Operator: Thank you for joining Packaging Corporation of America's Q3 2026 earnings conference call. Your host today will be Mark Kowlzan, Chairman and Chief Executive Officer of PCA. Upon conclusion of his narrative, there will be a question and answer session. I would now like to turn the conference call over to Mr. Kowlzan. Please go ahead when you are ready.
Mark Kowlzan: Thank you, Jamie. Appreciate it very much. Good morning, everyone, and thank you all for participating in Packaging Corporation of America's Q3 2026 earnings release conference call. Again, I am Mark Kowlzan, Chairman and CEO of PCA, and with me on the call today is Tom Hassfurther, our President, and Kent Pflederer, our Chief Financial Officer. I will begin the call as usual with an overview of the Q3 results, and then I will be turning the call over to Tom and Kent, who will provide further details. After that, I will be wrapping things up, and then we would be glad to take questions. Yesterday, we reported Q3 net income of $262 million, or $2.93 per share. Excluding special items, Q3 2026 net income was $272 million, or $3.04 per share, compared to the Q3 2025 net income of $247 million, or $2.73 per share.
Mark Kowlzan: Q3 net sales were $2.6 billion in 2026 and $2.3 billion in 2025. Total company EBITDA for the Q3, excluding special items, was $577 million in 2026 and $503 million in 2025. Q3 net income included special items expense of $0.11 per share, primarily for costs and write-offs related to facilities closures, acquisition and integration-related costs, the impact of a fire at our Palmyra, Pennsylvania sheet feeder, and the Wallula restructuring charges. Details of the special items for the Q3 of 2026 and 2025 were included in the schedules that accompanied the earnings press release. Excluding the special items, our earnings increased by $0.31 per share compared to the Q3 of 2025.
Mark Kowlzan: The contribution from the acquired Greif business was $0.24 favorable year over year, generating $0.13 of earnings this year versus an $0.11 loss last year in the first month of ownership. Legacy earnings improved by $0.07 per share, driven by favorable price and mix in the Packaging segment for $0.79, favorable production and sales volume in the Packaging segment, which includes the impact of additional containerboard supplied to the Greif operations of $0.12, favorable price and mix in the Paper segment for $0.05, and a lower share count, $0.02.
Mark Kowlzan: These items were partially offset by higher labor and operating costs, $0.28, higher freight costs, $0.26, higher corporate and other expenses, $0.13, higher fiber costs, $0.12, higher depreciation and amortization expenses, $0.06, higher maintenance outage expenses in the Paper segment for $0.04, lower sales volume in the Paper segment for $0.01, and higher interest expense excluding the Greif acquisition and debt issuance for $0.01. As comparable quarters going forward will include the ownership of the acquired Greif business for the entire periods, we will no longer separately state the earnings contribution from the acquisition in the future. We exceeded our guidance of $2.91 on the strength of price realization and a higher-than-expected contribution from the acquired Greif business. These items were partially offset by higher labor and operating costs, partially driven by lower than forecast corrugated products volume.
Mark Kowlzan: Looking at our Packaging business, EBITDA excluding special items in Q3 for 2026 of $578 million with sales of $2.4 billion resulted in a margin of 23.9% versus last year's EBITDA of $492 million and sales of $2.1 billion or a 23.1% margin. The mills produced 1,489,000 tons during the quarter. The legacy mills produced 1,286,000 tons of containerboard, about 77,000 tons more than Q2 of 2026 and 31,000 tons more than Q3 of 2025. The acquired mills produced 203,000 tons. Quite frankly, an exceptional number for a quarter in which Riverville was down for an extensive annual maintenance outage. System-wide, our inventories were up 34,000 tons from the end of Q2, and in fact, most certainly, we need that inventory as we move into Q4.
Mark Kowlzan: We've been able to catch up with keeping our plants adequately supplied, resume shipping via most efficient methods possible, and we're in a good position to supply our customers in Q4, even with three of our containerboard mills down for their annual maintenance outages. Operational performance was excellent across the board, much improved from Q2, and we completed the first annual maintenance outage at the Riverville mill under our own ownership safely and successfully. From the cost side, in addition to increasing freight, we saw significant increases in recycled fiber, purchased power, and chemical costs during the quarter, and we expect these input costs to continue to go up. Our mill production reflects improved output at Jackson, even ahead of the completion of the winder project coming online in Q4 as we continue to maximize the performance of the paper machines.
Mark Kowlzan: We also benefited from continued improvement in reliability out of the acquired Greif mills. I will now be turning it over to Tom, who will provide more details on containerboard sales and the corrugated business in general.
Tom Hassfurther: Thanks, Mark. Domestic containerboard and corrugated products prices and mix were $0.75 per share above Q3 2025 and up $1.11 per share compared to Q2 2026. We have realized substantially all of the first net $50 increase and about half of the second $50 increase. Price realization came in ahead of forecast for Q3. We expect to realize almost all of the remainder of the second increase in Q4. Realization of the $70 increase will be split between Q4 and Q1 and skewed more towards Q1 in terms of timing. Export containerboard prices were $0.04 above last year's Q3 and $0.03 above Q2 2026.
Tom Hassfurther: Export sales volume of containerboard was 5,000 tons higher than Q2 2026 and 10,000 tons lower than Q3 2025 and remains at a relatively low level. While various factors that we have previously discussed led to lower agriculture end market volume, demand was solid throughout the quarter across the remainder of our customer base. Shipments were up around 11% in total and per day versus last year, with the legacy business down a half a percent, which is about in line with our expectations, taking into account the lower ag shipments. A silver lining is that we got ourselves back on solid footing from an inventory standpoint in time for what looks like a pretty strong Q4 from a volume standpoint, based upon our September and October bookings.
Tom Hassfurther: We were also able to save a lot on freight during the quarter by being able to plan and optimize our runs. We remain in a very tight containerboard market, which based upon what we are seeing in our own system, appears to be further tightening with Q4 seasonal pickup. As Mark said earlier, we have three containerboard mills down for annual maintenance in Q4, including DeRidder, and we will need the mills continuing to perform at the top of their game to keep us properly supplied. The acquired corrugated business meaningfully contributed to our profitability during the quarter, though volumes took a hit from the fire at Palmyra that kept the plant down for most of September.
Tom Hassfurther: Integration levels continued to improve, and legacy PCA mills supplied approximately 45,000 more tons of containerboard into the Greif system during the quarter than it did a year ago. The improved integration, together with better operational performance in the mills that Mark mentioned earlier, has us well ahead of our synergy targets. All systems work will be completed during the fourth quarter, which will further improve our visibility and day-to-day management of the business. This acquisition is working out very well for us, in large part due to the quality and performance of our people, who have put in a tremendous effort integrating and running the business. I'll now turn it back to Mark.
Mark Kowlzan: Thanks, Tom. Looking at the paper segment, EBITDA, excluding special items in the third quarter, was $34 million, with sales of $163 million, or a 20.6% margin, compared to the third quarter of 2025 EBITDA of $40 million and sales of $161 million, or a 24.9% margin. The differences in EBITDA and margin results from the maintenance outage being in the second quarter last year and the third quarter this year. Sales volume was approximately 0.9% above the second quarter of 2026, and approximately 2.5% below the third quarter of 2025. Prices and mix were up 2.8% from the second quarter of 2026, and up 3.8% from the third quarter of 2025. Sales volume, price realization, and cost performance contributed to performance above our expectations. I'll now turn it over to Kent.
Kent Pflederer: Thank you, Mark. Cash provided by operations was $472 million, and after $247 million of CapEx, free cash flow was $225 million. In addition to CapEx, the primary payments of cash during the quarter included dividend payments of $134 million, cash tax payments of $66 million, and net cash interest payments of $29 million. We did not repurchase shares during the quarter. Excluding special items, our effective tax rate during the third quarter was 25.8%. We expect our fourth quarter rate to be nearly identical to the third quarter. We now forecast $865 to $890 million of CapEx for the year, and excluding special items, just above $705 million of depreciation and amortization. These primarily relate to timing of expenditures and assets placed in service and do not reflect changes in our overall plans.
Kent Pflederer: Our special items expense for the year to date, just to remind you, through Q3, included just under $60 million of depreciation expense and write-offs, primarily associated with the Wallula restructuring. I'd now like to give you an update on the annual outage schedule and earnings impact for the rest of the year. Our outage expense was $0.28 during the third quarter. Our fourth quarter estimate is $0.72 now, totaling $1.48 for the year. The increase of $0.08 from when we last updated you is primarily due to some timing, with a couple of cents in Q3 moving into Q4, as well as our decision to substantially increase the scope of maintenance activities at the completed third quarter Riverville outage, with more costs now being amortized into the fourth quarter, and to a lesser degree, an increase in the scope of the DeRidder outage that will take place next month.
Kent Pflederer: I'll now turn it back over to Mark.
Mark Kowlzan: Thanks, Kent. As we move from Q3 into Q4, we expect solid corrugated products demand with some seasonal improvement. Shipments per day are expected to be at or around last year's Q4 level, with two fewer shipping days than Q3, and total corrugated shipments will be higher than Q3. Prices for containerboard and corrugated products are expected to improve as we continue to implement earlier price increases. Corrugated products mix will be seasonally weaker with higher e-commerce volumes. Containerboard production will be lower with annual maintenance outages at three of our mills, and mill maintenance outage expenses, including the impact on production volume from the Q4 outages, will be significantly higher in Q4. We expect seasonally lower volume and slightly higher prices in the paper segment.
Mark Kowlzan: We expect freight costs to increase across our business with diesel fuel prices above Q3 levels. We also expect costs for recycled fiber to continue to increase, as well as higher wood fiber costs to increase due to winter yields and wood mix, and mill mix rather. Costs for chemicals and energy will increase due to higher chemical prices and higher seasonal energy usage. Considering these items, we expect Q4 earnings of $2.81 per share, excluding special items. 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 today constituted forward-looking statements.
Mark Kowlzan: The statements were based on current estimates, expectations, and projections of the company, and do involve inherent risks and uncertainties, including the direction of the economy and those identified as risk factors in our annual report on Form 10-K on file with the SEC. Actual results could differ materially from those expressed in the forward-looking statements. With that, Jamie, I'd like to open the call for questions.
Operator: We'll begin that question-and-answer session. If you would like to ask a question, please press Star and then 1. To withdraw your questions, you may press Star and 2. If you are using a speakerphone, we do ask that you please pick up your handset prior to pressing the keys to ensure the best sound quality. Once again, that is Star and then 1 to join the question queue. Our first question today comes from George Staphos from Bank of America. Please go ahead with your question.
George Staphos: Hi, everyone. Good morning. Thank you for the details. I wanted to maybe kick off on volume. You mentioned, Mark, that you expect volume to be, I'm paraphrasing, even or around the volume trend from last year. Can you talk a little bit about what you're seeing in terms of bookings and billings, and how you characterize volume being at or around comparable with also a tight market as you're seeing it?
Mark Kowlzan: Yeah. We'll let Tom get into that as he.
Tom Hassfurther: Hey, George. It's Tom.
George Staphos: Morning, Tom. How are you?
Tom Hassfurther: Good morning. Bookings were good in September. They are doing very well here in October as well, up a little over 5%. Billings have lagged a little bit, and we expect that will catch up during Q4. So we are forecasting right now for pretty flat for Q4, but keep in mind that is a tough comp we are talking about as well. It is easy to kind of look at October, November and get some insight, but December is always a bit of a crap shoot. So we are just going to be a little cautious in terms of that forecast. But we are pleased with the cadence of the volume. We have had some struggles, as we mentioned, with the ag business, especially related to the lettuce issues and some things like that from some of our customers. And we expect some pickup, but again, that will be determined seasonally.
Tom Hassfurther: Sometimes it picks up in Q4, sometimes it tracks into Q1. So that is kind of where we are right now, and of course, our mix is going to be a little more concentrated towards e-commerce in Q4 as well.
George Staphos: Right. Appreciate that. Related to mix and volume, perhaps again in Q3, given the numbers that you gave in terms of pricing effect in Q3 was quite strong. You said pricing is ahead of your expectations. Do you think that perhaps maybe you have lost a little bit of volume momentum at all with your pricing or not really, and why you view that to be the case? Relatedly, when we do just revenue over tons, the mix was a couple points lower than we are expecting. Is that Greif effect or is that e-commerce effect in Q3 from what you could see? And then I had one last follow on.
Tom Hassfurther: Okay, George. I am going to remind you of something we have talked about for years. When we are in price increase mode, we are 100% focused on price increase because those opportunities do not come along that often, and that is incredibly important to our business in the long term. Relative to volume, we may lose an item or something like that, but for the most part, these are the same customers we have been dealing with for a long time, and they understand the situation we are in, and they are in the exact same situation. When you are using revenue over tons, yeah, there is some grave effect in there, no question about it. That is a different segment of the market that we were not in before. So that is going to impact that a little bit. Hopefully, that gives you your answer.
George Staphos: It does. Lastly, you mentioned that the CapEx increase and the maintenance spending tweaks were mostly timing. Was there anything in there that was actually required or maybe not anticipated that you had to pull forward in terms of maintenance or CapEx? Thanks, and good luck in the quarter.
Tom Hassfurther: So George, I will give it to Mark after this, but in terms of timing, no. We were a little favorable in Q3 to what we had put out there last time, but that rolls into the Q4. That is really kind of timing of amortization of expenses more than anything else. In terms of activities, Mark can maybe comment a little bit more on what we are doing in the 2 mills.
Mark Kowlzan: Yeah. George, we always reserve the right for new discoveries, new opportunities. We move the capital up and down as we see fit, and some of it is just timing on engineering and deliveries of equipment for installation. But we are pretty encouraged. We just went through that annual shutdown at Riverville, and during that week of downtime, for most of that week, we had over 1,400, 1,500 contractors and people in the mill site working on that mill. We found some good opportunities, and it will lay out some really nice upside opportunity for that mill over the next few years. I am talking about things like some headbox, some forming section work, some dryer section work, press section work, things in the back end of the mill.
Mark Kowlzan: We are very encouraged by the continuing opportunity that Massillon and Riverville will provide, in much in the same way that the Boise mills delivered over the years. Using that term, the gift that keeps on giving.
George Staphos: Understood. Thank you. I will turn it over.
Mark Kowlzan: Next question, please.
Operator: Our next question comes from Mike Roxland from Truist. Please go ahead with your question.
Mike Roxland: Yeah. Thank you, Mark, Tom, and Kent, for taking my questions.
Mike Roxland: First question, it seems like the Greif assets provided most of the upside to Q3 as price cost overall was neutral based on our estimate. First, would you agree with that assessment? If so, what drove the strong performance at Greif, and why was it better than expected?
Mark Kowlzan: Let me talk about Greif, and then Tom and Kent can weigh in. We took some criticism last year during the first phase of our ownership of Greif because we got heavily engaged in fixing the assets right away. We had all of our technology organization heavily involved in Massillon and Riverville right from the get-go last September, when we closed on 2 September. So we took advantage of that, and very quickly were able to get the mills in a very good position to start delivering results. We talked about that on the Q2 earnings call, that we had accomplished a great deal from a reliability and a performance point of view. So quite frankly, through the summer months into the fall now, we've seen exceptional performance coming out of both of those mills.
Mark Kowlzan: The same thing on the core choice side of the business. They continue to make improvements. So again, that's what we do. That's what PCA does best. We've got incredible technology and operational group across the board. So the results speak to that. Tom, Kent, you want to weigh in on that?
Tom Hassfurther: I'll just add, obviously the integration did help a lot. But I would not put it all on Greif. Some of the other things that we do, and we do incredibly well, is we can utilize these Greif assets in some different ways than they were able to use it, since we have such a large system, and we're positioned all across the United States. So there's some end market restructuring that took place as well within our system, which contributed. But there's some puts and takes to that. You may move it over to one as opposed to the other. That's why I say you can't just hang it all on Greif. But it did provide a lot of opportunities for us. As Mark mentioned, that's what we do well.
Tom Hassfurther: We get in there, and we take advantage of it, and we figure out how to maximize these assets in a way that perhaps wasn't previously available to the previous owner. I think, when I talk about end market structure, that's not only how we're going to these end markets, but also perhaps some of the opportunities that afford themselves in terms of profitability as well. Kent, you got anything else?
Mark Kowlzan: No, I'm good. Thanks. Anything else, Mike?
Mike Roxland: No, guys, very helpful. Just one quick one. Can you help me understand, Tom, what happened to legacy volumes in Q3? If you look back a couple of quarters, you were outperforming the industry by a few hundred basis points. In Q3, legacy box volumes declined 0.5%. Obviously, you had the ag issue, but I think the 0.5%, when all is said and done, when we get the industry numbers, you'll probably be in line with the industry. So wondering what's happened with you in terms of the outperformance. Is it just a matter of you maybe focusing more on price and less so on volumes?
Tom Hassfurther: Well, Mike, let's put it this way. Our objective is profitable revenue growth. That can come in a number of different ways. Price is our supreme focus at the moment. That is what is driving our results at the moment. As I mentioned before, we did have a couple of segments that we are pretty large in that have been a little bit of a drag, but it has nothing to do with losing business. It is just that they had some issues of their own, which cut down some of their demand.
Mike Roxland: Got it. Makes sense. If I could squeeze one more in quickly. Kent, you guys guided Q4 to be down around $0.20 sequentially. How should we think about the progression from Q4 to Q1 this year, particularly given the fact that the third price increase is flowing through?
Kent Pflederer: All right, Mike, without putting too fine of a point on this because we really only guide one quarter in advance. These are the drivers. You will see continued price improvement from Q4 to Q1 as the $70 increase, the remainder of that comes in. Mix also improves a little bit from Q4 to Q1 as well. Outage expense also significantly, the P&L hit moves in the right direction. Volume goes down just seasonally. Q4 is sort of the peak, Q1 then it comes down a little bit. Mill production up a little bit because we have less outage impact. On the cost side, you are going to see mill operating costs primarily at Q4, if not even a little unfavorable just because you are in winter. Then you have the normal inflation that hits the labor benefits, services, all that sort of thing, starting at about 3%.
Kent Pflederer: We do the best on that, though, to whittle that down through operational efficiency. I gave you a lot of factors there, but hopefully that gives you at least a start based upon our historical performance when you try to model all this.
Mike Roxland: Very helpful. Thanks, guys, and good luck in Q4.
Kent Pflederer: Thank you.
Mark Kowlzan: Thanks, Mike. Next question, please.
Operator: Next question comes from Mark Weintraub from Seaport Research Partners. Please go ahead with your question.
Mark Weintraub: Great. Thank you. First, maybe just following up then a little bit on these kind of sequential type analysis since we've been going there. As we think about Q4 versus Q3, I think at a conference you had talked about something less than $0.45 having been experienced last year, might be what you would see this year. Now, is the difference now the kind of more $0.20 reduction you are projecting from Q3 to Q4? Is that a function of the September pricing? Would that be the main reason why that would have changed?
Kent Pflederer: Oversimplified, yes. I will give you a little more color on this, okay? We saw a fairly large sequential increase from Q2 to Q3 in price. Given the mix and given the timing of roll-in, we will not be nearly as favorable Q3 to Q4, but the price favorability should be enough to offset the additional cost that we are taking on in the outages. That is about even. Okay? We then have higher operating costs, and if you look across the portfolio of costs in our mills and operations, you are going to have higher recycled, higher freight, higher seasonal. Okay? Offset a little bit by favorable in the corrugated operations, just due to better cost absorption. So you have all those factors into place. Yeah, we are about $0.20 to $0.25 down from Q3 to Q4, but the big help there is realization of the $70 increase, the beginning of realizing that.
Kent Pflederer: Hope that helps, Mark.
Mark Weintraub: Yes, it does. Thank you. Then, obviously you have been doing a terrific job offsetting a very difficult cost environment on the pricing side. Your long-term track record has been a lot about company-specific value creation as well. You have alluded to several things that should help 2027 versus 2026 on that score already. Maybe if you could give us a laundry list, Counce, the box plant in Ohio, further gains from the Greif improvements, et cetera. What are the things that big picture we should be thinking about? Lastly, I think the energy projects are more 2028, but maybe update us on your thoughts there.
Mark Kowlzan: Let me start. Yeah, the energy projects, you will see the benefit more into the 2028 period. Again, we are in construction mode right now at Jackson, and breaking ground at DeRidder. We are waiting on permits for the gas turbine installation at the Riverville mill. That is pending. You just hit it on the head. We continue with our capitalization program. Tom, comment on the successful start-up of the new box plant in Ohio. We hit it out of the park on that.
Tom Hassfurther: Yeah, we had an incredibly good start-up in our new Newark plant, which also allowed us to announce the closure of Middletown a little bit earlier than what we probably would have otherwise. We have further installations going in there as we speak, and we are continuing the same cadence basically with putting in other equipment and upgrading other equipment in box plants all across the United States. We have to be incredibly well-equipped to continue to deliver at the levels that we do for our customers, and provide them the quality that we have and those sorts of things. I might mention in addition the work we continue to do on our proprietary grades of paper is allowing us a lot of opportunity, and we will continue to do that going forward. That has a lot to do with our capital expenditures as well.
Tom Hassfurther: Mark, we continue to do what we do incredibly well, and we have been doing on a regular basis for the last decade.
Mark Kowlzan: Yeah. Another example, Mark, is the new winder at the Jackson mill. That had been under construction for over a year. We got that started up at the end of September, and really the last couple of weeks now, but it came up incredibly well and that winder is running as planned. Jackson has a duplicate winder now running 10,000 feet a minute if we need it, which the plan would be to put more fiber over that machine. I fully see the Jackson Mill over the course of the next year and a half or so will become a 1 million ton a year mill. We have been talking about that for the last six or seven years, that was the direction we were taking the mill, and that is where we are going. Counce is another example.
Mark Kowlzan: We've got the second phase of the work going on the number 2 machine at Counce to upgrade that capability. We'll be seeing further benefits, significant benefits out of the Counce number 2 machine, which will be productivity, quality, cost. Again, we've got approximately 200 people in the corporate technology organization dealing with these matters 7 days a week. Those of us at the corporate level, this is what we do. Either we're doing and working on operational matters or the group's working on customer-based marketing and sales matters. That's what we focus on, and that's what we do well.
Mark Weintraub: Super.
Mark Kowlzan: Anything else?
Mark Weintraub: Actually, one really quick one if I could. Maintenance outage expense, it's high this year. Is that just because things are more expensive, or were you just taking more outages this year than normal? If we think about next year, should we just assume similar to this year or not necessarily?
Mark Kowlzan: Good question. It's both. We undertook, obviously, with the Massillon mill and the Riverville mill, we undertook more activity. Also we're just doing some things at the legacy mills that we want to get done. We always take care of these assets in terms of we may have older mills, but if I took you into these mills, you'd think they were new mills. Also it's the cost of capital. The equipment cost today are significantly higher than they were just a few years ago. Whether you're buying a pump or a motor or a new headbox, the costs have gone up dramatically just in the last year or so. Then again, the labor cost to install, if you're having contractors come in, that labor cost is up significantly.
Mark Kowlzan: And so that's really, it's the amount of work we're doing and taking advantage of the time and the capability to do it, and the pure capital cost of these components and the labor cost to do it. So I would mention, we are in a really good position. For the last 10 years, we have gotten ahead of the curve, so to speak, on recapitalizing our box plant assets. Our mills are in great shape. And so everything we're doing is more on autopilot opportunity, taking care of the customer base, growing with the customers. And Tom, why don't you add a little bit more to that?
Tom Hassfurther: Well, just to follow up on that, Mark. I think we've mentioned this numerous times, but this cost of capital has gone up 2, 3x in a lot of cases, both at the mills and at the box plants. So it's imperative in order to be able to continue to grow with our customers and be able to take care of our customers and all those other sorts of things, to be able to earn your cost of capital. That's part of a struggle that we have every day to make sure that we're able to do that. And to Mark's point, also as I mentioned, we've been at this for a long time, so a lot of those improvements that we put in place were prior to some of these exorbitant increases that we're now encountering. But those are definitely considerations going forward.
Tom Hassfurther: And all these projects that we've got going on also, God only knows we need all these tons too. They're sold already.
Mark Weintraub: Appreciate all the detail. Thank you.
Mark Kowlzan: Thanks, Mark. Next question, please.
Operator: Our next question comes from Anojja Shah from UBS. Please go ahead with your question.
Anojja Shah: Hi, good morning.
Mark Kowlzan: Morning, Anuja.
Anojja Shah: Morning. I wanted to ask about synergies. I think you said they are running ahead of plan. Any way to put a finer point on that, like how much it contributed in Q3? Are you still expecting $30 million for this year, next year, or do you think you can end up doing a little better than that?
Tom Hassfurther: No, we are doing a little better than that. We are on a run rate now between 40 and 50. We called out 45,000 tons of increased integration from PCA into the acquired. That is a big piece of it. There are other integration benefits, and then there is just the reliability, cost performance and whatnot at the acquired Greif mills. Run rate of 70,000 more tons now than what it was doing at the time of the acquisition. Those buckets are the factors and the synergies at this point.
Anojja Shah: Right. Okay. Switching over to end markets. Have you seen any pickup? I know the FDA declared the cyclospora outbreak done. Have you seen any improvement in your shipments, recognizing that it is probably a bit of a seasonal market? Can you talk about what you are seeing in your other end markets, industrial and consumer?
Tom Hassfurther: Anuja, I will take a stab at this. I have mentioned ag numerous times. We do see some recovery in ag. The question will be, is how much of that occurs in the Q4 and how much rolls over into the Q1? Does weather cooperate? That has been also a little bit of a drag. Protein markets, especially on the beef side, have been down now for quite some time. Everybody has heard about the level of the herds and how long it is going to take to get those herds back up and get that volume back up. That is going to still take some time. The other market, e-commerce is still not growing at the same rate it had grown for a long time, but still is a growing market and still doing quite well. Outside of that, the other markets are kind of where they are.
Tom Hassfurther: We'd like building products to pick up some and things like that. That has to do with government regulations and a whole bunch of other things, and interest rates. There's lots of puts and takes, and we're in so many different markets, and we've got thousands and thousands of customers in these various markets. So it's hard to predict any single one. Ag has stuck out more than others just because of what's gone on weather-wise and the lettuce and all the other things that have occurred. Right. Okay. Thank you very much for that. I'll turn it over. Thanks, Anuja. Next question, please.
Operator: Our next question comes from Phil Ng from Jefferies. Please go ahead with your question.
Phil Ng: Hey, guys. Congrats on another strong quarter. I think if I heard you correctly, you guys are doing a little more extensive work in Q4 with DeRidder and I think Massillon as well. My question is, does that unlock potentially more capacity, more debottlenecking? I think when you guys announced idling Wallula and debottling some of the other mills, I had a number in mind, roughly 6 million tons of capacity once it's all said and done, but you guys always find new things to do. So can you kind of help us think through your capacity to produce, just because, as you kind of pointed out, market's very tight.
Tom Hassfurther: Yeah, if you think about our expected run rate for 2026 is probably going to be 5,757,000 tons. So, I would think we're on track, and I've been talking about this for the last year, that we'll get to be a 6 million ton system with this work that we're doing. So it's basically, we get through these outages next year at Counce and some of the work we've got going on at Jackson. We certainly have that capability that depending on the grade mix you're producing, we're bumping up against that 6 million ton capability. But this is ongoing. This is what we do. We continue to stretch the capability. We see the opportunities. That's why I mentioned earlier on the call, the annual shutdown that just occurred at Riverville Mill.
Tom Hassfurther: It unlocked these opportunities before our eyes in terms of some capital input will greatly improve the productivity and performance of the Riverville mill. That is going to be another piece of the containerboard supply over the next couple of years as we get that equipment installed and that mill stretched out. Massillon mill is a good example. Massillon mill is performing incredibly efficiently compared to a year ago. These are the little things that we do that make Massillon such an important mill to us. You have the new box plant down in Newark. I believe it is like 80 miles from the Massillon mill. Yeah. It is basically shuttle truck distance away. The Ashland box plant is probably 40 miles away from Massillon. Massillon being a very efficient mill just within the first year of ownership, presents an incredible opportunity.
Tom Hassfurther: We will continue to stretch out. Long answer to your question, we are definitely at that 6 million ton, bumping that capacity and with these projects we got coming on over the next six months to a year.
Phil Ng: Got you. Any early read on CapEx next year and big projects in the horizon? You spent.
Tom Hassfurther: No-
Phil Ng: Most people would be happy with, but anything that you have up your sleeve that.
Tom Hassfurther: Well-
Phil Ng: we can talk about?
Tom Hassfurther: We will give you a better target in the January call as we always do. I mentioned some of the bigger projects. Really, the big spend over the next 24 months will come from the gas turbine installations. We got three gas turbines going in, and we got to finish up the Counce number 2 machine improvement work. That was a fairly sizable amount of work. The rest of it is just the whole host of opportunities that present themselves across the board in the box plants. It is going to be the one-off equipment. It is the EVOLs, the Bobst, the various rotary die cutters, new corrugators to continue to grow with our customer base. That is all customer-driven. That is the beauty of that we invest with the customer.
Tom Hassfurther: I think without giving you a number, if you think about the cadence of our capital for the last couple of years, we are going to take advantage of those type of opportunities. We are generating significant cash flows. I think the question will come, as it has always been: What are we doing with all the excess cash? I will leave it at that.
Phil Ng: Okay, super. Perhaps a question for Kent. Kent, you were kind enough to give some color sequentially from Q4 to Q1. Outside of the labor and benefits piece, which steps up every year around Q1, are you starting to see your major input costs level off here, just your operations rate and stuff like that? Any color on the September increase, how much of that is slowing through in Q4 versus Q1? Is it like a 20/80 split?
Kent Pflederer: Okay, so take your last one. I think it is probably a little more into Q4 than what you said. But I do not want to throw a number, but it is better than 20/80 in terms of Q4 versus Q1.
Phil Ng: Okay.
Kent Pflederer: All right. On input costs, freight recycled. Right now at least looking past Q4, we got to assume it stays at elevated levels. Okay?
Kent Pflederer: Okay.
Kent Pflederer: Until we see some sort of breakthrough in the drivers on those. Right now I am assuming at fairly high levels, similar to what we are forecasting for Q4.
Phil Ng: Okay. That is helpful. I mean, margins should improve nicely with costs leveling off. Thank you so much.
Mark Kowlzan: Thanks, Phil. Thanks, Phil. Next question, please.
Operator: Our next question comes from Anthony Pettinari from Citi. Please go ahead with your question.
Anthony Pettinari: Good morning.
Mark Kowlzan: Morning, Anthony.
Anthony Pettinari: Just following up on the energy projects. I think at the beginning of the year, you talked about the gas turbine projects taking maybe two and a half years, and I am wondering if I got that right, and if in the current operating environment, which is pretty tight, are you on track for that? Are there possibilities to pull that forward or just yeah.
Mark Kowlzan: Because there are three installations at three different mills, they are moving in three different paces. We are actually in installation mode at the Jackson Mill. That is moving along very quickly, and part of that was we were able to get the permits very quickly and move on that through your summertime period. DeRidder is somewhat behind that. Then Virginia with the Riverville mill, we are going through a permitting process, and that is taking a little extra time. Part of it is we are just comprehensively looking at the entire mill footprint with the mill opportunities in terms of productivity on the paper machine side, the pulp mill side, and comprehensively looking at what that mill will become over the next few years. So there is a little bit of extra time in the permitting process.
Mark Kowlzan: So that would be kind of like a late 2028 into the truly just the two and a half years out to see that one come on at best. That is why it is really a multi-year phased project.
Anthony Pettinari: Got it. That is very helpful. Then apologies if this was asked earlier, but in terms of the most recent box price hike, when we think about the implementation and the timeline for that hike, should we think about that as being basically the same as the first and the second hikes this year? Or is there anything about we are kind of towards the end of the year or the competitive environment? Just how would you compare the implementation timeline for the third one versus the first two, just based on where we are close to the end of the year?
Tom Hassfurther: Anthony, this is Tom. Our timeline is pretty much the same on each of these. I gave you in the commentary, we got the first is the end. We still are realizing some of the second 50 in the fourth. We will realize a little bit of the 70 in the fourth, and the majority will come in Q1 of next year. So the cadence on these are pretty much the same. You may be asking the question because it is not every day that we get three back to back to back. That is how the cadence is working for us right now, and it is all based on the normal procedures that we go through with our customers.
Anthony Pettinari: Okay. That is helpful. I will turn it over.
Mark Kowlzan: Thank you. Next question, please.
Operator: Our next question comes from Hillary Cacanando from Deutsche Bank Securities. Please go ahead with your question.
Hillary Cacanando: Hi. Thank you for taking my question. Just a quick clarification question on the $70 increase. You said you expect obviously more in Q1 than Q4. But are you expecting the full $70 increase to be realized by Q1, or do you think that that could extend beyond Q1 into Q2 or even Q3?
Tom Hassfurther: Hilary, this is Tom. In the normal cadence that I just talked about, the great majority of the realization will all be in Q1 next year.
Hillary Cacanando: Okay. Got it. Thank you. That's helpful. Then, just with recycled fiber costs continuing to increase, has anything changed in how you're optimizing the mix between recycled and virgin fiber?
Mark Kowlzan: No. Again, we take advantage that it's a mill-specific opportunity, mill by mill, location by location. You got transportation considerations on OCC. Then again, just what the pulp mill itself is designed to do, and so you balance out your fiber needs with OCC in general, DLK. But in the conditions we're under in terms of with the tight market need for containerboard, we've got everything pretty well maxed out. Virgin kraft productivity, OCC plant productivity. So it's basically utilizing everything we can take advantage of right now.
Hillary Cacanando: Got it. Thank you. That is helpful. Thank you.
Mark Kowlzan: Thank you. Any more questions?
Operator: Yes, sir. We have a follow-up question from George Staphos from Bank of America. Please go ahead with your follow-up.
George Staphos: Hi. Thanks, guys. I will make it quick. Mark, can you talk a little bit about what kind of lead times you are seeing on equipment? You talked a little bit about turbines, and obviously you already had purchased those, and opportunistically so. But if we think about converting equipment versus equipment you might need at the mill, what are your lead times right now? And how would those compare versus what you are hearing about elsewhere, perhaps? Then, when we think about Greif, the synergies which have now moved up, the turbine project, and then the mill realignment optimization program you announced last year into this year, or maybe it was the beginning of this year. I know it depends on where you start the clock, but I think we have talked in the past.
George Staphos: Do you think you have added from all of that, $0.5 billion to your EBITDA when you think about those three or four larger buckets? Thanks, and good luck in the quarter.
Mark Kowlzan: Hey, George, I will knock off your last one. The answer is we are pretty darn close to that. There are some inflation effects to that. But yeah, we have talked about that before publicly and in response to your prior questions. But yeah, that is still a pretty good number there.
George Staphos: Just marking a mark there. Go ahead.
Mark Kowlzan: On some of the lead times, it depends on what you are ordering. If you are ordering some very complex pieces of unit operations, the lead times can be longer. In some ways, there are some opportunities that have taken place. Some of the equipment suppliers actually do not have as big a backlog as they had a few years ago, so the lead times have shortened up. But more than the lead times, it is the cost.
Mark Kowlzan: Whether two years ago it took 14 months to get something delivered, now you can get it delivered in 10 months. It doesn't matter if the cost is up 60% from what it was a year and a half ago. It's the absolute cost to acquire the piece of equipment, then the installation labor that goes into it, and the associated installation factors that have increased. In many cases, they have doubled the cost of capital projects just in the last two years.
Tom Hassfurther: I'd add that if we're building it all, you're now competing with data centers for land and for steel and all these other things that are going on. So those construction costs are just going through the roof as well.
Mark Kowlzan: We're definitely seeing, if you think about contractor availability is a good example, and what Tom just said about data centers. With any specific region, if you are in the building and trades and you have an opportunity to go work at a data center, quite frankly, if you look at the pay scales and locations, and quite frankly, just the magnitude of the build-out, it's put an incredible demand nationwide on a lot of the building and trades.
Mark Kowlzan: Again, that's another factor that we deal with. We're fortunate we have a good group of contractors that we've aligned ourselves with. Again, we have our own incredibly talented maintenance organization that we use across the board. We call that the traveling team, and in conjunction with the technology group. We're able to overcome a lot of that, but still, again, the delivery times, it's one factor, but it's the absolute cost of the equipment that's really the factor.
George Staphos: Mark, I understand, but if I was ordering a new paper machine, I was converting something, I am not getting into the business, but let us say I was, am I looking at 2 years on that? If I was buying a new flexo folder gluer, let us say I was buying an Evol, not you, but me. Am I a year before I get that equipment? That is just what I am getting at. Thank you, and good luck in the quarter. Thanks again.
Mark Kowlzan: Yeah, it just depends on the equipment you are buying, the vendor you are buying it from, what country it is coming from. Again, the permitting issues, the contractor's availability to install it. But I can tell you, investing in this business is not for the faint of heart anymore.
George Staphos: Okay.
Mark Kowlzan: The game has changed significantly.
George Staphos: Got it. Thank you so much.
Mark Kowlzan: All right, George. Thank you. Jamie, any more questions?
Operator: Mr. Kowlzan, I see that there are no more questions at this time. Do you have any closing comments?
Mark Kowlzan: Yeah, I'd like to thank everybody for joining us today, and as usual, we appreciate the back-and-forth question and answer period, and look forward to talking to everybody in January. With that, have a great rest of the year and a great holiday period. Thank you.
Operator: With that, we'll wrap up today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.
