know I think the thing to keep in mind is we're always going to run the demand. [inaudible]
Speaker Change: And we're going to do it in the most efficient manner we possibly can. And we're not trying to manage quarterly results. We're trying to manage a business based on doing the right things for our customers and doing the most efficient thing we can for our facilities.
Tom Hassfurther: Well, time I guess that's differently. To the back half, you would expect…
Speaker Change: You're a container board production to match pretty closely the box it meant, right? Just because two key, there's a mismatch going on your possibility. So the back after you've lined up. Yes, and if an example export picks up in the second half, you know, obviously there will be exporting more in the second half than we will in the first half. [inaudible]
Speaker Change: We'll just have to see all these things settle out. We're in a kind of a questionable mode right now and I think that will clear up here in the next 90 days pretty significantly.
Ok
Speaker Change: And then from a commentary, I mean April sounds like book and billing still reasonably strong. I think if I heard you correctly, I have 4%. Maybe your order patterns from your customers are a little more mixed. Is that largely destock under end? Just so my question is really, do you have a view, how much inventory is in the channel, whether it's...
Speaker Change: the actual end customer, or maybe customers in general, how long would it take to kind of flesh out that these talking how much inventory perhaps is in the channel.
Speaker Change: I think our customers have been operating pretty lean with their inventories.
Speaker Change: This is what they're telling us, because they're also concerned about. [inaudible]
Speaker Change: You know, what's happening globally and what's happening with tariffs and those sorts of things. I'm so, uh,
Speaker Change: You know, they're buying materials, they're doing all sorts of other things, and I think they're operating cautiously.
Speaker Change: So we have to be able to react quickly to changes in demand which I think will occur once this thing really clears up.
Speaker Change: I expect that our customers will operate with pretty lean inventories over the next 60 or 90 days and again I think that'll play a role in the second half of the year when they restock a lot of those inventories
Anthony Pettinari: Okay, super. And then question for you, Mark. You guys are, as you've got to point it on your price list, wall cap lies, strong balance sheet, you're going to be generating decent amount of cash flow. Stocks down quite a bit. Is there an appetite to kind of step up your buybacks with your share price here?
Anthony Pettinari: Yeah, I think you just termed it well as an opportunity. We'll let you know what we do.
Speaker Change: Okay. All right. Thank you guys. Good luck. I'm the back out here. All right. Thanks Phil. Next question, please
Speaker Change: Our next question comes from Charlie Muir Stands from B&P Parable. Please go ahead with your question.
Charlie Muirstands: Thank you very much. Apologies for acknowledging your comment about not running the business accordingly at our report. So just want to un-Sanmo the pattern of what you're seeing at the moment.
Speaker Change: I think you previously called out bookings about 8% in the first month of Q1.
Speaker Change: And secondly, you know, you've obviously said directionally that you expect volumes to be up.
Speaker Change: Alright, Charlie, let me see if I can make a stab at a couple of these things. Yes, we did start out in the first quarter with very strong bookings. You know, it's first quarter is always probably the happiest quarter there is in terms of, you know, how what's really going to happen in the quarter.
Speaker Change: The major impacts in our volume in that first quarter, in my opinion, were number one weather, which we know took place in a number, as I mentioned, but in addition, I think when these tariffs started to roll out,
Speaker Change: and our customers became much more cautious about what they were going to do going forward. I think what you saw as they were drawing their inventories down and that changed the demand curve.
Quite a bit.
Speaker Change: Second quarter, of course, and again, I'm going to say, you know, keep in mind [inaudible]
Speaker Change: that you're talking about a first quarter increase in volume over double digits that we had the previous quarter in 2024.
Speaker Change: And again, in the second quarter, we're going to be up. We're starting out a little ahead, maybe even a forecast but
Speaker Change: Again, I think we were up 9.2%, I think if I recall, a second quarter of 2024, so we've got some really, really big comps.
Speaker Change: that were beating and given the environment we're in and everything else we feel very good about that so I think and then of course then I made comments about the second half the year and we'll see how those play out.
Great. Thank you.
Speaker Change: Thank you. Any other questions, Jamie? Anybody trying to get back into the queue?
Speaker Change: Do you have a follow-up question from George Staphos from Bank of America Securities? Please go ahead with your follow-up.
Speaker Change: You know, the volume risks that are in the market you're doing well relative to the industry trends.
Speaker Change: And if we take your production and look at it relative to your capacity, there's not a ton of headroom, so how do you view your ability to keep up with the man?
Speaker Change: Are there any risks that you see it in terms of being able to supply?
You know, nothing will challenge you about that [inaudible]
Mark Kowlzan: George, if you went back over the last 15 years, we've always looked out at the future needs and also there's a number of levers that we can move to satisfy what Tom needs in the box plant side. Don't forget we are moving exports around the world, a very small amount, but that's a portion of container board tons. [inaudible]
Mark Kowlzan: If we needed to, that could be pulled back into the domestic market, but also we continued to...
improved the productivity out of the mills year after year.
Mark Kowlzan: And we're always looking at opportunities out on the marketplace for…
Mark Kowlzan: What could we do in terms of a mill acquisition of paper machine reconfiguration so...
Mark Kowlzan: There's a number of things we're looking at, there's a number of things we're doing and there's a number of things we always do to take care of what the box plants need.
Mark Kowlzan: Short term over the next few years, I'm not worried. If you ask me about where are we going to be 10 years from now? Yeah, if we keep growing at the rate we're growing, we're going to...
Mark Kowlzan: High-class problems we're going to need significant amount of container board to satisfy the kind of growth trend if that were to continue at the pace we would expect. So those are high-class opportunities.
Mark Kowlzan: No, clearly. Now, if I look at last one for me, if I look at basis weights, it looked like second half this past year.
Mark Kowlzan: trends were, as you pointed out, it was a lighter basis weight versus first half of 24. I didn't think there was that much of a change 24 versus 23 when I look at the data.
Speaker Change: So are there mixed factors occurring such that, yeah, in reality, the base weight of your boxes is actually declining but we're not singing in the aggregate data. And how would you say basis weights, you know, shifted year on year or sequentially in 25 so far? Thanks a good luck in the quarter.
Speaker Change: George, I think basis weights are continuing to come down. They'll come down again in 25 versus 24. I thank you. You know, it just depends on it depends on the mix at any given point in time or whatever the case might be, but but the general trend is down and you know that's again.
Speaker Change: As I mentioned, you know, we have, we have our proprietary boards that are tailor-made really for our customer mix.
Speaker Change: and they're predicated on making sure they perform. You can't just lightweight for the true, true paper technology here and so it's...
Speaker Change: You know, we'll continue to see that because I think there are opportunities for us going forward to continue to do that and we plan to take advantage of that. You know, a good way to look at that is if you think about the last half-dozen years what we've done at the Jacksonville.
Speaker Change: You know, when we first converted the Jackson number three machine
Speaker Change: to make a linerboard, we were doing it without the reconfiguration so we were not able to make the high performance grades.
Speaker Change: And then as we finish the phase two last year of the reconfiguration, that's what's really given us the big uplift.
Speaker Change: Jackson has been a game changer in terms of the majority of the of the
Speaker Change: The calling it the volume of square feet produced of these high performance grades that we have the capability. I mean the Jackson machine, there's only one other machine in North America that can even compare to what the Jackson machine does.
Speaker Change: And so it's been a game change for PCA, but at the same time we've modified and brought on all our other line aboard machines to produce
Speaker Change: These high-performance grades. That's a big beast of a machine. The beauty of Jackson is we're able to replicate a lot of what we're doing in Jackson and in the other mills. That's a great opportunity we have going forward.
Dr. Pettinari, George Staphos, Philip Ng,
Speaker Change: Thank you, Mark. Thank you, Tom. We'll see you next quarter. Thank you. Yeah, thanks George. Jamie any other questions?
Speaker Change: Sir, did some of them not showing any additional questions? Do you have any closing comments?
Speaker Change: Yeah, thank you everybody for joining us and I appreciate your time today and I look forward to talking with you in late July . Have a good day. Thank you.
Speaker Change: 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.