Packaging Co. of America Q3 2023 Earnings Call Transcript

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October 24, 2023

There are 10 speakers on the call.

Operator

Good morning, everyone, and thank you for joining Packaging Corporation of America's Third Quarter 2023 Earnings Results Conference Call. Your host today will be Mark Palazan, Chairman and Chief Executive Officer of PCA. Upon conclusion of his narrative, there will be a question and answer session. Please note that this call is being recorded. At this time, I'd like to turn that floor over to Mr.

Operator

Calzan. Please proceed when you are ready.

Speaker 1

Thank you, Jamie. Good morning, and thank you all for participating in Packaging Corporation of America's Q3 2023 earnings release conference call. I'm Mark Holzand, Chairman and CEO of PCA. And with me on the call today is Tom Hassfurther, Executive Vice President, who runs our Packaging business and Bob Mundy, our Chief Financial Officer. As usual, I'll begin the call with an overview of the 3rd quarter results and then I'll turn the call over to Yesterday, we reported 3rd quarter net income of $183,000,000 or $2.03 per share.

Speaker 1

Excluding special items, Q3 2023 net income was $185,000,000 or $2.05 per share, compared to the Q3 of 20 22's net income of $266,000,000 or $2.83 per share. 3rd quarter net sales were $1,900,000,000 in 2023 $2,100,000,000 in 2022. Total company EBITDA for the Q3, excluding special items, was $388,000,000 in 2023 and $477,000,000 in 2022. 3rd quarter net income included special items expenses of $0.02 per share, Primarily for certain costs at the Jackson Alabama Mill for paper to containerboard conversion related activities. Details of all special items for the Q3 of 2023 as well as 2022 were included in the schedules that accompanied our earnings press release.

Speaker 1

Excluding the special items, the $0.78 per share decrease in Q3 2023 earnings Compared to the Q3 of 2022 was driven primarily by lower price and mix of $1.33 and volume $0.09 in the Packaging segments. Higher depreciation expense, dollars 0.11 lower volume in the Paper segment, dollars 0.04 Higher tax, dollars 0.02 and other expenses, dollars 0.02 These items were partially offset by lower operating costs So $0.58 primarily resulting from lower recycled fiber and energy prices along with outstanding mill and plant operational execution. Other favorable items included a lower share count resulting from share repurchases in the second half of twenty twenty two for $0.11 Higher prices and mix in the Paper segment, dollars 0.04 lower converting costs, dollars 0.04 Lower scheduled maintenance outage expenses of $0.04 and lower freight and logistics expenses 0 point 0 $2 The results were $0.17 above our Q3 guidance of $1.88 per share, primarily due to higher volume in the Packaging and Paper segments and lower operating and converting costs. Looking at our Packaging segment. EBITDA excluding special items in the Q3 23 of $374,000,000 with sales of $1,800,000,000 resulted in a margin of 21.3% versus last year's EBITDA of $467,000,000 with sales of $1,900,000,000 and a 24.1 percent margin.

Speaker 1

The operational benefits of our capital spending program And the continued great focus and execution of our mills and corrugated products facilities on numerous process improvement initiatives Once again delivered impressive results. This included areas such as machine and equipment efficiencies, Fiber, chemical and material usages, internal energy generation and usage and labor costs. Our approach to cost effective management of containerboard supply with demand also delivered the benefits we are anticipating. This was primarily achieved by idling the Wallula Mill for the entire quarter, which resulted in a market related downtime of approximately 174,000 tons. However, with the stronger demand in our Packaging segment, We ended the quarter with inventory levels lower than anticipated.

Speaker 1

Based on our current outlook for improved demand, Together with current plans for the Q1 of 2024 for the scheduled mill maintenance outages and completing the final phase of the containerboard conversion On the number 3 machine at our Jackson, Alabama mill, we are planning to restart the number 3 machine at the Wallula Washington mill during the Q4 in order to bring our inventories to desired levels. I'll now turn it over to Tom, who will provide further details on containerboard sales and the corrugated business.

Speaker 2

Thank you, Mark. Packaging segment volume for the quarter exceeded our guidance estimates. Corrugated product shipments per workday were up 1.9% And total shipments with 2 less shipping days were down 1.3% compared to last year's Q3. Versus the Q2 of 2023, shipments per day were up 3.9% and total shipments were up 2.3% Even though there was one less shipping day. Outside sales volume of containerboard was 33,000 tons above last year's Q3 and 5,000 tons above the Q2 of 2023.

Speaker 2

Demand headwinds from a shift of consumer buying preferences towards more service oriented Spending, persistent inflation and higher interest rates continue to negatively impact consumers' purchases of both durable and non durable goods. However, we mentioned last quarter that many customers were telling us the inventory destocking of boxes and their products was behind them, And we were hopeful that, that would translate to improving volume throughout the second half of the year. We saw that occurring during the 3rd quarter and we expect that momentum to continue into the 4th quarter, although there is one less shipping day compared to the 3rd quarter. Relative to the published reductions in the industry benchmark grades that occurred late last year earlier this year, domestic containerboard and corrugated products prices and mix Together were $1.12 per share below the Q3 of 2022 and down $0.45 per share compared to the Q2 of 2023. Export containerboard prices and mix were down $0.21 per share compared to the Q3 of 2022 and down $0.03 per share compared to the Q2 of 2023.

Speaker 2

I'll now turn it back to Mark.

Speaker 1

Thank you, Tom. Looking at our Paper segment, EBITDA excluding special items in the 3rd quarter was $35,000,000 with sales of $158,000,000 or a 22.4 percent margin compared to the Q3 of 20 22's EBITDA of $33,000,000 And sales of $165,000,000 or a 19.7% margin. Seasonally stronger cut size and printing and converting volumes were 13% Higher than the 2nd quarter levels and down almost 8% versus the Q3 of 2022, with about 40% of the decline Being driven by no paper sales from our Jackson Mill in this year's Q3. Prices and mix were And similar to the packaging facilities, the mill remained focused on efficient and cost effective operations, Delivering great results for the quarter. I'll now turn it over to Bob.

Speaker 3

Thanks, Mark. Cash provided by The more significant cash payments during the quarter included capital expenditures of $90,000,000 Common stock dividends totaled $175,000,000 for federal and state income tax payments and $51,000,000 for pension and other post employment benefit contributions. In addition, we repurchased just over 286,000 shares of our stock during the quarter at an average price of $144.81 per share for total of about $42,000,000 We ended the quarter with $726,000,000 of cash including marketable securities and our liquidity on September 30 was approximately 1 was just over $0.22 per share and the 4th quarter is now expected to be about $0.19 bringing the 2023 full year total to $0.72 per share. I'll now turn it back over to Mark.

Speaker 1

Thanks, Bob. Looking ahead as we move forward into the from the 3rd into the 4th quarter, in our Packaging segment, we expect Less market related downtime as we build our inventories back to appropriate levels along with higher shipments per day in our corrugated products facilities, Although our plants will have one less shipping day compared to the Q3. We also expect lower average prices primarily due to the majority of the May decrease In our Paper segment, volume will be lower compared to the seasonally stronger 3rd quarter and prices and mix are assumed to trend lower with declines in the index prices. Operating and converting costs will increase, driven by higher recycled fiber prices, seasonal energy costs and Depreciation expense is estimated to be slightly higher and scheduled maintenance outage expenses will be lower. Considering all of these items, we expect the 4th quarter earnings of $1.76 per share.

Speaker 1

With that, we'd be happy to I must remind you that some of the statements we made on the call constituted forward looking statements. These 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 the annual report And with that, Jamie, I'd like to go ahead and open up the call for questions, please.

Operator

Ladies and gentlemen, at this time, we'll begin the question and answer Our first question today comes from Kashan Keeler from Bank of America Securities. Please go ahead with your question.

Speaker 4

Hi, it's George Staphos. How are you everybody? Congratulations on the quarter.

Speaker 5

Good morning, George.

Speaker 2

I just

Speaker 4

How are you doing? Doing dueling conference calls today at this time. So again, congratulations on the performance. Can you talk to the you enumerated a number of factors in terms of the lower operating and converting costs. I know, Mark, it's always a number of projects, but were there any in particular that were sources of the improved performance?

Speaker 4

Yes, there's going to be some pickup in the Q4 seasonally and you have OCC higher, but how much do you carry forward and what's The room for further improvement on both operating and converting costs as we look out to 2024 from where we're at right now, if you can talk a little bit to that.

Speaker 1

It's the benefit of the year after year continuous improvement that we've had in place. And as we've said over the years, We're constantly doing 100 and 100 of projects a year. Some are small, some are large, Nevertheless, it's an ongoing continuous process across the board. And if you think about the box plants and the mills, There's a daily activity with the technology organization in concert with the local operational management Focused clearly on cost takeout and just operational excellence. And this has been going on for a number of years and it will continue to go on.

Speaker 1

Tom, I think You've got great examples in the box plants that we just continue to execute.

Speaker 2

Yes. I think, George, this is really an effort to really realize The deployment of the capital that we've done in all the box plants and to streamline those box plants and to really get those Box plants right sized for the growth we've got coming and what the existing volume is right now. So we're very pleased. Are very, very pleased with the results. George, as far as next year, as you could expect, we are already and have been talking about What's on

Speaker 1

the horizon for next year? What are the opportunities? And so we've got a very good solid plan in place On where we're going after these cost takeouts and continued operational improvements, along with just being able to Look at what the market requirements are going to be in terms of customer needs and in addressing that. And while we address that, we're always looking And how we're deploying that capital and how that impacts the operation in terms of labor cost and energy and Input conversion cost. So we've got a good plan for next year also.

Speaker 4

It sounds like it. Wouldn't be surprised by that, Mark. So to Wallula, and again, I know it's hard to talk about some of this live, Mike, but The restart for the Q4, what does it mean about what your customers are saying for 2024? I realize you need to rebuild inventories and we know PM3 Jackson is going to be down for the last part of the conversion, What does it mean in terms of your demand outlook, what your customers are saying? And hopefully, this isn't the case, but If things wind up being from a macro standpoint a little bit softer, how quickly could you maybe pull back We'll if need be.

Speaker 4

And then my last question, I'll turn it over. Can you talk to us a bit about how your early Q4 bookings and billings are and How we should again think about how those map to actual volumes? Thanks and good luck in the quarter guys.

Speaker 1

Thanks, George. Yes, as far as Wallula, as we've always said, we're going to run to demand. And Wallula is just one of the opportunities we have to move The needle on our needs. And so by getting number 3 started up over the course of the next couple of weeks, It will fulfill our current needs and we'll anticipate that through next year. If demand just holds On the trajectory that it is right now, we'll need Wallula running through the year.

Speaker 1

And so we will Look at the opportunity to supply the marketplace. We've got our own internal targets on what we want our inventories to be to Minimize transportation and logistics issues, but we can flex the system up and down and we'll As we always have, we will always run to demand. So that's how I'll answer that. And then Tom, why don't you go into The current box cut up.

Speaker 2

Yes. Let me first just kind of tag along what Mark just said relative to running to demand. That is what we do. And if we didn't have the demand, we wouldn't be talking about restarting Wallula, pure and simple. Now to calibrate that a little bit, George, I think you need to really look at our low point was the Q1 of 2023 in terms of demand.

Speaker 2

Our demand currently is just in a couple of quarters is now 8% higher than that number and going higher going forward. So that's the real reason why we need the cut up in at Wallula. It's really being driven on the box Side of the business more so than anything else. And relative to the bookings and the billings, again, Our bookings are up 14% for this at the beginning. And again, that's You got to take that number because we've had high numbers and then we come in a little lower we come in significantly lower for the actual quarter because A lot of these bookings are for quite a ways out.

Speaker 2

But I think the key here is that the backlog remains incredibly Strong and our cut up demand is also very strong. So we feel very good about where we are in the Q4 and certainly entering into next year.

Speaker 6

Thank you very much.

Speaker 1

Next question please.

Operator

Our next question comes from Mark Weintraub from Seaport. Please go ahead with your question.

Speaker 7

Thank you. Tom, just following up, you mentioned an 8% reference to your demand now versus, I think, Q1. So is that sort of what you're expecting in the Q4 on an average day basis? Because I was sort of trying to do a little bit math and again, Is that how to think about that number

Speaker 2

you

Speaker 8

just mentioned?

Speaker 2

Yes, Mark. I mean, our trend still remains positive. We'll be up. And again, I think it's really important to get calibrated kind of the correct way to some extent. And Because when we look at the Q4 compared to the Q4 of 2022, in 2022, we had an extra day in there given the holiday the way the FBA A holiday spell.

Speaker 2

So we were actually up a couple of percent in the Q4 of 2022 over the Q3 of 2022. And But then, of course, in the Q1 of 2023 is when we really hit, what I call rock bottom in terms of demand. And as I said, so we're up just in a couple of quarters 8%, and we look at that number going up again in the 4th quarter.

Speaker 7

Got it. Okay. Thank you. And just on the Jackson project, could you just remind us what the end result It's going to be is it happening in the Q4 and the Q1? And okay, Just color on that would be great.

Speaker 1

Yes. No, the work will be done next year, late Q1 into the Q2. It's a longer outage, but it will be the final phase of the completion work necessary to take care of the big machine. Well, you're talking about 23 additional high pressure dryer cans, modifying the press section. We're removing the 4th press and installing the new shoe press, A number of modifications in that regard to enhance the speed, the drying capability.

Speaker 1

But it's that final phase that gets the productivity up, but also some of the work in the back end of the mill is related to the cost position of the mill. So When this work is done, depending on the demand coming out of that mill, that mill will be as far as Cost competitive position will be right in there with DeRidder and Counts and Valdosta.

Speaker 7

Great. And if you just remind, I think it was like a 200 and 5,000 ton per year, this part or correct me what that number was and if there's a way for it to calibrate the amount of Cost per ton or whatever the best way to look at it, what you're expecting to achieve with this last phase would be helpful too?

Speaker 1

I'm not going to answer that right now because I don't want to say the wrong thing. I'm going to let Bob if he recalls. But at the end of the day, the machine If you think about where we've been running the machine on a daily basis, the machine has been flexing anywhere from 1200 tons a day to 1800 tons a day depending on what we needed. But when we're done with this project, The capability of that machine will be well over 2,000 tons a day. The target is 2,400 tons a day when we're done with this.

Speaker 1

So if you Use a 3 52 day a year, you'll get your annual tons.

Speaker 3

Yes, Mark. And the improvement From where we are today versus where we will be when we hit that run rate after the completion of the second phase, It's close to $40 a ton. That benefit coming from most of your direct variable type costs and you're getting all this additional volume with no increases in your obviously your indirect costs or any fixed costs. So you get a nice huge benefit once this project completed.

Speaker 7

Great. And so we can just take the 2,400 times 3.50 or whatever or 3.60?

Speaker 1

Just for simple math, you Whether you use 2,000 or 2,200, but the ultimate goal between myself and some of the people around me is that machine will be a 2,004 Ton a day machine someday when we're done fine tuning it. But it would be to my knowledge, it would be the most productive low cost Linderboard machine in the Western Hemisphere.

Speaker 7

Super. One last quick one. Curiously, was mix much of a factor In terms of the $133,000,000 I guess is $112,000,000 domestic, but was mix much of a factor in the corrugated or was that just mostly Price?

Speaker 2

No. Mix is a big factor in there, both in End uses and in basis ways. So, it's there's a heck of a lot that goes into What the final pricing is? And as I mentioned last time, and I'll just mention it again, Building products, that's still that segment, which is a good segment for us, still remains underwater As housing starts have been affected by higher interest rates, the graphics mix and the effect of What's going on and the changes that are taking place in brick and mortar stores, that's been impacted. And of course, our automotive segment with the UAW strike Is now really starting to get impacted.

Speaker 2

Now all of those segments tend to be on the higher price side. However, we've

Speaker 1

got a

Speaker 2

lot of other segments that are doing quite well. And we haven't been Impacted much at all other than what you've seen in the publications in terms of price.

Speaker 7

Okay, super. Thank you.

Speaker 1

Thank you. Next question.

Operator

Our next question comes from Mike Roslin from Truist. Please go ahead with your question.

Speaker 5

Thank you, Mark, Tom and Bob for taking my questions. Congrats on another solid quarter despite tough environment.

Speaker 2

Thank you. Thanks, Mike.

Speaker 5

Just kind of a little more I wonder if you could provide a little more color just about the cadence of shipments during the quarter. Just a little more color on our elaborating upon, I should say, some of the different end markets, good color on the prior question on building products in the automotive segment, but anything you could provide as to you maybe some the cadence during the quarter and what end markets Really showed some significant growth as the quarter progressed.

Speaker 1

End markets and then when things started

Speaker 2

Okay. Well, Mike, I kind of I think I got most of what you're asking here. But Outside of those markets that I mentioned, one other market that I had mentioned prior was the ag business And told you that we had a lot of headwinds in ag, especially weather related. Those have pretty much And we're looking for a very good ag season coming up. So that's going to be a lift.

Speaker 2

Of course, e comm continues to kind of take

Speaker 1

a little bit of

Speaker 2

a larger share of the corrugated business And that looks very good. And all in general, I mean, we're selling a lot of food and beverage and all sorts of other segments. And those segments either remain very steady or have look good going forward. And I think the best news is, is it's becoming more predictable now, given the fact that we've gotten all of this inventory and destocking out of the way, And our customers are operating quite lean at the moment. And so it's a lot easier to predict what's happening in a number of these segments.

Speaker 2

Hope that answers your question.

Speaker 5

It does. No, it's very helpful. Thank you. And Doug, as you think about Bringing back Wabula, can you talk about any headwinds that any of your other mills might face? I recall that last quarter you mentioned Because of Wazoo being down, you were able to optimize production at your remaining mills, achieving a $15 per ton benefit.

Speaker 5

So Any headwinds that you could expect or anticipate that you're adding those once Woolview is fully up and running?

Speaker 1

Well, no. Again, currently because of the inventory We'll have to run the entire mill system to capacity. And so The 6 mills that ran during the Q3 will have to continue running full out and then Wallula number 3 will have to come up and perform equally as efficiently. One final question,

Speaker 5

One final question, if I get squeezed in here. Mark, can you help us think about how you're thinking of growing the business Once you're in past the phase the conversion of number 3 at Jackson next year, where does growth come from next? Is the current conversion of iPalls, the resumption of M and A, how should we think about you growing the business, let's say, post 2024?

Speaker 1

Well, if you look at over the decades, we've always grown with our customers and we still have the most diverse broad Book of business nationwide with local accounts and we'll continue to grow with those accounts and help enhance their business. And so That's where a lot of the opportunity always comes from. Tom, do you want to elaborate on that?

Speaker 2

Well, I think in addition, I think that as I mentioned, these segments that are down, those segments are going So they're going to show back up and we'll continue to what we think is operate Demonstrate the best value in the marketplace to an entire customer base and be able to grow our business accordingly as well. So We are constantly looking outward to see what's possible and what those demands look like and working very closely with our customers And we want to make sure we're well aligned. That's what's driving the whole Wallula project at the moment.

Speaker 5

Got it. Thank you very much. Enjoy the rest of the quarter.

Speaker 1

Thank you. Next question please.

Operator

Our next question comes from Gabe Hajde from Wells Fargo.

Speaker 8

This is Alex on pretty good. Thanks for taking my question. So Just thinking about the inventory level, can you maybe just kind of comment on what your targeted inventory looks like through year end or Q1, When thinking about the Jackson outage?

Speaker 1

We never give absolute numbers, but I can tell you when we started out the Q3. We the targets we had in mind, we far under We were dramatically lower than what our goals were for the ending inventory. And that's a positive situation to be in, especially when we have the opportunity to get a little started back up and satisfy that demand. But We have a number in mind and what will influence that number of course is the In the 1st 6 months of the year, in the rest of the containerboard system. And so the without giving you an absolute number, we have some work to do to Get our inventory up where it needs to be to get us into the New Year and then get us through the 1st 6 months of the year.

Speaker 8

Okay, thanks. And just thinking about Wallula, Does anything change with the cost structure that we see mindful of as the mill restarts, anything variable or fixed?

Speaker 1

Again, Wallula, it's no surprise, is our higher cost mill because of the fiber basket and the energy situation in the Pacific Northwest. But it remains a critical mill to us because of the locale with our Pacific Northwest box plants. And so in that regard, the cost position won't change. We're taking advantage of running the big machine. We don't currently need the number 2 machine running, but that could change.

Speaker 1

So again, we will run to demand. We will Satisfy what we need. Tom, you want to add?

Speaker 2

Yes. I would just add that with the Wallula Mill operating in a very large market for us, It certainly gives us a lot more flexibility in a box plant to react and respond quicker to the marketplace As that continues to rebound and of course that's heavy ag up there as well. So this will be This will give us some advantage in terms of flexibility in that marketplace.

Speaker 3

Yes, Alex, I'll just add that when we bring We'll move it back on in the Q4. Again, we're doing our comparisons to the 3rd. As Mark said, it is our highest cost mill and We are as we get things ready so that we can restart the machine 1st November, We have been incurring labor costs and other things, obviously, with no production. So, but there are no significant Cash costs to restart. There may be some non cash, some raw material write off type obsolescence type things, but nothing significant there.

Speaker 3

But it does, if you're comparing to the Q3, it accounts for as far as our cost increase, if you look at our operating costs, It's almost half of the increase is just coming from restarting Wallula and bringing those costs back online.

Speaker 7

Okay, that's fair. And I

Speaker 8

guess my last question is thinking about 2024, maybe can you just kind of maybe frame how you're thinking about 2024? I understand it's still we still have another quarter ago, but just for No, the high levels of pacemics, how do you think about 24? Thanks.

Speaker 1

Well, just on a macro level, we're going to continue to do what we do, run to demand. But the other thing is, if I were an investor, which I am, But I would be looking at this on how we use our cash and where we're deploying cash. And we talked about this a little bit The July call for next year and we would anticipate the capital spending discipline to continue in The trend that it's been, we'll be in that $400,000,000 level this year and plans call for next year to continue that pace of capital deployment, Which if you then think about the excess cash being generated where that goes, there are other opportunities To take advantage of that and bring value to the shareholders. And so we'll again continue to take advantage of The benefits of all the capital spending that we've been bringing to bear, get Jackson completed and then continue to look more opportunities and execute and work with our customer base and taking care of our customers.

Speaker 8

Perfect. Okay. I'll turn it over. Thank you.

Speaker 1

All right. Next question.

Operator

Our next question comes from Anthony Pettinari from Citi, please go ahead with your question.

Speaker 9

Good morning. Good morning. We've seen a large amount of new recycled Has it be being added to the market this year, I guess some integrated, some non integrated. And I just had two questions. I guess first, Could you talk about the impact on the market that you've seen or maybe haven't seen?

Speaker 9

And then second, maybe from more a big picture perspective, Yes. How should we think about PCA's mix? Historically, you've been a virgin board producer. Are there some opportunities to add recycled capacity? I guess, we'll look in process CC or do you still see Virgin playing this kind of unique role in the U.

Speaker 9

S. Market? How do you think about that maybe over the next decade?

Speaker 1

We've always been primarily a virgin linerboard medium producer. We have the capability of flexing a number of our mills. I think most people understand that we've invested heavily over the last Aidan, in these conversion opportunities, DeRidder, Wallula, now the Jackson Mill counts, The Northern Mills all have recycled capacity. But again, we're not going to put all our eggs in one basket and go All into recycle. We take advantage of it and it does give us some opportunity to flex the fiber cost And time of year and availability, but again, I think if you look at us 10 years from now, we'll still look the same That we do today in terms of our

Speaker 2

fiber balance. Tom? Anthony, the impact in the marketplace Of the let's say the one offs, even having some integration in some of these mills It's bearing out exactly like I had told you it would. With the very limited open market, We have seen virtually no impact at all from these mills. They're going to have to find a home somewhere else.

Speaker 2

Now the ones that are integrated and we'll be running to demand, I'm sure, and they're not even attempting to sell The open market, those that are the one offs, might attempt to sell into the open market. But again, it's We're finding that our domestic customers want to stick with PCA for the fact that we've got a great quality linerboard and medium And we take care of our customers, our service is very good and they've shown absolutely zero interest in moving to Any other supplier. And I think that's probably true across the board. So, hopefully that answers that. And just tag on with what Mark was saying, we value our fiber flexibility.

Speaker 2

And I can tell you that our mills If you go back when you can go back in history and find PCA was a heavyweight mill system And we've completely adapted to whatever the market is today. And we've got this ability to basically tailor Our liners to whatever the needs of our customers are and that's a huge competitive advantage we have. One of the factors if you think about Recycle versus virgin

Speaker 1

fiber. Virgin fiber prices and input costs, conversion costs It's been very stable over the decades, relatively speaking. If you're solely dependent on OCC, DLK, the Price and cost input swings have been wild, high, low, high, low. And so trying to anticipate what your conversion cost It's not a good place to be if you're 100% recycle. So We like where we are.

Speaker 1

We will continue with this model. Next question? Okay.

Speaker 9

Yes, that's very helpful. Thank you.

Operator

Our next question comes from Phil Ng from Jefferies. Please go ahead with your question.

Speaker 6

Good morning, Mark, Bob, Tom. This is John. Good

Speaker 2

morning, Phil.

Speaker 6

I want to start off with the Implied 4Q guide for box shipments, I mean, I know you said so far bookings are up 14%, but Bookings aren't actually built. So if I'm just reading your press release being up on a per day basis in 4Q quarter over Quarter. One last shipping day. It seems to imply that 4Q, at least for the guide, is up about 14.5% or so, 15%. Is that the right way to think about it?

Speaker 6

Any kind of extra color you could give on that?

Speaker 2

No, that's not the right way to think about it, Phil, but I'm going to turn it over to Bob and see if he can walk you through this just a little bit maybe,

Speaker 3

get you calibrated. Well, I'm not sure I can, Tom. No, Phil, that's I'm not sure maybe we'd talk afterwards, but I'm not just not sure how you're arriving at that, Certainly from anything that we said or put out, but that obviously would be a tremendous thing if that were to happen, but just don't see how you're getting there. Maybe if you could just talk offline.

Speaker 6

Sounds good. And then just in terms

Speaker 9

of

Speaker 6

expectations going to Q4, obviously, it sounds like things are Even if not mid teens, they're still going pretty good and you have more visibility. It seems a little bit in contrast to what RISI has said with Just generally expectations for softer holiday demand. And I know it's customer by customer and they're obviously not serving the whole market. But are you seeing The holiday demand here in the Q4 actually coming through pretty good?

Speaker 2

Yes. I would say the holiday demand is going to be strong, yes.

Speaker 6

Great. And just one last quick clarification. The 174,000 tons of economic downtime that you called out, was that just Wallula or the whole company is incorporated into that for the economic downtime?

Speaker 1

That was the Wallula downtime.

Speaker 6

Okay. All right. Appreciate it. I'll turn it over.

Speaker 1

Okay. Thank you. Next question. Jamie, anybody left on the queue? I guess we will conclude.

Speaker 1

I think we've lost our moderator on the call. But for those of you that joined us today, I want to thank you for taking the time and look forward to having you join us at the end of January for our Full year and Q4 call. With that, have a good day. Take care.

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Packaging Co. of America Q3 2023
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