Packaging Corporation of America Q1 2025 Earnings Report

Packaging Corporation of America EPS Results

• Actual EPS: $2.31
• Consensus EPS: $2.21
• Beat/Miss: Beat by +$0.10
• One Year Ago EPS: N/A

Packaging Corporation of America Revenue Results

• Actual Revenue: $2.14 billion
• Expected Revenue: $2.12 billion
• Beat/Miss: Beat by +$16.93 million
• YoY Revenue Growth: N/A

Packaging Corporation of America Announcement Details

• Quarter: Q1 2025
• Date: 4/22/2025
• Time: After Market Closes
• Conference Call Date: Wednesday, April 23, 2025
• Conference Call Time: 9:00AM ET

Packaging Corporation of America (NYSE:PKG) (NYSE: PKG) is a leading North American manufacturer of containerboard and corrugated packaging products. The company produces a range of paper-based packaging solutions including linerboard, corrugating medium, corrugated shipping containers, retail-ready packaging and point-of-purchase displays. In addition to core packaging products, Packaging Corporation of America offers packaging design, testing and supply-chain services intended to optimize protection, cost and sustainability for customers.

Headquartered in Lake Forest, Illinois, the company operates an integrated network of mills and corrugated manufacturing facilities across the United States and serves customers throughout North America in industries such as e-commerce, grocery and food & beverage, consumer packaged goods and industrial markets. Its operations span production of both recycled-fiber containerboard and virgin-fiber grades, and the company maintains logistics and converting capabilities to support regional and national supply requirements.

Packaging Corporation of America is publicly traded on the New York Stock Exchange under the ticker PKG and has expanded its footprint through investments in manufacturing capacity and strategic growth initiatives. The company emphasizes sustainability and recycling as part of its product and operational strategy, reflecting the cyclical and resource-focused nature of the paperboard and corrugated packaging sector. Packaging Corporation of America is managed by a corporate leadership team and board of directors responsible for executing its manufacturing, commercial and sustainability objectives.

Packaging Corporation of America Q1 2025 Earnings Call Transcript

Key Takeaways

• Packaging Corporation reported Q1 net income of $204 million ($2.26 per share), or $208 million ($2.31 per share) ex-special items, up from $155 million ($1.72 per share) a year ago and $0.10 above guidance.
• Packaging segment EBITDA margin improved to 21% from 18% a year ago, driven by effective price increases, record containerboard production and targeted inventory management.
• Operations generated a first-quarter record $339 million in cash from operations and $191 million in free cash flow, with liquidity exceeding $1.2 billion.
• The new state-of-the-art Glendale, Arizona box plant started ahead of schedule and under budget, adding almost 2 billion square feet of capacity and reducing labor costs per unit.
• Adjusted planned maintenance outages were pulled into Q2, increasing outage expenses by $0.16 per share and raising full-year outage cost guidance to $1.22 per share from $1.18.

Presentation

[Operator]

Good morning everyone. Thank you for joining Packaging Corporation of America's First Quarter 2025 Earnings Results Conference call. Your host today will be Mark Kowlzan, Chairman and Chief Executive Officer of PCA. Upon conclusion of his narrative, there will.

[Operator]

Be a Q and A session.

[Operator]

I would now like to turn the conference call over to Mr. Kowlzan. Please proceed when you are ready.

[Mark Kowlzan, Chairman and CEO at Packaging Corporation of America]

Thank you Jamie. Good morning everyone and thank you all for participating in Packaging Corporation of America's First Quarter 2025 Earnings Release Conference call. Again, I'm Mark Kowlzan, Chairman and CEO of PCA and with me on the call today is Tom Hassfurther, President of PCA, and Bob Mundy, our Chief Financial Officer. I'll begin the call as usual with an overview of the first quarter results and then I'm going to turn the call over to Tom and Bob who will provide further details. After that I'll wrap things up and then we'll be glad to take questions. Yesterday we reported first quarter net income of $204 million or $2.26 per share, excluding special items. First quarter 2025 net income was $208 million or $2.31 per share compared to the first quarter of 2024 net income of $155 million, or $1.72 per share.

[Mark Kowlzan, Chairman and CEO at Packaging Corporation of America]

First quarter net sales were $2.1 billion in 2025 and $2 billion in 2024. Total company EBITDA for the first quarter excluding special items was $421 million in 2025 and $333 million in 2024. First quarter net income included special items expenses of $0.05 per share, primarily for the closure costs related to corrugated products facilities. Details of special items for both the first quarter of 2025 and 2024 were included in the schedules that accompanied the earnings press release. Excluding the special items, the $0.59 per share increase in first quarter 2025 earnings compared to the first quarter of 2024 was driven primarily by higher prices and mix of $0.78 per share and volume $0.27 per share in the packaging segment, higher prices and mix in the paper segment $0.01, lower freight and logistics expenses $0.01 and lower scheduled outage costs $0.01.

[Mark Kowlzan, Chairman and CEO at Packaging Corporation of America]

Partially offsetting these improvements, operating costs came in about where we expected at $0.37 above last year's level. Although we did see lower fiber prices during the quarter, we continue to experience inflation across most of our cost structure. Our focus on operational efficiency, cost reduction initiatives, capital project execution have helped minimize the negative impact of the persistent inflation. In addition, paper segment volume was lower by $0.02, depreciation and other expenses were higher by $0.03 per share, our tax rate was higher by $0.04 per share and we had higher interest expense $0.03 per share. The results were $0.10 above the first quarter guidance of $2.21 per share primarily due to higher prices and mix in the packaging segment.

[Mark Kowlzan, Chairman and CEO at Packaging Corporation of America]

Looking at the packaging business, EBITDA excluding special items in the first quarter of 2025 of $409 million with sales of $2 billion resulted in a margin of 21% versus last year's EBITDA of $326 million and sales of $1.8 billion or an 18% margin. Excellent margin improvement for the quarter was driven by sound execution in our price increase implementation, solid box shipment volume, record containerboard production and outstanding operational performance in our mills and box plants. We were also able to end the quarter at targeted inventory levels, which puts us in great position compared to last year's historically low inventories.

[Mark Kowlzan, Chairman and CEO at Packaging Corporation of America]

Our employees continued to deliver on numerous cost reduction initiatives, efficiency improvements, integration and optimization enhancements, and capital project benefits to not only minimize the negative impact from the persistent inflation we currently see across most of our cost structure, but also to capitalize on our longer term strategic goals. I'll now turn it over to Tom who's going to provide further details on containerboard sales and the corrugated business.

[Thomas Hassfurther, President at Packaging Corporation of America]

Thanks Mark. The disciplined implementation of the price increases for liner, medium and boxes according to our announcements was a significant contributor to this year's first quarter results. Domestic containerboard and corrugated products prices and mix were $0.72 per share above the first quarter of 2024 and up $0.41 per share compared to the fourth quarter of 2024. Export containerboard prices were up $0.06 per share versus last year's first quarter and down $0.01 per share compared to the fourth quarter of 2024. Although we began to see some pullback in the middle of the quarter related to the uncertainty created by trade tensions around the world, box demand was solid and exceeded a very strong comparative period in last year's first quarter.

[Thomas Hassfurther, President at Packaging Corporation of America]

Total volume and shipments per day in our corrugated products plants were up 2.5% versus last year's first quarter when per day shipments were up 11% over the previous year. Also, in addition to supplying record containerboard production volume to meet the integrated needs of our box plant, outside sales volume of containerboard was 30,000 tons above the first quarter of 2024 and 6,000 tons above the fourth quarter of 2024. As we look ahead to the second quarter, we expect the economic uncertainty to continue weighing on demand. However, we still believe the box shipments will be higher than the first quarter and above last year's tough comp which was up 9.2% over the previous year.

[Thomas Hassfurther, President at Packaging Corporation of America]

Regarding the strategic capital plan for our converting plants, I'd like to mention that in March we had a successful startup of our new state-of-the-art high-efficiency full-line box plant in Glendale, Arizona. The 365,000 sq ft plant was started up ahead of schedule, significantly below budget and all equipment was operational during the first week of production. Previously, we were limited in our ability to serve and grow with our customers in this key marketplace due to the plant's limited capability and aging equipment that required us to pull from several different locations, some of which were quite far away.

[Thomas Hassfurther, President at Packaging Corporation of America]

Geographically, our new plant will increase box capacity by almost 2 billion sq ft, significantly increase productivity on a unit labor hour basis, reduce costs and allows us to optimize our service capabilities not only in the Phoenix area, but also in the growing markets in Las Vegas and portions of California. I'll now turn it back to Mark. Thanks Tom.

[Mark Kowlzan, Chairman and CEO at Packaging Corporation of America]

Looking at the paper segment, EBITDA excluding special items in the first quarter was $40 million with sales of $154 million or a 26% margin compared to the first quarter of 2024. EBITDA of $41 million and sales of $164 million or 25% margin. The employees of our paper business continue to deliver excellent customer service and remain focused on efficient and cost effective oper outstanding margins for the quarter. Similar to the industry, sales volume was 7% below a particularly strong first quarter of 2024 along with current economic uncertainty. Volume was 2% above the seasonally weaker fourth quarter of 2024. Paper prices and mix were 2% above the first quarter of 2024 and flat versus the fourth quarter of 2024. Our previously announced price increase began to be implemented during the quarter for all office printing and converting grades.

[Mark Kowlzan, Chairman and CEO at Packaging Corporation of America]

Prices have begun to move up according to the terms of our customers and we expect to begin seeing higher prices in the second quarter results. I'll now turn it over to Bob.

[Robert P. Mundy, CFO at Packaging Corporation of America]

Thanks Mark.

[Robert P. Mundy, CFO at Packaging Corporation of America]

Cash provided by operations set a first quarter record totaling $339 million and free cash flow was also a first quarter record at $191 million. The primary payments of cash during the quarter included capital expenditures of $148 million and dividend payments of $112 million. Our quarter end cash balance including marketable securities was $914 million with liquidity of just over $1.2 billion. As mentioned in our earnings release last night, to help manage the current economic uncertainty and its impact on our demand, we have adjusted our planned maintenance outage schedule and pulled up into the second quarter an outage that was scheduled for later in the year. This will result in a $0.16 per share increase in planned outage expenses for the second quarter versus the first quarter.

[Robert P. Mundy, CFO at Packaging Corporation of America]

The revised total company estimated cost impact for the year is now $1.22 per share versus $1.18 per share previously. The actual impact in the first quarter was $0.23 per share and the revised estimated impact by quarter for the remainder of the year is now $0.39 per share in the second quarter, $0.16 in the third and $0.44 per share in the fourth quarter. I'll now turn it back over to Mark.

[Mark Kowlzan, Chairman and CEO at Packaging Corporation of America]

Thank you, Bob. Looking ahead as we move from the first and into the second quarter, as always, our attention will remain on what we can control. Our North American focus together with our balance sheet strength, well capitalized mills and plants, our commitment to strategic goals and our proven ability to respond quickly and effectively to external factors will serve us well during the period of economic uncertainty. We anticipate continued ambiguity relative to domestic and foreign tariff actions and their effect on global trade and our demand trends. Therefore, we have made certain assumptions in our guidance to recognize potential negative impacts to volume and cost from the uncertainty. In the packaging segment, we expect domestic prices to improve with continued implementation of our price increases along with fairly flat export prices.

[Mark Kowlzan, Chairman and CEO at Packaging Corporation of America]

Although we see box shipments improving, operating costs will be negatively impacted due to lower containerboard volume as we run our operations to match demand assumptions. Also, as Bob mentioned, adjustments to our planned maintenance outage schedule will result in a $0.16 per share increase in outage costs compared to the first quarter. In the paper segment, implementation of the higher published price index prices from the first quarter will continue although volume will be lower with the planned maintenance outage at our International Falls Minnesota mill rail contract, rate increases at six of our mills during the first and second quarters will result in higher freight and logistics expenses and depreciation expense is assumed to be higher as well. Considering these items, we expect the second quarter earnings of $2.41 per share.

[Mark Kowlzan, Chairman and CEO at Packaging Corporation of America]

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 involve inherent risks and uncertainties including the direction of the economy and those identified as risk factors in our annual report on Form 10K on file with the SEC. The actual results could differ materially from those expressed in the forward looking statements. With that, Jamie, I'd like to open the call to questions please.

[Operator]

Ladies and gentlemen, at this time, if you would like to ask a question, please press Star and then one using a touch tone telephone. To withdraw your questions, you may press Star and two. If you are using a speakerphone, we do ask that you please pick up the handset prior to pressing the keys to ensure the best sound quality. Once again, that is Star and then one to join the question queue. Our first question today comes from George Stathos from Bank of America Securities. Please go ahead with your question.

[George Staphos, Analyst at Bank of America Securities]

Thank you. Hi everyone. Good morning. Thanks for the details, Mark and Bob. Tom, good morning. You mentioned ambiguity, obviously the macro environment, and you mentioned that you had made some changes in how you're looking at your guidance and forecasting. You laid out a couple of things. Were there some other points that you wanted to delve into in terms of how you're adjusting, how you're looking at forecasting, guiding for the year, and relatedly, what are the early bookings and billings for 2Q.

[Mark Kowlzan, Chairman and CEO at Packaging Corporation of America]

You know, everything we just talked about and the way we're looking at the quarter is based on, and I'll use the term caution that's being exercised by our customer base. You know, a lot of our customers are looking at their business and everybody's being very prudent. Therefore, on how the ordering is flowing through, everybody just again being very cautious about how they present their business to the marketplace. Again, across the board our business is still robust, but it's just again, I'm just going to use the word cautious. Tom, you want to talk about cut up for the.

[Thomas Hassfurther, President at Packaging Corporation of America]

Yeah, George.

[Thomas Hassfurther, President at Packaging Corporation of America]

You know, our bookings and billings are up 4.1% starting out the quarter. So we're in, you know, we're starting out well at about what we expected. I think the caution relates to a number of different things. You know, you've got obviously the tariffs and these sorts of things and you can listen to all the experts and talk about it, but there is no real expert in this arena right now because there's attempting to do things that haven't been done for a long, long time. I think there is some caution related around that. Also this is happening at the same time we're fully implementing a price increase. In addition, you know, the mix is changing somewhat in corrugated in total because E Comm continues to be a growth engine for corrugated.

[Thomas Hassfurther, President at Packaging Corporation of America]

That is really related to the second half of the year more so than the first half. A lot of moving parts. That is what we are reflecting.

[Mark Kowlzan, Chairman and CEO at Packaging Corporation of America]

Bob, you want to.

[Robert P. Mundy, CFO at Packaging Corporation of America]

George, I'll just add one other thing. George, you know, you have to also consider that, and we, you know, we mentioned last night that, you know, we exceeded our guidance because of better price realization in our, in our packaging segment. You know, that number, you know that the amount we exceeded our internal guidance by, you know, was more than the $0.10 beat we had in the first quarter. Said another way, that was, you know, something we thought we would get more likely in the second quarter. You have to consider that as well when you look at their second and first quarter together.

[George Staphos, Analyst at Bank of America Securities]

I see, I see. I appreciate that. That adds some good color, relatedly. You said that inventories are where you'd like them to be. You're seeing an increase in box volumes, yet we're seeing containerboard production, I think you're implying, coming lower. 2Q versus 2Q. Help me understand if there are any missing parts in what I've just relayed and if not, why you're reducing production if your inventory is in good shape as your box volumes are going up. I recognize things are pretty cautious out there overall, what you mentioned. Lastly, you mentioned in fourth quarter reporting that you were anticipating a richer mix for 1Q. From our numbers, profit per ton produced was up a couple bucks, which is fine from 4Q. Is that where you expected it? Was it up or down versus expectations?

[George Staphos, Analyst at Bank of America Securities]

Thank you guys and good luck in the quarter.

[Mark Kowlzan, Chairman and CEO at Packaging Corporation of America]

Let me talk to the first part there. As far as, again, based on what we're seeing in the marketplace, as we've always done, we're running to our expected demand across the board. What we see with our customer throughout North America. Because of some of the trade tariff debate going on, we have pulled back from a very small amount of export going specifically to China. It was just. Again, it's a very, very small amount. Just as we've always done, we're running to our customer demand. That being said, we anticipate the month of May, we'll probably have two of our smaller machines down for the month unless something changes dramatically. That is how we're going to manage our inventory. That has something to do with some of what we talked about.

[Mark Kowlzan, Chairman and CEO at Packaging Corporation of America]

With the cost impact on these outages, we're taking the mills down for their annual outage. We're pulling up. The outage we referred to that we're pulling up from the latter part of the year is at Filer City, Michigan. That was planned for the fall and we're pulling that up to the month of May. That will probably keep one of the small machines down for the extra number of weeks as we see the inventories and demand move around. We're just, we're being cautious in our own right on how we look at the world. We have that ability to move very quickly if we need to. There was another part of the question that you had there. Refresh me on what was that second part. Mix.

[Mark Kowlzan, Chairman and CEO at Packaging Corporation of America]

Yeah.

[Operator]

I don't, go ahead.

[Thomas Hassfurther, President at Packaging Corporation of America]

I don't remember really talking about richer mix in the, in the first quarter because the first quarter is just a, you know, pretty stable mix. And you know, of course you're not going to have a tremendous amount of graphics or anything like that in the first quarter. You know, the one couple of things that did impact us though in the first quarter that we haven't really even talked about and that is we did have, we did more weather related closures, you know, than we would typically have in any, in any winter. That was impactful. Also, in southern Texas the weather did impact the ag, the ag business down there to a large extent.

[Thomas Hassfurther, President at Packaging Corporation of America]

I think also what we're talking about when we talk about the mill, the mill outages and moving those up is because we do see the second half demand, you know, being, being significantly higher than the first half. We see an opportunity to get that done. It just makes good sense so we can run full out in the second half of the year.

[George Staphos, Analyst at Bank of America Securities]

Thank you, Tom. Makes good sense. I'll turn it over.

[Mark Kowlzan, Chairman and CEO at Packaging Corporation of America]

Next question please.

[Operator]

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

[Michael Roxland, Analyst at Truist]

Yeah, thank you, Mark.

[Michael Roxland, Analyst at Truist]

Bob.

[Michael Roxland, Analyst at Truist]

Congratulations on good results in a tough operating environment. In terms of just the $0.10 fee, you mentioned that through the higher prices and mix in packaging. Can you just provide a little more color with respect to your operations? Was it something specific? Specifically, the way you ran your mills, was it something with the contracts where price was able to flow through faster? Just want to get a sense of how you were able to beat your own expectations by $0.10

[Mark Kowlzan, Chairman and CEO at Packaging Corporation of America]

in 1Q as.

[Mark Kowlzan, Chairman and CEO at Packaging Corporation of America]

I called out on my portion of the script. We operated exceptionally well but we also moved our price increase through very, very effectively. Tom, you want to comment?

[Thomas Hassfurther, President at Packaging Corporation of America]

I just, the only comment I would make is that we implemented the price increase exactly as we said we would in our announcements and I think that's very important. There was a larger portion obviously the price increase related to our outside sales of liner and medium along with the non contract box price increase and the rest of the contractual box price increase will continue to be rolled through in the second quarter and will be completed by July. That will have that normal 90 day cycle that we typically see.

[Michael Roxland, Analyst at Truist]

Got it.

[George Staphos, Analyst at Bank of America Securities]

I appreciate the color there, Tom.

[George Staphos, Analyst at Bank of America Securities]

Just following up on your comments on E Commerce, you gained some share in E Commerce I believe. Obviously it's continuing to flow through ops and some of it obviously maybe more traditional brown box type products as well. Can you just give a sense some of those business ones that you had in E Commerce, where they stand with respect to EBITDA margin and return invested capital relative to your underlying business? Is that the business that you picked up from E Commerce vantage point, 20% type EBITDA margins? Call it mid upper teens return invested capital type business.

[Thomas Hassfurther, President at Packaging Corporation of America]

Mike, I would say we picked up, our volume growth is primarily a result of our existing customers, number one. Number two is we did add some additional outside customers. We do not typically target any particular segment. We target customers that we know will be around for the long haul and that we have done business with for, you know, for decades now. That said, E Comm is the number one growing segment in corrugated and obviously that becomes a larger segment for us as well since we do business with, you know, with the E Comm providers and you know, are the margins, are the margins better or worse? Whatever? No, the, you know, the margins are the margins are what they are and they are, you know, and we make, you know, we do not take on business just for the sake of taking on volume.

[Thomas Hassfurther, President at Packaging Corporation of America]

I mean, I think we've said that many, many times. You know, we have a business to run, our customers have a business to run and we both expect to be able to make good returns in our businesses. You know, we've done a lot of things in our mills that we've talked about in terms of, you know, customizing our boards for different industries and different demands. You know, I think that a lot of, there's been discussion about, let's say as an example, you know, price doesn't, price doesn't seem to move as much for certain industries or, you know, your mix. The mix is getting more, more towards brown than it is towards graphics, things like that. That's really just a result of what's happening in the marketplace.

[Thomas Hassfurther, President at Packaging Corporation of America]

If E Comm is growing, that means big box is probably going the other way, which also means there's less graphics and displays and things like that and some of that other, what you'd call richer mix. We're just adapting to whatever the marketplace is and you know, that's demonstrated also in what we've talked about, what we're doing in the second quarter.

[George Staphos, Analyst at Bank of America Securities]

Got it.

[George Staphos, Analyst at Bank of America Securities]

Thank you very much.

[Mark Kowlzan, Chairman and CEO at Packaging Corporation of America]

Thank you. Next question.

[Operator]

Our next question comes from Gabe Hyde from Wells Fargo Securities.

[Operator]

Please go ahead with your question.

[Gabriel Hajde, Analyst at Wells Fargo Securities]

Tom. Bob, good morning.

[George Staphos, Analyst at Bank of America Securities]

Morning.

[Gabriel Hajde, Analyst at Wells Fargo Securities]

Tom, I want to challenge maybe a little bit of what you said. I mean, two of the other competitors in the marketplace are talking about value over volume and trying to extract more from customers.

[Gabriel Hajde, Analyst at Wells Fargo Securities]

Maybe.

[Gabriel Hajde, Analyst at Wells Fargo Securities]

I don't know if they're talking about retail ready packaging or figuring out ways to upsell customers, maybe wow them when they get that package on their porch and the opening experience and things like that. I'm just curious if you all are seeing that as you talk to your sales force across the different channels, those types of opportunities, or if you've seen any change of behavior or if there's anything that you're seeing when you're going out for RFPs, things like that.

[Thomas Hassfurther, President at Packaging Corporation of America]

I think that some of that's a little bit of gee whiz, if you ask me. But you know, what we see, we lead in this area, in my opinion, to offer our customers the very best value and the very best options that they may use the box for. And that's what makes the box very unique, is that, you know, we can, it can advertise, it can protect, it can do all these other sorts of things and it's the greatest, probably the greatest product in the history of mankind from a sustainability and recyclability standpoint too. But, you know, our customers are very sensitive to those sorts of things. They want us to bring the innovation and the ideas to them, which is what we do always.

[Thomas Hassfurther, President at Packaging Corporation of America]

I'm not, you know, I don't want you to misinterpret what I'm saying, that that PCA is headed towards nothing but brown, because that couldn't be further from the truth. At the same time, we accept the realities of what's happening in the marketplace.

[Gabriel Hajde, Analyst at Wells Fargo Securities]

Okay.

[Gabriel Hajde, Analyst at Wells Fargo Securities]

In the press release you mentioned some rail increases. I know those are typically timed around April 1, the day before Liberation Day. I'm just curious. It sounds like there were some increases that from a contractual standpoint that were put through, if you are willing to comment that they're more or less than what you were anticipating. If I could slip one other one in. I think you talked about capex at $148. The guide, I want to say from memory was $840-$870 tracking a little bit below. If we were to annualize it. I know things are lumpy. Just curious if that $840-$870 number is still what you're tracking towards. Thank you.

[Mark Kowlzan, Chairman and CEO at Packaging Corporation of America]

Yeah. On the CapEx, we're still tracking on that $800 million level of spending. We broke ground on the new plant in Ohio back in February, so that's well underway. We have some other big projects going on. One big project at one of our mills and then just the numerous projects reconfiguring a couple of the other box plants on the East Coast. There's a lot of good activity happening there on the capital side.

[Robert P. Mundy, CFO at Packaging Corporation of America]

Yeah.

[Robert P. Mundy, CFO at Packaging Corporation of America]

On the rail increases, Gabe, you know, we had I think three in the first quarter.

[Robert P. Mundy, CFO at Packaging Corporation of America]

You'll get a full quarter's worth.

[Robert P. Mundy, CFO at Packaging Corporation of America]

You know, of those in the second quarter, they happen around midway or a couple around March. Then we have three additional that will take place in the second quarter. That was what drove our comment around freight.

[Gabriel Hajde, Analyst at Wells Fargo Securities]

Thank you. Good luck.

[Mark Kowlzan, Chairman and CEO at Packaging Corporation of America]

Thank you. Next question, please.

[Operator]

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

[Mark Weintraub, Analyst at Seaport Research Partners]

Thank you.

[Mark Weintraub, Analyst at Seaport Research Partners]

Good morning.

[George Staphos, Analyst at Bank of America Securities]

A few follow ups. First off on the sequential pricing, which as you note, was very strong. Can you share, kind of roughly speaking, how much of your box business is non contract and or has that share.

[George Staphos, Analyst at Bank of America Securities]

Increased meaningfully over time? Our non-contract is about 30% and 70% on contract, and that's been pretty consistent for years.

[George Staphos, Analyst at Bank of America Securities]

Okay. I guess just, can you help us a little bit more in explaining kind of how you are able to get as much as you got in the first quarter? I think you noted it was better than you had expected too. I am just sort of trying to understand what you'd be able to do. Was that because you were also recouping kind of inflation outside of just the price increases in some of your negotiations, or any more color you could help provide?

[Thomas Hassfurther, President at Packaging Corporation of America]

Let's just put it this way. We announced whether the publications picked it up or not. We made an announcement on linerboard and medium as to what we were going to do in terms of raising price, which we did. That's one. Another factor is what we've done in the non-contractual area and we got that through in very quick fashion. That from a timing standpoint was better. Although we've expressed some disappointment in terms of the amount of the contractual side that's tied to the publications, you know, that's rolling through in its normal cycle over, you know, a 90 day period, like I said. The majority of that will be recouped in the second quarter and then some into even the month of July.

[Mark Weintraub, Analyst at Seaport Research Partners]

Okay, thank you. Then second, you mentioned you expected volumes to be significantly higher in the second half than the first half. Maybe a bit more color there. Are there customer wins that are part of that equation, or is that largely a macro view? What was sort of behind that comment?

[Thomas Hassfurther, President at Packaging Corporation of America]

That's more of a macro view. Furthermore, you know, in addition, I mean, we know what's coming on. As I mentioned, you know, we don't build these facilities like the Glendale, Arizona facility. We don't build these things and then hope the customers will come. I mean, we've got them lined up and, you know, we built it because they have the demand for it. Of course, that plant will be ramping up and will be, you know, it's doing incredibly well starting out. I gotta call out all of our engineering and technical staff as well as our plant staff and leadership teams. They've just done an unbelievable job. I'm very proud of the fact that we can start up a plant literally with no hiccups and just ahead of schedule below cost and be fully operational like that.

[Thomas Hassfurther, President at Packaging Corporation of America]

We will build into that plant as an example. Furthermore, just on a macro basis, the mix continues to be a little more second half loaded than steady year round, which is not unusual for our mix, by the way. It is just as we have gotten bigger, it becomes a little more impactful.

[Mark Weintraub, Analyst at Seaport Research Partners]

Just last quarter's call, you talked about big cost increases. 1Q v 4Q. You'd indicated that you probably, Bob, I think you'd indicated you'd probably get close to half of that back in the second quarter. I recognize you've layered in a whole bunch of other factors too, but is that still conceptually true that, you know, about half of the types of costs that you were seeing in 1Q v 4Q would be recouped in 2Q?

[Robert P. Mundy, CFO at Packaging Corporation of America]

Yeah, Mark, I'd say that is correct. As you also mentioned, you know, the other things that we talked about relative to, you know, running our mills according to demand and pulling the outage, an outage into the second quarter and those types of things obviously overshadowed that improvement you would have seen otherwise.

[Mark Weintraub, Analyst at Seaport Research Partners]

Understood.

[Mark Weintraub, Analyst at Seaport Research Partners]

Lastly, you mentioned changes in the marketplace, e commerce being a bigger part of the market. What implications does that have on your views about lightweighting and how important it is to increase that capability as that part of the market grows faster?

[Thomas Hassfurther, President at Packaging Corporation of America]

Mark, I think, you know, as we've, as I've mentioned in the past, and I think it's a competitive advantage we have and that is that the investments that we have made in the mills, the investments we made in the box plants, what we've done in the marketplace, I mean, we are literally tailoring everything to what, to what meets the needs and the demands of our customers. You know the answer. The short answer is yes. I mean, a lot of lightweighting has taken place not only with PCA but in the entire industry.

[Thomas Hassfurther, President at Packaging Corporation of America]

That's why I think, you know that as I've said before, when you use tons now as a measuring stick and if you don't make the adjustments for lightweighting, I think you can begin to fool yourself as to what to expect because you know this, you just can't lightweight for the sake of lightweighting and you can't just continue to run heavyweight board if that's not going to fit the demands of the customer. This is all very, very customer driven. We've been on the cutting edge of this for quite some time and are very, very happy with the position we're in. You know, we measure, we measure what we sell, which is MSF. That's really important to really understanding what's changing in the marketplace and what your margins really look like.

[Mark Kowlzan, Chairman and CEO at Packaging Corporation of America]

One thing I was thinking about with the new Jackson number three machine running, that one machine, and we'll have to calculate, but probably that one machine now is making more square feet of board than if you went back 15 years ago, then Counce and Valdosta used to run combined with the machines that they had. It is just a testament that, again, we've gone significantly into taking advantage of the marketplace, and the lightweights have been very beneficial for us. Machines also like Jackson have enabled us to do that.

[Thomas Hassfurther, President at Packaging Corporation of America]

I think one other thing I'll add to that, Mark, is that we have to be, we have to have performance and that's the technology that is, I think, you know, unique to PCA that we've been able to really lightweight and get tremendous performance out of our, out of our boards. And you know, we've spent a lot of capital to be able to do that.

[Mark Weintraub, Analyst at Seaport Research Partners]

Appreciate all the color.

[Mark Weintraub, Analyst at Seaport Research Partners]

Bob, I'm not sure if your.

[Mark Weintraub, Analyst at Seaport Research Partners]

Plans be on next quarter's call. If not, thank you for all your help. If you are, chat next time around.

[Mark Kowlzan, Chairman and CEO at Packaging Corporation of America]

Thanks Mark. Appreciate it. Next question, please.

[Operator]

Our next question comes from Anthony Petnari from Citi. Please go ahead with your question.

[Anthony Pettinari, Analyst at Citi]

Good morning. Morning.

[Anthony Pettinari, Analyst at Citi]

Mark, you talked about cost inflation and I'm just wondering is there any tariff impact on any cost categories, whether it's steel or equipment from Europe or China? Maybe following up on Gabe's question on just these box plant projects, I guess you kind of reiterated the full year capex guide. Is the sort of timeline for these projects maybe at all impacted by some of the cost inflation that you're seeing?

[Mark Kowlzan, Chairman and CEO at Packaging Corporation of America]

Nothing in particular right now. We've had some, you know, some small items, anecdotal, you know, results of steel in particular with a few of the equipment purchases that we've been involved in. You know, we've got our eyes wide open and our purchasing team is really working with the supplier base and understanding what the implications are in real time fashion. That's something that again, it's been all hands on deck trying to understand. If you're ordering a piece of equipment that's coming from Germany or coming from Finland or France or Japan, they're probably sourcing the steel and it's various types of steel, the different alloys, where is that coming from? There's a lot of moving parts here on the complexity of what's been happening with the tariff discussions out of the marketplace.

[Mark Kowlzan, Chairman and CEO at Packaging Corporation of America]

We have been watching that we have not had anything substantially that we have had to change. We are just making sure that we understand what the implications are. Bob, you got anything?

[Robert P. Mundy, CFO at Packaging Corporation of America]

Yeah, that pretty much sums it up.

[Anthony Pettinari, Analyst at Citi]

Okay, that's very helpful. I'm wondering, you gave that very helpful example on Jackson and just kind of the productivity that you've been able to drive maybe at the mill level. I'm curious with Glendale, you know, how you'd compare it versus a maybe sort of average box plant in your system, you know, with whatever metric you'd think about whether it's throughput or cost or just if you could help us kind of understand sort of the capabilities and how it compares versus sort of a.

[Anthony Pettinari, Analyst at Citi]

Quote, unquote, average box plant.

[Thomas Hassfurther, President at Packaging Corporation of America]

Probably the simple answer, Anthony, is that Glendale is going to give you two times the output at less labor cost. So that's than your average box plant. Now, huge investment to do. Don't forget that. And you know, we have to recoup those, you know, the capital investment and those sorts of things. But that's, you know, that's, you know, in order to get that, you're going to have to pay for that. But that in a nutshell is probably the, you know, the easy answer.

[Mark Kowlzan, Chairman and CEO at Packaging Corporation of America]

If you go back over the last eight years, we have significantly recapitalized the majority of our converting operations. I do not throw a number out. Probably 80% of our converting operations have been modernized and recapitalized to provide the type of efficiencies that a Glendale provides only in a smaller footprint. We have taken advantage of our technical capability to put the, you know, the needs of what these plants require to service the customer. We are in a very strong position nationwide. You know, even though you might look at our operations and go, well, those plants are 50 years old. If you walked in the door, you would realize that they are 50 year old plants, but they have been capitalized so they are modern infrastructure and they perform in that manner.

[Mark Kowlzan, Chairman and CEO at Packaging Corporation of America]

Right.

[Mark Kowlzan, Chairman and CEO at Packaging Corporation of America]

We have consolidated a lot of facilities over the years too, as a result of this. So that we're not operating, we're not operating, we're virtually not operating any really, what I'd call inefficient, small footprint, inefficient operations that we used to have. A lot of those have all been consolidated over the years.

[Mark Kowlzan, Chairman and CEO at Packaging Corporation of America]

I think if you went back over the last 15 years, we've made 24 acquisitions and we've built a number of new plants, but we probably closed, what, 20 plants or so, Tom?

[Thomas Hassfurther, President at Packaging Corporation of America]

A little more than 20.

[Mark Kowlzan, Chairman and CEO at Packaging Corporation of America]

Yeah, yeah. People tend to forget that, that we've closed and shut down a number of plants and really rationalized business. The PCA footprint today is unrecognizable to anybody that was looking at it 20 years ago.

[Thomas Hassfurther, President at Packaging Corporation of America]

Okay, that's extremely helpful.

[Thomas Hassfurther, President at Packaging Corporation of America]

I'll turn it over.

[Mark Kowlzan, Chairman and CEO at Packaging Corporation of America]

Next question, please.

[Operator]

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

[Philip Ng, Analyst at Jefferies]

Hey, guys.

[Philip Ng, Analyst at Jefferies]

Bob, congrats and thanks for all the.

[George Staphos, Analyst at Bank of America Securities]

Help over the years.

[Mark Kowlzan, Chairman and CEO at Packaging Corporation of America]

Thanks, Phil.

[Philip Ng, Analyst at Jefferies]

Yeah, I guess. First question, Tom, it sounded like you're pretty confident back half demand is going to be better than the first half with perhaps some of the wins from the investments you made till, let's say that demand outlook does play out as you anticipate.

[Philip Ng, Analyst at Jefferies]

Will you need to be drawing down?

[Philip Ng, Analyst at Jefferies]

Production in the back half? You know, part of the reason the 2Q outlook is a little more muted, you know, pull forward of the maintenance and then running container or production with demand. So if demand is better like you expect, will you need to kind of draw down production back half?

[Thomas Hassfurther, President at Packaging Corporation of America]

I think in the back half, we're trying to, you know, match our mill production with what we expect the demand to be. That's why we're pulling forward, you know, an outage in the second quarter that we would have had in the second half of the year. You know, I think the thing to keep in mind is we're always going to run the demand and we're going to do it in the most efficient manner we possibly can. We don't, we're not trying to manage, we're not trying to manage quarterly results. We're trying to manage a business based on doing the right things for our customers and doing the most efficient thing we can for our facilities.

[Mark Kowlzan, Chairman and CEO at Packaging Corporation of America]

Tom, I guess that's differently to the back half. You would expect your containerboard production to match pretty closely the box shipments.

[Mark Kowlzan, Chairman and CEO at Packaging Corporation of America]

Right.

[Mark Kowlzan, Chairman and CEO at Packaging Corporation of America]

Just because two key. There's a mismatch.

[Thomas Hassfurther, President at Packaging Corporation of America]

Yes.

[Thomas Hassfurther, President at Packaging Corporation of America]

The back half should line up. Yes, yes. And if, for example, export picks up in the second half, you know, obviously that we'll be exporting more in the second half than we will in the first half. We'll just have to see how all these things settle out. We're in a kind of a questionable mode right now, and I think that'll clear up here in the next 90 days pretty significantly.

[Philip Ng, Analyst at Jefferies]

Okay.

[Philip Ng, Analyst at Jefferies]

From a commentary, I mean, April sounds like books and billings still reasonably strong. I think if I heard you correctly, up 4%. Maybe the order patterns from your customers are a little more mixed. Is that largely destock on their end? Just so my question is really, do you have a view how much inventory is in the channel, whether it's the actual end customer or maybe customers in general? How long would it take to kind of flesh out that destock and how much inventory perhaps is in the channel?

[Thomas Hassfurther, President at Packaging Corporation of America]

I think our customers have been operating pretty lean with their inventories. This is what they're telling us because they're also concerned about, you know, what's happened globally and what's happening with tariffs and those sorts of things. You know, they're buying materials, they're doing all sorts of other things, and I think they're operating cautiously. We have to be able to react quickly to, you know, to changes in demand, which I think will occur once this thing really clears up. I expect that our customers will operate with pretty lean inventories over the next 60 or 90 days. I think that'll play a role in the second half of the year when they restock a lot of those inventories.

[Philip Ng, Analyst at Jefferies]

Okay, super.

[Philip Ng, Analyst at Jefferies]

A question for you, Mark. You guys are, as you kind of.

[Philip Ng, Analyst at Jefferies]

Pointed out in your press release, well.

[Philip Ng, Analyst at Jefferies]

Capitalized, strong balance sheet, you're going to be generating a decent amount of cash flow. Your stock's down quite a bit. Is there an appetite to kind of step up your buybacks with your share price here?

[Mark Kowlzan, Chairman and CEO at Packaging Corporation of America]

Yeah, I think you just termed it well, as an opportunity. We'll let you know what we do.

[Philip Ng, Analyst at Jefferies]

Okay.

[Philip Ng, Analyst at Jefferies]

All right, thank you, guys.

[Philip Ng, Analyst at Jefferies]

Good luck on the back half of the year.

[Mark Kowlzan, Chairman and CEO at Packaging Corporation of America]

All right, thanks, Phil. Next question, please.

[Operator]

Our next question comes from Charlie Muir Sands from BNP Paribas.

[Operator]

Please go ahead with your question.

[Charlie Muir-Sands, Analyst at Exane BNP Paribas]

Thank you very much. Apologies, though, acknowledging your comment about not running the business for quarterly. I just wanted to understand, though, the pattern of what you're seeing at the moment. I think you previously called out bookings, up about 8% in the first month of Q1. You were then up 2.5% for the quarter overall. You're now saying that what you're seeing is up 4% in the first few weeks of Q2. I just wondered how much of that slowdown do you think that sort of implied there was temporary or there calendar effects in that and were there any particular customer segments you'd call out that took more significant action? Secondly, you've obviously said directionally that you expect volumes to be up year on year and quarter on quarter in the second quarter.

[Charlie Muir-Sands, Analyst at Exane BNP Paribas]

Just to sort of triangulate a bit, can you clarify whether your second quarter guidance is predicated on the 4%?

[Charlie Muir-Sands, Analyst at Exane BNP Paribas]

Growth that you're seeing in the current.

[Charlie Muir-Sands, Analyst at Exane BNP Paribas]

Run rate or you're aiming off a little bit on that?

[Charlie Muir-Sands, Analyst at Exane BNP Paribas]

Thank you.

[Thomas Hassfurther, President at Packaging Corporation of America]

All right, Charlie, let me see if I can make a stab at a couple of these things. Yes, we did start out the first quarter with very strong bookings. You know, first quarter is always probably the iffiest quarter there is in terms of, you know, how, what, what's really going to happen in the quarter. The major impacts in our volume in that first quarter, in my opinion, were number one, weather, which we know took place in a number, as I mentioned. In addition, I think when these tariffs started to roll out and our customers became much more cautious about what they were going to do going forward, I think what you saw is they were drawing their inventories down and that changed the demand curve quite a bit.

[Thomas Hassfurther, President at Packaging Corporation of America]

Second quarter, of course, you know, and again, I'm going to say keep in mind that you're talking about a first quarter increase in volume over double digits that we had the previous quarter. Quarter in 2024 and again in the second quarter we're going to be up, we're starting out a little ahead, maybe even a forecast.

[Thomas Hassfurther, President at Packaging Corporation of America]

But.

[Thomas Hassfurther, President at Packaging Corporation of America]

Again, I think we were up 9.2%. I think if I recall, second quarter of 2024. You know, we've got some really, really big comps that we're beating and given the environment we're in and everything else, we feel very good about that. I think. You know, of course, then I make comments about the second half of the year and we'll see how those play out.

[Charlie Muir-Sands, Analyst at Exane BNP Paribas]

Great, thank you.

[Mark Weintraub, Analyst at Seaport Research Partners]

Thank you.

[Mark Weintraub, Analyst at Seaport Research Partners]

Any other questions? Jamie, anybody trying to get back into the queue?

[Operator]

We do have a follow up question from George Stathos from Bank of America Securities. Please go ahead with your follow up.

[George Staphos, Analyst at Bank of America Securities]

Thanks so much. I'll keep it quick. Appreciate the follow up. Mark, you talk to this periodically on these calls. How do you view your paper supply situation in containerboard as you look out.

[Mark Kowlzan, Chairman and CEO at Packaging Corporation of America]

The next couple quarters?

[George Staphos, Analyst at Bank of America Securities]

Because even with the volume risks that are in the market, you're doing well relative to the industry trends. If we take your production and look at it relative to your capacity, there's not a ton of headroom. How do you view your ability to keep up with demand?

[George Staphos, Analyst at Bank of America Securities]

Are there any risks as you see?

[George Staphos, Analyst at Bank of America Securities]

It, in terms of being able to supply?

[Mark Kowlzan, Chairman and CEO at Packaging Corporation of America]

You know, nothing changed. George, if you went back over the last 15 years, we've always looked out at the future needs and also there's a number of levers that we can move to satisfy what Tom needs in the box plant side. Don't forget we are moving export around the world a very small amount, but that's a portion of containerboard tons. If we needed to, that could be pulled back into the domestic market. We continue to improve the productivity out of the mills year after year. We're always looking at opportunities out in the marketplace for what could we do in terms of a mill acquisition, paper machine reconfiguration.

[Mark Kowlzan, Chairman and CEO at Packaging Corporation of America]

There is a number of things we're looking at, there is a number of things we're doing and there is a number of things we always do to take care of what the box plants need short term over the next few years. I'm not worried if you ask me about, you know, where are we going to be ten years from now. Yeah, if we keep growing at the rate we're growing, we're going to have high class problems. We're going to need a significant amount of containerboard to satisfy the kind of growth trend if that were to continue at the pace we would expect. Those are high class opportunities.

[George Staphos, Analyst at Bank of America Securities]

No, clearly now if I look at, and last one for me, if I look at basis weights, it looked like second half this past year trends were as you pointed out, it was a lighter basis weight versus first half of 2024. It didn't seem like there was that much of a change, 2024 versus 2023 when I look at the data. Are there mix factors occurring such that, yeah, in reality the basis weight of your boxes is actually declining, but we're not seeing it in the aggregate data? How would you say basis weights shifted year on year or sequentially in 2025 so far? Thanks and good luck in the quarter.

[Thomas Hassfurther, President at Packaging Corporation of America]

George. I think basis weights are continuing to come down. They'll come down again in 2025 versus 2024. I think, you know, you, it just depends on, it depends on the mix at any given point in time or whatever the case might be. The general trend is down. And you know, that's again.

[Thomas Hassfurther, President at Packaging Corporation of America]

As I.

[Thomas Hassfurther, President at Packaging Corporation of America]

As I mentioned, you know, we have our proprietary boards that are tailor made really for our customer mix and they're, you know, predicated on making sure they provide. You can't just, you can't just lightweight for the sake of lightweighting. I mean this is, this is really, you know, true, true paper technology here. It's, you know, we'll continue to see that because I think there are opportunities for us going forward to continue to do that and we plan to take advantage of that.

[Mark Kowlzan, Chairman and CEO at Packaging Corporation of America]

You know, a good way to look at that is if you think about the last half dozen years, what we've done at the Jackson Mill, you know, when we first converted the Jackson number three machine to make liner board, we were doing it without the reconfiguration so we were not able to make the high performance grades. As we finished the phase two last year of the reconfiguration, that's what's really given us the big uplift. Jackson has been a game changer in terms of the majority of the, calling it the volume of sq ft produced of these high performance grades that we have the capability, the Jackson machine. There's only one other machine in North America that can even compare to what the Jackson machine does.

[Mark Kowlzan, Chairman and CEO at Packaging Corporation of America]

It has been a game changer for PCA, but at the same time, we've modified and brought on all our other line of board machines to produce these high performance grades. Yeah, that's a big beast of a machine.

[Thomas Hassfurther, President at Packaging Corporation of America]

Yeah. The beauty of Jackson is we're able to replicate a lot of what we're doing in Jackson and the other mills. And that's a great opportunity we have going forward.

[George Staphos, Analyst at Bank of America Securities]

Thank you, Mark.

[George Staphos, Analyst at Bank of America Securities]

Thank you, Tom. We'll see you next quarter.

[Mark Kowlzan, Chairman and CEO at Packaging Corporation of America]

Thank you. Thanks, George. Jamie, any other questions?

[Operator]

Sir, at this time, I'm not showing any additional questions. Do you have any closing comments?

[Mark Kowlzan, Chairman and CEO at Packaging Corporation of America]

Yeah. Thank you everybody for joining us and I appreciate your time today and I look forward to talking with you in late July. Have a good day. Thank you.

[Operator]

Ladies and gentlemen. With that, we'll conclude today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.

Participants

Executives

• Robert P. Mundy, CFO
• Thomas Hassfurther, President
• Mark Kowlzan, Chairman and CEO

Analysts

• Anthony Pettinari, Analyst at Citi
• George Staphos, Analyst at Bank of America Securities
• Michael Roxland, Analyst at Truist
• Philip Ng, Analyst at Jefferies
• Charlie Muir-Sands, Analyst at Exane BNP Paribas
• Mark Weintraub, Analyst at Seaport Research Partners
• Gabriel Hajde, Analyst at Wells Fargo Securities