Packaging Corporation of America Q3 2025 Earnings Call Transcript

Quartr
Provided by Quartr
October 23, 2025

Key Takeaways

  • Neutral Sentiment: Completed the Greif containerboard acquisition on Sept 2; preliminary purchase accounting records ~ $870M PP&E, $530M intangibles and $280M goodwill, and Q3 included one month of the acquired operations plus $0.22/sh of acquisition-related special items.
  • Positive Sentiment: Excluding special items, Q3 net income was $247M ($2.73/sh) with total company EBITDA of roughly $503M and record cash provided by operations of $469M (free cash flow $277M); company guided Q4 at $2.40/sh excluding special items.
  • Positive Sentiment: Integration progress accelerated by extended outages and refurbishments (Massillon, Riverville) produced immediate quality and efficiency gains, the acquired mills made 47k tons in September, and PCA expects meaningful upside from synergies (~$60M run-rate after two years and ~ $20M run-rate by Q2 next year) plus inventory reductions in the acquired corrugated system.
  • Negative Sentiment: Near-term headwinds include higher operating, freight and energy costs (electricity cited as materially higher at some sites), increased depreciation from the acquisition (~$130M annual D&A) and an expected annual net interest increase of ~$95M, alongside higher outage expense and a year-capex timing revision to ~ $800M that could pressure near-term margins.
AI Generated. May Contain Errors.
Earnings Conference Call
Packaging Corporation of America Q3 2025
00:00 / 00:00

There are 10 speakers on the call.

Operator

Good day, and welcome to the Packaging Corporation of America Third Quarter twenty twenty five Earnings Conference Call. All participants will be in listen only mode. Please note this event is being recorded. I would now like to turn the conference over to Mr. Mark Cosen.

Operator

Please go ahead.

Speaker 1

Thank you, Alissa. Good morning, everyone, and thank you for all of you participating in Packaging Corporation of America's third quarter twenty twenty five earnings release conference call. Again, I'm Mark Colzan, Chairman and CEO of PCA. And with me on the call today is Tom Hassfurther, President and Kent Flutter, our Chief Financial Officer. I'll begin the call as usual with an overview of our third quarter results, and then I'll turn the call over to Tom and Kent who will provide further details.

Speaker 1

And then after that, I'll wrap things up, and we'd be glad to take any questions. Yesterday, we reported third quarter net income of $227,000,000 or $2.51 per share. Excluding the special items, third quarter twenty twenty five net income was $247,000,000 or $2.73 per share compared to the 2024 net income of $239,000,000 or $2.65 per share. Third quarter net sales were $2,300,000,000 in 2025 and $2,200,000,000 in 2024. Total company EBITDA for the third quarter, excluding special items, was $5.00 $3,000,000 in 2025 and $461,000,000 in 2024.

Speaker 1

The third quarter net income included special items expense of $0.22 per share. The $0.22 were costs related to the acquisition of the Greif Containerboard business, including step up of the acquired inventory, integration related expenses and transaction expenses. Details of the special items for both the 2025 and 2024 were included in the schedules that accompanied our earnings press release. We completed the acquisition of the Greif containerboard business on September 2. Our results included one month of the acquired operations from Greif, which impacted earnings per share by $0.11 after special items.

Speaker 1

These include depreciation and amortization after preliminary purchase accounting and additional interest on new borrowing to finance the acquisition. Excluding the special items and the impact of the acquisition, our earnings increased by $0.19 per share compared to the 2024. This increase was driven primarily by higher prices and mix in the Packaging segment for zero seven three dollars lower fiber costs of $0.16 higher prices and mix in the paper segment, 0.2 and the lower maintenance outage expense of $01 Partially offsetting the improvements were higher operating costs, 0.33 lower production and sales volume in the Packaging segment, 0.16 higher depreciation expense, 0.7 higher freight expense, zero seven higher fixed and other expenses of zero zero seven and higher interest expense excluding the Greif acquisition debt of $02 and lower production volume in the paper segment for zero one dollars Because of the uncertainties of the Greif closing date, our third quarter guidance did not forecast any impact from the acquisition. Excluding special items and acquisition impact, the results were $04 above the third quarter guidance of $2.8 per share, primarily due to favorable price and mix in the Packaging segment and lower freight costs. Looking at our Packaging business and including the acquired business, EBITDA, excluding special items in the 2025 of $492,000,000 with sales of $2,100,000,000 resulted in a margin of 23.1% versus last year's EBITDA of $446,000,000 and sales of $2,000,000,000 or a 22.2% margin.

Speaker 1

Corrugated volume was largely on plan and continued to reflect the cautious ordering patterns we've seen most of the year. We ran to demand during the quarter and produced 38,000 fewer tons of containerboard than the 2024 and fifty nine thousand more tons of containerboard than the 2025. Our containerboard inventory in the legacy system increased by 15,000 tons during the quarter in preparation for the fourth quarter DeRidder outage. From the operational standpoint, we ran very well the entire quarter and with strong performance in terms of cost and production efficiency across the entire mill and corrugated system, which is a testament once again to the successful investments across our business. We continue to look every day at opportunities to take out cost and optimize production capabilities with the support of our considerable in house technical and capital execution expertise.

Speaker 1

The acquired mills produced 47,000 tons during the month. Having closed the acquisition on September 2, we used the initial month of ownership to our advantage. While our activities impacted the September results, they will improve long term productivity and efficiency. Massillon had a scheduled annual outage maintenance outage, which we extended to five weeks and completed earlier in October. We did a comprehensive refurbishment of the mill, including reliability improvements on the paper machines, the OCC plant and the power plant.

Speaker 1

All mill infrastructure and unit operations were cleaned and inspected. We took the two paper machines at the larger Riverville facility down for five days apiece to implement the first phase of our reliability improvements. We'll have additional work to do to implement our efforts and expect to have achieved the first phase by the end of the fourth quarter. We're already seeing the benefits of improved performance and quality with both mills running at higher performance. We'll continue to manage and invest in these facilities to achieve operating performance in line with the legacy PCA system.

Speaker 1

I'll now turn it

Speaker 3

over to Tom, who'll provide more details on the containerboard sales and corrugated business. Thank you, Mark. The performance of the packaging business was largely as we expected, and it was another strong quarter. Domestic containerboard and corrugated products prices and mix were $0.72 per share above the 2024 and down $02 per share compared to the 2025, which was all attributable to containerboard mix. Export containerboard prices were up $01 per share versus last year's third quarter and flat with the 2025.

Speaker 3

As Mark mentioned, while customer ordering patterns have continued to reflect market conditions that have persisted throughout most of the year, corrugated demand improved as the quarter progressed. In the legacy business, shipments per day in our corrugated products plants were down 2.7% versus last year's record third quarter when per day shipments were up more than 11% over 2023. We will continue to see tough comparisons going into the 2026. Total shipments were down 1.1% in the 2025 versus last year, reflecting one more workday this year. For a little context, on a per workday basis, July shipments were about 6% down from last year, while August was less than 1% down and September was less than 2% down.

Speaker 3

Margin performance was very strong again with Packaging segment EBITDA margins improving to 23.1% versus 22.6% in the second quarter and twenty two point two percent last year. Including the acquisition, shipments were up 3.7% over last year per day and 5.3% overall. The acquired plants had a strong September with volume growth and good price realization. We're working very hard to integrate the operations into the PCA corrugated system, and we like what we see so far. The culture is highly compatible with PCAs, and our new colleagues have gone beyond the call of duty to continue to develop strong customer relationships and serve those customers.

Speaker 3

Greif has historically carried relatively more inventory in its corrugated system than we do. With the acquired plants being part of a much larger integrated system, we can more efficiently and nimbly supply them now that they are part of PCA. We have the opportunity to bring inventory down to lower levels, and we'll manage our operations to do so over the next couple of quarters. As expected, export sales volume of containerboard was down 8,000 tons from the 2025 and down 32,000 tons from the 2024. I'll now turn it back to Mark.

Speaker 1

Thanks, Tom. Looking at the Paper segment, EBITDA, excluding special items in the third quarter, was $40,000,000 with sales of $161,000,000 or a 24.9% margin compared to the 2024 EBITDA of $43,000,000 and sales of $159,000,000 or 27.1% margin. Sales volume was 1% below the 2024 and ten percent above the 2025. Prices and mix were up 2.1% from the 2024 and zero five percent from the 2025. Performance reflected a seasonally stronger third quarter, and sales volume was higher than expected.

Speaker 1

I'm now going to turn it over

Speaker 4

to Kent. Thanks, Mark. Cash provided by operations was an all time quarterly record of $469,000,000 And after $192,000,000 of CapEx during the quarter, free cash flow was a record $277,000,000 In addition to CapEx and funding the Greif purchase price, the primary payments of cash during the quarter included dividends of $113,000,000 and cash tax payments of $19,000,000 Our quarter end cash balance, including marketable securities, was $8.00 $6,000,000 with liquidity of approximately $1,400,000,000 To update you on annual shutdown expenses, we now expect $0.45 in the fourth quarter for the legacy PCA system and $02 for the acquired business. The legacy system expense is expected to be $0.29 higher than the '5 and $0.17 higher than the '4. We are revising our capital forecast for the year to be approximately $800,000,000 from our previous forecast of $840,000,000 to $870,000,000 This is primarily as a result of timing of expenditures, and we have not changed our overall capital plan.

Speaker 4

This revision includes incremental expenditures for the acquired business. As part of the Greif acquisition purchase accounting, we are required to record the acquired assets on our books at fair value. Our valuation is preliminary and is subject to change over the one year period after the acquisition. Our preliminary evaluation in addition to working capital includes approximately $870,000,000 of property, plant and equipment, $530,000,000 of intangibles and $280,000,000 of goodwill. We recorded $12,000,000 of depreciation and amortization of the acquired assets during the third quarter, and we expect an annual run rate going forward of approximately $130,000,000 As a reminder, annual net interest expense is expected to increase by $95,000,000 and we recorded $8,000,000 in additional interest during the third quarter.

Speaker 4

We were a significant containerboard supplier to Greif before the acquisition, and shipments of containerboard that were recorded as third party sales in the past are now integrated. This affects the timing of recognition as shipments are now recorded as inventory, with sales and profit being recorded when that inventory is converted and sold to a customer. We estimate that this affected results by about $03 in the third quarter, which will not recur going forward. I will now turn it back over to Mark.

Speaker 1

Thanks, Kent. For the fourth quarter, we expect per day corrugated shipments to be higher than the third quarter with three less shipping days. Export containerboard sales will be higher than the third quarter but relatively low when compared to traditional fourth quarter volume. Containerboard production in the legacy system will be slightly lower than the third quarter with the maintenance outage at the Doretter Mill, and we expect inventory levels in the legacy system at year end to be similar to levels entering the fourth quarter. Outage expenses will be $0.29 higher than the third quarter.

Speaker 1

We expect prices and mix in the Packaging segment to be lower as a result of seasonally less rich mix. In the Paper segment, we expect seasonally lower production and sales volume and flat pricing. We also expect seasonally higher energy and fiber costs as well as slightly higher freight and other operating costs. We expect significant improvement in the results of operations from the acquired business. We will be impacted by lower production and higher maintenance expenses from the Massillon mill outage that did continue into October and seasonally lower volume and mix in the corrugated business.

Speaker 1

We will benefit from a full quarter of improved operations at the River Hill mill. We'll be managing production to achieve lower inventories, as Tom mentioned. Considering these items, we expect fourth quarter earnings of $2.4 per share, excluding special items. And with that, we'd be happy to entertain any questions, but I must remind you that some of the statements we've made on the call constituted forward looking statements. The statements were based on current estimates, expectations and projections of the company and do involve inherent risks and uncertainties, including the direction of the economy and those identified as risk factors in our annual report on Form 10 ks on file with the SEC.

Speaker 1

Actual results could differ materially from those expressed in the forward looking statements. And with that, Alyssa, I'd like to open the call up for any questions, please. Thank you.

Operator

Thank you. We will now begin the question and answer session. First question is from George Staphos, Bank of America.

Speaker 1

Good morning, George.

Speaker 5

Thanks for the details. How are doing? Good. I guess maybe the first question as normally comes up during Q and A. Can you talk about bookings and billings as we're starting fourth quarter?

Speaker 5

Obviously, you have fewer shipping days, but what are you seeing on a per workday basis or however you want to frame it? And then we had some other questions.

Speaker 3

Hey, George, this is Tom. Right now, kind of the blend of bookings and billings that we see so far is a little over 1% up. And again, I'll remind you, very tough comps, okay?

Speaker 5

Got it. And you said the tough comps just factually will be difficult through 1Q. That was part of your script. We're done by the end of this quarter in terms of what you think tough comps are? And is there any sort of strength in any of the end markets that you would point us to or anything that's particularly challenging right now ex the comp?

Speaker 3

Well, actually, George, outside of a couple of end markets, our business has been very, very good. Those those couple of markets that we're, that we've struggled it's not we've struggled. They've struggled in the marketplace. I mean, you know, everybody's read about beef. That's a big segment for us.

Speaker 3

And, you know, the cattle herds are down to a seventy year low. Yep. So, you know, there's a lot there's a lot of struggles going on there, and we even have the administration looking at other ways to solve that problem. And then the other area is the building materials. We all know what's happened with housing starts and where that stands.

Speaker 3

So those two segments have been a drag on us. Other than that, we've been very pleased with the results in all of our other sales segments.

Speaker 5

Thanks, Tom. As regards to Greif, I know we'll get more color over time, but any big picture, any large sort of boulders you could tell us about in terms of what you're finding with Greif relative to the deal model? And is there any way at this juncture you can give us a view on what the maintenance might look like? So in that regard, again, is $300,000,000 of EBITDA reasonable for the combined business? What does maintenance look like?

Speaker 5

And then I had one or two last follow ons. That will be quick.

Speaker 1

Well, again, I think as we talked about this, the core choice side of the business that we acquired, the converting side was very well capitalized and in very good condition. The two mills, we've had from September 2, that day, we've had upwards of, on a given day, a 100 of our PCA personnel in the mills at Nassilon and the same number of people in the mill at Riverville assisting in doing what we do, and that's operational expertise. Tom, do you want to comment about corrugated?

Speaker 3

Yeah. Let me just say in in total, you know, what we've I I think the best way to summarize this, George, is probably that, you know, that it is an organization that is very customer focused. And, you know, as I mentioned, the culture of the business fits very well with ours. That's a great bolt on. Operationally, you know, not not nearly as strong as PCA and, you know, because we've had many, many more resources, and we've got this great team to to address those those issues.

Speaker 3

But, you know, in typical PCA fashion, you know, we get on it right away, right up front, not trying to manage to a quarter or anything like that. We're looking at the long haul. And I think given that organization and their focus on the customer and the end markets that they supply, this is going to be very, very accretive to our earnings going forward.

Speaker 1

One note, George. We took the machines down at Riverville for basically about a five day period each machine in September. But during the time we ran in September, we improved operations. We were running like 97.2 for the month of September in Riverville, and that's up dramatically from prior to the acquisition. And so we've seen immediate improvements in both efficiency and quality.

Speaker 1

But the good news is we'll continue to see a lot more benefits as we work through things. And as far as your question about some of the accretive value, I think, Kent, you and I were talking this morning.

Speaker 4

Yes. So George, going into the acquisition, historical great performance, $240,000,000 was about a good annual run rate for the EBITDA. Our projection for synergies on a run rate basis after the second year was about 60. We're well on target for that. We're looking probably in about the 20 ish range by the second quarter of next year to give you a little bit more clarity on

Speaker 3

that on

Speaker 4

a run rate basis.

Speaker 5

Quickly, 0.2 maybe sequential increase in D and A as part of the 2.4 is kind of rough math. And anyway, I know it's kind of tough on live mic, but anyway to talk about what the inventory strategy quantify what the tons coming down might mean in the Greif system relative to where you've been? Thank you and good luck in the quarter.

Speaker 1

The comment about inventory, again, it was mentioned, we've got 10 mills now in the system.

Speaker 2

We've

Speaker 1

got incredible opportunity to take care of all of our box plants nationwide. So we will quickly incorporate that strategy into the Core Choice operations. And it will take some time to work the inventories down. We've already started that. So Yes.

Speaker 3

Also, George, I'd just add that mix is a part of that equation also. So we've got to do both at the same time and but very good opportunities there. Yes.

Speaker 1

All right. With that, next question, please.

Operator

Next question is from Mike Rockland, Truist.

Speaker 6

Yes. Thank you, Mark, Tom and Ken for taking my questions and congrats on closing the acquisition.

Speaker 1

Thanks Mike. Good morning.

Speaker 6

Good morning. I just wanted to follow-up, Ken, with you. One, on the numbers that you just mentioned in relation to George's question, the $240,000,000 of EBITDA, the $60,000,000 of synergies. Now that you've owned the assets for roughly six weeks, can you talk about any potential upside to those numbers that you foresee from those assets?

Speaker 1

Right now, again, I'd rather just let you know that we're every day, we're we're seeing positive results from the work we're doing. So, again, I think a lot's gonna depend on the marketplace in the future and what we can do to take advantage of the of the footprint on the converting side. The mills will continue to be improved upon and continue to deliver in much the same way that the Boise assets delivered over the last ten years. So again, I think I'd rather just be conservative and say we're going to stick with the numbers we've already given you and just say that there's always upside, but it does depend on what the market does.

Speaker 6

Got it, Mark. Any comments you can make on terms of the improvements, whether in terms of efficiency costs, one out with respect to Masaline? You extended you mentioned in your comments and also in the press release that you extended the maintenance outage to five weeks. So can you talk about maybe some of the benefits that you're receiving from that extra work that you put into the mill?

Speaker 1

Yes. I mean, it's quite remarkable that with the capability we have in you know, we've got upwards of 200 people in our technology engineering organization. And, again, from from September 2 that morning at both mills, we were working simultaneously, and we had for at least a six week straight period of time, at least a 100 PCA personnel in Massillon working full time to assist the mill in, you know, improving their capability. I I don't think there's anything in that mill that hasn't been touched. We took we undertook the first week of just cleaning the mills, inspecting, taking apart major equipment, bearing changes, all the way down to lubrication systems, hydraulic systems, roll changes, you know, power equipment, boilers, turbine generators.

Speaker 1

So I feel very good that comprehensively, we we understand the opportunities we need to take advantage of going forward. The Nassilon as an example, we understand the limitations. We understand the upside. So some of it's gonna be dependent on ordering some equipment and getting it delivered. The good news, I still feel, though, what we told you is that it's you know, when we converted some of

Speaker 2

the Boise

Speaker 1

acquisition, we're spending half a billion dollars, I. E, DeRidder, Jackson, Wallula, per these conversions. But I told you before, we expect to beat the work at Massillon, the work at Riverville, it'll be the tens of millions of dollars. So over the next couple of years, 10,000,000 here, 10,000,000 there for system improvements, upgrades in technology and capability. But but the bones of the mills are good.

Speaker 1

We just need to update them and and then, you know, like I say, run these mills the way PCA looks at the business and takes care of the business. So I'm feeling very bullish on what we've seen just in one months. Point As an example, both mills, saw we started up Massillon the week before last, and we saw at least a 50% improvement just in the quality profiles, moisture profiles, basis weight profiles, physical test profiles. So huge improvement there, and that translates into customer experience with the product through Court Choice. So again, feeling very good about it.

Speaker 6

Got you. I appreciate the color there. And one last question before turning it over. Me. Gross EBITDA for the one month you owned the assets came in a little lower than we expected given recent performance prior to your ownership.

Speaker 6

Was that all due to the outages that you took at Massillon and Riverville? Or was there any economic downtime that you took due to your choppy backdrop or as you manage elevated inventories? And then any initial thoughts on twenty twenty six CapEx?

Speaker 4

Mike, I'll take that one. It was largely from the outages and the timing effects of the revenue and profit recognition, that hit us by about $12,000,000 during the quarter. So it was those. In terms of economic downtime, no, we didn't factor that in, in the GRIFFE results for September, no.

Speaker 1

The other part of your question about CapEx into next year, we'll update you in January for the plan for next year. But I think we're on track with taking advantage of our opportunities. I would like to say that just to remind everybody that the biggest pieces of capital spending this year right now are a couple of big projects on the converting side. We've got one big project going on in Ohio right now, and that's a new facility. And then in Upstate New York, we're totally upgrading one of our facilities as a big CapEx project that will both those projects will finish into next year.

Speaker 1

But we're always taking advantage of these capabilities to insert new converting lines and upgrade converting operations. But we'll give you a better feel in January what we're looking at. We do have some very interesting energy opportunities that we'll give you more detail with next year in the January call.

Operator

Next question is from Gabe Haider, Wells Fargo.

Speaker 3

Mark, Ken, Tom, good morning. Good morning, Gabe. I

Speaker 7

wanted to ask, I see this number and I think you kind of strip out input costs. It's, I'm going to call it the frictional inflation treadmill, but running kind of around a dollar year to date. So I think in this quarter, was $0.33 So if I annualize that, we're looking at kind of $170,000,000 Is that something that's particularly elevated this year or kind of post pandemic when we think about labor inflation and insurance costs, things like that? That's a good run rate on a go forward basis for maybe the combined entity or maybe legacy PCA? Let

Speaker 1

me one good piece of that that we're dealing with, but everybody's dealing with it even at your household, is energy cost. Electricity rates, just in the last year or two, we've seen some of our facilities' electricity rates are up 50% to 75%. So that's one good example of what the world is dealing with, and we're part of that world. That's why I was alluding to the fact that we've got three significant projects that we're going to introduce into early next year that will take three of our mills essentially electricity independent within the next two and a half years.

Speaker 4

And then Gabe, on the others, it's it's the usual. It's the labor inflation. It's, it's chemicals. It's any kind of supplies, insurance, rent, those sorts of things that have been, you know, that that have been going up at a fairly healthy clip in the last few years.

Speaker 7

Okay. But but is that is is it particularly elevated this year, or is that something that that sort of

Speaker 1

Well, again, it's just I I think I I think the the biggest the biggest factor was electricity rate increases nationwide. Yep. If if I take one one element of of cost, it would be electricity.

Speaker 7

Alright, Mark. But if when you're planning for next year and you're looking at that number, maybe it's down a little bit because we don't expect more energy price increases. I mean, we do because we've

Speaker 5

got to build all the On centers. But

Speaker 1

the contrary, I don't see energy electricity cost flattening out. With the demand from all of the data centers that's ongoing, the electricity rate increases, I I just don't see that it's going to abate anytime soon. That's why we've taken it upon ourselves that we've got plans to, like I said, three more of our mills. We've got a couple of our mills are in very good shape right now with electricity independence. But within two and a half years, we'll we'll take three more of our mills and and essentially get them off the grid, and we'll be in good shape.

Speaker 7

Well, I Mark, I feel like you you've you've got me on the hook, so I have to ask. Are are you referencing maybe some biogenic carbon capture opportunities? And I think we've read in in some outside articles that that could contribute up to $85 a ton that you produce.

Speaker 1

No. That's a separate issue. We're talking about essentially gas turbine technology. We've moved ahead, and we've got some great projects that we're going to be executing. Understood.

Speaker 1

We've got some facility I mean, without getting into the details, Gabe, we've got some facilities that already burned a lot of natural gas and power boilers, but we're not getting the advantage of the downstream electricity generation. So on a combined cycle, thorough efficiency, you're not getting all of the upside opportunity for each therm of gas that you burn. The gas turbines will give us that complete efficiency on the combined cycle from steam generation and electricity generation.

Speaker 2

Appreciate that. And these will

Speaker 1

be projects, again, we'll introduce to you early next year. A lot of discussion on the January call will give you a lot more details.

Speaker 7

Sir. Tom, one, we've read recently about, I'll call it price elasticity on corrugate. I'm just curious in your conversations with customers broadly speaking, how sensitive are customers in terms of potential price increases or trying to do more with less, whether it's light weighting and how that's showing up maybe in your own volumes, not necessarily specific to price increases but more thinking about light weighting on that front? Thank you.

Speaker 3

Gabe, obviously, we don't talk about any forward pricing at all. So I'm going to pass on that one. But I will tell you that, again, you you you hear you hear Mark talk about, as I indicated, that, you know, when we we expect our mills and acquired mills to run at a tremendously efficient rate, and we expect them to meet some very stringent specifications. And and those specifications relate to a lot of the technology that we have put into our boards, proprietary technology that gives us lightweighting capabilities that we believe is unique to the marketplace. Those are solutions that we take to our customers.

Speaker 3

And, you know, given this inflationary environment we're in, given the fact that costs are constantly going up, we're doing everything we can to help ourselves and our customers to fight those. However, at the end of the day, I mean, it is an inflationary environment. But I think that's a real competitive advantage we have in terms of our offerings to the marketplace.

Speaker 2

Thank you. I'll hand it over.

Speaker 1

Thank you. Next question please.

Operator

Next question is from Mark Adam, Weintraub, Seaport Research Partners.

Speaker 8

Thank you. First, just wanted to just follow-up on Gripho, big increase in D and A from purchase accounting. Just want to reconfirm in terms of CapEx related to those assets. I think you you in the past talked about 50,000,000 to $60,000,000 and, you know, with that type of spend, can get them up to Packaging Corp efficiencies, etcetera. Is that still a reasonable number, which obviously would be a lot lower than the $130,000,000 D and A you had talked about?

Speaker 1

Yes. I mean, after what we've seen with the efforts at Massillon and then the work at Riverville, It's that type of capital that we're gonna spend. It's very similar to what we did at International Falls over the last fourteen years. We did not have to spend massive amounts at I Falls. We just had to improve the capability on a lot of little systems and taking care of some of the technology.

Speaker 1

We're well on our way, but it is in that tens of millions of dollars, and it will happen over the next year or two. So I'm really confident that that number is still good.

Speaker 3

Mark, this is Tom. I would also add that, as we indicated before, the sheet feeders and corrugated box plants are very well capitalized, and we're plea we're very pleased with that. And although we've got some maintenance costs and some other things that will take place there, we're not going to invest huge amounts of capital in those facilities.

Speaker 8

Right. So obviously, cash earnings from Greif are much stronger than what book earnings are going to be. But I'm also kind of curious whether or not is there much in the way of TaxShield benefit that you're getting through accelerated depreciation? Or is that sort of not something to call out specifically?

Speaker 4

Well, I think you saw it in our cash tax payment for the third quarter that we called out in the script. The allocation that we had to PP and E, we were able to take bonus depreciation on and reduce our cash taxes out pretty significantly this year. So I think you see that in our cash for the third quarter.

Speaker 8

Okay. And presumably, we'd see that next year as well. But so kind of shifting gears, if I could. Obviously, it's sort of been a pretty difficult environment industry wise, box shipments, etcetera. In in the past, you you've been able to, through business wins,

Speaker 3

you

Speaker 8

know, grow a lot faster than the industry and, you know, fill out these new box plants, etcetera, that you are building. Have you had business wins of late that you have visibility on that that can give us confidence that you can continue to to outperform on the volume side?

Speaker 3

Mark, this is Tom. We haven't changed anything that we typically would do. Absolutely nothing. We've been you know, as I mentioned, we've been hurt in our numbers from a couple of big segments of ours that we can do very little about. However, we continue to grow, within existing accounts, in a big way.

Speaker 3

And, and, yeah, we we we continue to have wins, but, you know, these aren't these are wins that we earn. They're not you know, these aren't wins that you, you know, you just go out and, you know, have have something have something to offer that nobody else is doing necessarily. But, you know, we have to earn these wins, and, you know, we're just continuing to do the things we're doing. We're just not getting we're not getting a lot of lift, obviously, from the economy, and these starts and stops that we've seen consistently go on throughout the year relative to tariffs and a bunch of other things, you know, certainly are, impacting the business.

Speaker 8

Great. And and then lastly, we we've had this extraordinary year, in terms of magnitude of capacity closures in the North American containerboard business. And, you know, box demand hasn't been good. But but are you actually feeling any more tightness because of the closures of containerboard capacity? Any color you could give would be be appreciated there.

Speaker 3

Yeah. I think I think, you know, the containerboard capacity, you know, is I think you're seeing a consistent trend in this industry that it rightsizes to demand, and we run to demand. We do. That's that's what PCA does. And I think in addition, you know, even on the even on the corrugated side, you know, we've we've had we've closed some facilities.

Speaker 3

We've rationalized some some poor assets, things like that, and, and we'll continue to do so. And, you know, again, it's it's we will run to the demand that we see out there.

Speaker 8

Okay. Tom, just since you mentioned that, I apologize, I know I'm going a little long here. But I think you have two box plants, which you're not which you're going to be closing in the fourth quarter. Can you give us a little color around the decision to do that?

Speaker 3

Well, they just happen to be box plants that are not that we can't capitalization isn't going to be the answer for those box plants, and they have to be in markets where we have you know, other facilities and bigger facilities and better equipped facilities to handle those customers. It's not as if we're abandoning any of those customers. We're keeping all those customers, but it's just a matter of, you know, rightsizing to the demand we see in

Speaker 1

a particular market. I think people tend to forget, Mark, if you think about the last sixteen years, we probably made 25 acquisitions. And during that period of time, we probably shut 20 some odd plants

Speaker 3

some odd plants. Yeah.

Speaker 1

During that period of time. And we built some, you know, a number of new plants and essentially recapitalized the rest of our footprint. But, you know, but as Tom said, we we run to demand, and and we, you know, but people people lose sight of the fact that we have gone ahead and and closed a number of our older plants that just don't don't fit the fit, you know, our needs anymore.

Speaker 8

Thanks so much.

Speaker 1

Question, please.

Operator

Next question is from Anthony Petinari, Citi.

Speaker 9

Hi, good morning.

Speaker 1

Good morning.

Speaker 7

With price,

Speaker 9

your mix into recycled will increase. And I'm wondering if it's possible to say how many tons of OCC PCA might buy kind of with the right assets. And as you look at your end markets and talk to your customers, as you think about the next three to five years, is there any reason to think recycled demand will grow faster or maybe slower than kraftliner? Or do you not necessarily think about it that way?

Speaker 1

Look at it as an opportunity. Quite frankly, I look at Macelon and Riverville as an opportunity to make more medium, which we need. And our plans run very well on the recycled medium, but combining that with our high performance liner grades, we get the best of both worlds. And so Yeah. It it's not on a total percentage basis.

Speaker 1

It's it's it's really just taking advantage of of the opportunity, and we'll play into that in the marketplace. But but the the the recycled medium will will do work very well with us.

Speaker 3

Yeah. Market, the key is that, you know, we we do need we do need the medium, and a 100% recycled medium is a is, you know, a good runner in our facilities and stuff. And so trade for some of that and those sorts of things. But as far as end markets go, I mean, we we we attack every end market with whatever the best solution is.

Speaker 9

Okay. And any, any quantification of, like, OCC consumption, tons? Or not sure if you disclosed. But

Speaker 4

Hey, Anthony. We were we were flexible beforehand. We could flex the system a little bit, but we typically ran around 20 low 20 percentage furnish OCC. That's gonna move up about 10% on the whole to, you know, going forward, if that helps.

Speaker 9

Got it. Got it. That's very helpful. And then just a couple of quick questions on CapEx. I mean, understanding you'll give us more detail in February.

Speaker 9

But the box plant projects that you referenced, does the CapEx spend for that from 25,000,000 to 26,000,000 is it sort of directionally similar? Or does it sort of ramp down modestly or maybe ramp down more sharply? And then I guess second question, Mark, you've got us really interested in these energy projects. Are there currently PCA mills that are selling meaningful amounts of electricity back to the outside utility company? And could that be potentially an opportunity or part of the projects that you'll tell us more about next year?

Speaker 1

First part on your CapEx. We would expect as we finish up the two bigger projects, the one in Ohio and the one in New York State next year, CapEx will continue to be kind of flat in that range. We would probably take advantage of that opportunity. The good news is and Tom has mentioned this and I've mentioned it, Greif gave us the opportunity with the core choice converting side of their business. It's going to help us minimize what we have to do in some of these regions.

Speaker 1

We will avoid having to spend some major pieces of capital on any new plants for the next couple of years. So in that regard, we'll continue to do some converting installations as far as EVOL, Sun rotary die cutter type stuff, some corrugator opportunities. But as far as major plant projects, that'll that'll mitigate itself. And then then I see the next couple of years, the big projects are gonna be some of these energy projects. We'll take advantage of that.

Speaker 1

It's probably a two and a half year process. We'll get into the details in January and the first part of next year. But these are projects that have one years point payback type projects, very, very high return projects. But as far as the level of CapEx, we'll be in a very comfortable range, the amount of cash we're generating. I think, quite frankly, people are gonna be asking us, what are you doing with all the cash on hand?

Speaker 1

That's gonna be the high class problem we get into. And so I'm not worried about the CapEx. We'll all of our capital that that we've been spending over the years, you know, we've got a very good track record of return on our investment with this CapEx spending. So as far as what you're modeling, just I would just continue to model what our trend has been, and we'll update you next year. There was one part of oh, you're part of the question on electricity.

Speaker 1

No, we're not wheeling power into the grid at any of our facilities. We are we do have one facility in particular that's essentially 100% independent, but we're not wheeling power into the grid.

Operator

Next question is from Philip Ng, Jefferies.

Speaker 2

Hey guys. Appreciate all the great color. So Mark, you talked about potentially some of these energy projects in the next few years. And then obviously, you're going to do some great work at these Greif mills, kind of get it up to peak levels. And then you called out some of the inventory where it's a bit more elevated at Greif.

Speaker 2

So curious, when we think about '26, does that translate more downtime than we should kind of be appreciative, which could potentially meet some of the EBITDA contribution from graph? I think Kent gave a number in that two forty range plus synergies. So I just want to be mindful just because it was extra noise in the back half of this year. Is there friction that we need to be thoughtful of that could be impactful next year?

Speaker 1

No. I I think, again, the the work we just did at NASA launch of approximately six weeks really gave us a comprehensive, you know, look at the mill because we we literally touched everything in that mill. Clean from the ceilings down to the to the u drain sewers, everything was clean, touched, inspected new lighting. And so in doing so, we understand what it is in terms of components, motors, pumps, rolls, systems on paper machines that we wanna upgrade to the PCA standards. So we've already, you know, got our plan in place, but these changes will take place on monthly outages.

Speaker 1

It's it's not the, you know, three week outages required. It's it's the twenty four hour outage and the annual outage for five or six days a week type thing. So, no, we'll be in good shape next year. You know, Riverville is in a similar similar situation. We've we've gotta just, you know, continue to take care of the mills, and we'll invest appropriately.

Speaker 1

And and but, no, I'm I'm I'm bullish on the what we've got facing us for the next few years. No no major you know, we we went through a forty some odd day outage at at Jackson a few years ago, and we don't we don't see any of that type of of situation. So we'll be in good shape.

Speaker 2

So it sounds like you would largely be able to do the work that you wanna do, whether it's energy projects. And then, I guess, even taking down the inventory at Greif within the scope of your normal managed outage, it shouldn't be an outside year next year.

Speaker 1

Yes. No, I mean the inventory management, that will happen over the next couple of quarters as we work our way down. And like I said, that's just future upside for the business.

Speaker 2

Okay. Helpful. And then a question for Tom. You called out building mats and beef being more pragmatic. Tom, can you size up how much of that of your box business is tied to those end markets?

Speaker 2

Or trends in those end markets getting worse? It's kind of bouncing along the bottom. And the other categories, are you seeing order patterns pick up a bit? And how do you kind of envision your customers managing inventory to kind of close out the year?

Speaker 3

Okay. Philip, number one is I'm not gonna I'm not gonna give you what, you know, how much these segments are. I'm just you know, I just told you they're relatively large segments for us, and those are the ones that are impacting us the most in beef and and building products being down. But, you know, beef is beef is more of a long term thing, so it's gonna it's gonna take

Speaker 1

a little while. As I told you,

Speaker 3

the herds are down to seventy year lows, and these things take two to three years to rebuild, and we're only a year into the process. So, you know, that's gonna that's gonna take a little while. Building products, you know, very reliant on, you know, what happens with interest rates, and they're coming down and and, you know, what the cost of materials are and, how quickly, you know, things can be approved and those sorts of things in in the nation. And and the remodeling prop the remodeling bottoming has begun to go the other way, so that's a good that's a good thing. The other segments that we're in have been pretty have been pretty steady and steadily growing, and, you know, the, our customers are our customers are pretty bullish on on things going forward.

Speaker 3

So, I think I think overall, I mean, our our portfolio is in in really good shape.

Speaker 2

Good time. You're not hearing from any of your customers that they have desires to kinda work down inventory to close out the year to get

Speaker 3

Well, you know, I'm I'm glad I I yeah. Yeah, Philip. I forgot that part of the of your question, but, our customers are already operating at very low inventory levels, and I think they would tell you that across the board. So, so that that inventory is about you know, is is peeled down about as far as they can as they can do it. Because, again, you know, it goes back to all these all these things that have taken place during the year and the bumpy road we've been on with tariffs and all these other sorts of things.

Speaker 3

So I think our our customers have been very cautious.

Speaker 2

Okay. Appreciate all the color, guys. Thank you.

Speaker 1

Mhmm. Thank you. Next question.

Operator

This concludes our question and answer session. I would like to turn the conference back over to Mr. Mark Kozan for any closing remarks.

Speaker 1

I'd like to thank everybody for joining us today and appreciate it and look forward to talking with you all at the January. We're very, very pleased with where we are today with the acquisition and looking forward to to have a good conversation with you in January. With that, have a good good day, and and have a great holiday period. Take care.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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