You're all doing well for day two, we're starting off with a bang, with Packaging Corporation of America. You know, I've covered PCA, actually, in theory, back to when it was still part of Tenneco. It goes back to the 1990s. There are I don't know if there's any company that has kind of your continuity and tenure of management, Mark, in the industry, packaging or paper and forest. Mark Kowlzan, we're delighted, Chief Executive Officer, is here for some formal remarks. He's been with the company 30 years. Kent Pflederer, Chief Financial Officer, has been with the company for 19 years. In the audience today, as well, is Ray Shirley, EVP of Corrugated. He's been with PCA 30 years as well. Again, not many companies can support that.
Mark, without any further ado, I turn it over to you.
Thanks, George. Appreciate it very much. Welcome, everybody. Thanks for taking the time to be with us this morning. We want to update you on the first two months of the quarter. I'm going to read through this like it was, like, the beginning of an earnings call. You got to bear with me before we get to the Q&A on the fireside chat. Keeping with the spirit of a fireside chat, we're not going to give you a formal presentation with slides today. We have an investor presentation up on our website. There are copies being made available for investors today. Everything we say today is subject to forward-looking statements disclaimer. As usual, actual results could differ materially from those included in the forward-looking statements.
Before we begin, the interactive portion, as I just said, I want to give you an update on the first couple of months. The only commentary we'll give you on price increase and the recent RISI print, is that we have reiterated to the customers this week that we are increasing the containerboard prices by $70 per ton from the January levels. We intend to fully implement that increase. Our view of the market has not changed from what we communicated in the earnings call. We did not see lower containerboard pricing, both in terms of what we sold and what we bought. On the corrugated side, we continue to see solid demand and growth on a per-day shipments over last year's level.
We're running our mill system full out, and we need the tons ahead of our outage schedule coming up as far as annual outages. Also, as we get into the 2nd quarter, which is normally the beginning of a stronger box volume season. We think we have a pretty good view of the market conditions as we operate in a very comprehensive network of box plants and Mills. We have 28 sheet plants in the system. Again, we've got from West Coast to East Coast, Gulf Coast, up to the New England states. We've got a comprehensive view of what's happening, which include disruptions from the winter storms that impacted us during the last week of the month. We're up 4.5%. February is up three plants through the end of last week.
Bookings are up 7%-8%, incredibly strong and very robust in spite of the winter weather phenomena that we've had. We feel good about March, the strong book of the changed, as we're getting ready for January winter weather. We estimate that the storm effects were around $6 million or about $0.05 per share. It hit our corrugated shipments by a little more than 1% in January and caused higher freight and operating costs at some of our Mills, particularly the Counce, Tennessee Mill and the Riverville, Virginia Mill. The good news is that we operated safely. Our equipment held up, and we did not lose significant production.
We came out of it about as good as you could expect, considering the severity of the ice storm. If anybody saw pictures of what was going on down in Nashville and that whole region, Counce was just as bad. As a matter of fact, Counce was the only entity that had power, the Counce Mill, probably in that whole part of the world for the better part of a week. We, the folks did an incredible job for us. In February, we're seeing benefits of the reliability initiatives in the acquired Greif Mills.
After having kind of a tough month in January with the winter weather, and lots of ups and downs in Q4, we're now seeing very strong operational performance on a daily basis, with efficiency starting to meet our expectations and production exceeding our expectations. With that, I'll start the Q&A. George, fire away.
Thank you, Mark. Great rundown. You know, as you think about the markets that you're in, obviously very diverse, is there any one market that you're seeing, if not shipment growth, but some interesting green shoots? Not trying to lead the witness, but really the last few years, corrugated has been kind of a flat market. We're waiting for housing, we're waiting for ag, we're waiting for apparel to pick up. What are you seeing that you can share in that way?
Good news for us, we have such a diverse book of business.
Yep.
We've seen good volume growth across the board, with the exception of what George just said in terms of housing, has been in a, you know, stagnant for the last couple of years since interest rates went up. Automobile industry. If you think about the traditional auto industry, gasoline-powered, diesel-powered vehicles, there used to be a lot of components that got shipped from plant to plant and in phase operation in various corrugated shipping containers. With the push for EV vehicles that took place over the last half dozen years, and then now the higher interest rates, the auto industry has been in flux.
We anticipate, though, with more of a, let's say, a reasonable approach to the auto industry, you know, we would hope that we would start seeing a pickup there. With, you know, same thing with housing. If you think about all the materials that go into a house, whether it's a remodeling, new home construction, home sales, when people buy and sell homes and move, all the updates that they provide, think about everything that's in a corrugated container when you go to Lowe's or The Home Depot or your local Ace Hardware store. We would expect if interest rates continue to improve over the next couple of years, we'll see then a normalization from the housing side of demand for corrugated.
You know, again, we're pretty bullish in that across the board, with our 13,000 plus customers, we've seen good organic growth. Then, with the Greif acquisition, it gives us a good platform to lever that growth.
Two questions off of what you were just talking about, Mark. Number one, we heard a discussion yesterday at the luncheon, and the imperative ultimately was, or the message was, the U.S. not only re- will, but needs to re-industrialize quickly for various reasons. Do you believe that's actually gonna happen from what you see and from all your, you know, talks with your customers? What would that mean for your business? Is it really gonna occur that nearshoring will be less of an effect for you if it happens?
I think it is necessary if we're to be a significant player in the world again. We gave away a lot of our industrial base in the 1980s, the problem is it doesn't come back easy. It's not going to happen next year after next, but it will start. We're already seeing that. We've seen reshoring going on for the last, you know, seven or eight years. There's a lot more that goes on in this country than what's taking place 10 years ago. Part of the obstacle, as you can imagine, is the capital cost of any industry. I mean, you think about heavy industry is that, it's heavy industry.
It's lots of steel, very complex, demands on materials, concrete, steel, copper, for all the electrical components, the demands on your engineering base. There's a lot that has to take place, but, we're already seeing that. It's, it's probably, in my view, if at the state level and the federal level, there's support and that is clearly defined, then that will take place, and that will be very positive for the corrugated products industry.
My other... Oh, I'm sorry.
Yeah.
My other comment or question off of your initial comments, you mentioned Greif. You mentioned the reliability is improving. Could you give us a bit more color in terms of how the acquisition is going, how the Mill set is doing? Kent, from your standpoint, you know, what kind of systems did you find? How is the integration going there, so?
Yeah, sure. When we closed the deal on September 2nd, we immediately moved in our technology and engineering people into both Mills at Massillon and Riverville. As we talked in the January earnings call, we took advantage of this transition period to put the PCA touch on these Mills. In now five months, we've significantly, I would say, rebuilt the Massillon Mill all the way down to pumps and motors and bearings. That mill is in tip-top shape now. The Riverville Mill, being a bigger Mill, big bogus Mill, equally in good shape now. We've identified longer-term opportunities.
What I'm encouraged by is when we did the due diligence, we looked at the potential of those two Mills, in my mind, I said, "Well, they're producing, let's say, 600,000 tons combined run rate with how they were running that business." I looked at that, I said, "Well, these two Mills easily can run at the 800,000 ton plus level to supply our own needs." In five months, we've achieved that. Those two Mills are incredibly valuable to us. Not only is it a matter of the productivity coming out, but it's the cost efficiency of those tons. We've improved the cost position and the quality of the product dramatically in this five-month period of time.
We've done that all with the Packaging Corporation of America technology and engineering group. We're in a very good place now, and the Mills are doing just what I hoped they would do. Again, as we used to say, in terms of the Boise acquisition, it was a gift that kept on giving. We look at the Greif acquisition in the same way. It will be continuing to be the gift that keeps on giving.
We're on track on the, on the systems integration piece of this. Obviously, the sooner the better. You know, the sooner we have the day-to-day, you know, management insight to the acquired operations that we have at PCA, you know, the more effective we're gonna be. And, you know, we have a heavy lift here over the next six, seven months to do it, but we're on track, and these are gonna be running as PCA plants, very soon.
What's the heaviest piece of that? To the extent that you can comment.
Well, it's going from what was a more centralized environment at Greif to a decentralized entrepreneurial environment at PCA. That's the.
Thank you. Any questions from the audience for PCA? All right, well, we'll keep forging ahead as you guys are thinking up your questions. You know, Mark, over the years, PCA was known for, is-- remains known for its focus on the local account market. From what we see, there seems to have been a bit more willingness to take on some of the larger national accounts. Not that it was ever a black and white, "We only do this, we only do that." We get it. Would you agree with that point? Can you talk about, if that's a true statement, the evolution in your operating stance, and you're converting, that's allowed for that, and how it's impacted your business?
Yeah, absolutely. I mean, eight years ago, it's not that we did not wanna do, say, the E-commerce, the plants were not ready to take that, we call it the go and glow business, the plain brown box business, and interrupt what would be our more profitable, high-margin, local account business, the specialty box business. Since 2019, the recapitalization of our assets and the introduction of all of the converting lines, the new corrugators, we now have the tools in our box plants to run the entire gamut from the go and glow business to the complex business on any given day. We have plants now that might be taking care of 200 orders for customers on any given day, but we can easily slot in the E-commerce side of that equation.
You've heard me on the earnings calls in the last year talk about this, that there's nothing wrong if we're running 26%, 28% EBITDA margin business part of the day, and then you slot in some of the 17% EBITDA margin business, and you end up on average at 24%, 23%, that's not a bad place to be. We couldn't do that prior to, say, 2018, because we literally did not have the capability in these plants. Think about that. Since 2017, PCA has spent about $5.2 billion in the box plants and the Mills to be where we are today, to service the customer base in an incredibly efficient, effective, high quality, low-cost position. There's nobody else that can do that.
I'll add one thing, George. We go where the growth is, and the growth is both growing with our existing customer base and staying ahead of them, and anticipating their needs, and putting capital towards that objective. Where there's opportunities to profitably serve, you know, national accounts, additional local customers, yeah, we do it.
Yeah.
It's all in furtherance of profitable growth.
Yeah. There's a lot of business that we'll look at with one particular customer. If you have a large E-commerce customer that has nationwide presence, there are pieces of their business we won't do. It's not economical for us. It doesn't make sense, and again, we're very cognizant of that.
Kent, how does it change the working capital stance, if at all, for the company? Does it change much?
No, not really. I mean, we watch it, but no, not really. It's not a material...
Okay
-factor.
Any questions from the audience? Mark, how do you continue to track how you're doing with your traditional customers? Like, do they come back to you and say, "Hey, Mark, I noticed that you're busier with other accounts. I notice box plan XYZ is operating really, really full. Do you watch, and I worry about whether you'll take care of me." Do you track Net Promoter Score? Do you, are there other KPIs to make sure that you're doing well, or it's just: Hey, look, the margin, the volumes, they're all the KPIs that we still have the largest number of sales people in the industry.
Yeah.
We have an incredible close relationship with these customers, and so we work hand in hand with the customers on what their needs are and what their future needs are. The relationship we have at that customer level is such that we're talking about what their plans are, what they're going to be doing, what they wanna do, what they're investing in, and then we're able to plot the course to be able to be ready to service them through their future growth. That's something we've done for decades now, but it works very well, and that's one of the reasons that the customers know that they can count on us, and we're always there to take care of their needs.
Mark, switching gears a bit on pricing, since it's been so topical and demand trends, and again, obviously, go where you can and don't go where you can't. You're out with a March price hike on paper. Are you out to customers with box price increases as well? Help us understand how that process, again, typically would work, and would you expect any nuances with this cycle?
The normal flow through is that when an announcement is made on containerboard, and then the sales organization starts working with the customer base, it's really a one-on-one relationship that you start moving the price. Historically, if you went back over the last 25 years, within three or four months, we've always captured that full price and the yield loss factor through the box plant side of the business, so.
Understood. This one again, who knows what will happen? You can't comment, but you don't see anything that's sort of nuanced or different about this one versus the past. I'm not talking about the recent price drop by the index, just in general, in terms of-
Again, as I stated.
Yeah.
We talked about this on the January call, we're feeling very confident in terms of the demand for our product, the year-over-year growth. If you think about our 2025 volume, even though we were essentially flat for the prior year, 2024's growth was double-digit. We were up 12% in 2024 over 2023. That's incredible. Think about that. We were up 12% in 2024 over the prior 2023. Even though all the consternation with tariffs and everything going on in the world, we held flat through 2025 with that volume. Now we're into January and February, and the numbers I just told you, we're up significantly over last year's and 2024's level, and the book of business is stronger than the actual daily cut up.
We're feeling good that our customers are in a good place. We're seeing this nationwide. What gives me a better feeling is that not only are we doing good currently, but there's upside with opportunity, as I said, with housing, with the protein side of the business, with beef. Beef herds are at 70 some odd year lows. Over the future years, if the beef herds are built back up and that takes place. There's a lot of upside that will take place. At a time when the industry hasn't recapitalized at the rates that we have, you have to question the industry capacity that's available to continue to grow with the economy.
There was a comment. Thank you for that, Mark. There was a comment over the last day or so about capacity utilization, if you can measure it in the converting network. I don't know if you could share where you're at or what you think the average player in the market is at, but the point that was made is, hey, you know, if you have even a little bit of growth in corrugated markets over the next two years, a corrugated supply side could be tighter. I'm surprised by that because I always maybe I'm wrong, but over the years, I've always thought there's plenty of capacity in converting. It's always the Mills where you have the issues.
Historically, if you went back over the last 40 years, the industry used to run 55%-65% of its converting capacity. If you go think about that, 20 years ago, 30 years ago, a box plant might be running two eight-hour shifts. It had plenty of capability to run over time. Some places were running one twelve-hour shift. Over time, people started adding personnel, adding shifts, running three shifts a day. There was a lot of overtime, but at the same time, there was not a lot of reinvestment in the asset, in the converting asset. I use the analogy of a race car. You had a race car 30 years ago, it was a good race car.
If all you did was race that every day for the last 30 years, and hopefully changed the oil at least, and put on new tires, the problem is it's still a 30-year-old race car competing with new race cars and new all the new technology available. I don't care what you're doing, I don't care how good a 30-year-old equipment is, it's not going to compete with the capability of the new capital equipment that's available. Think about the workforce. The workforce has aged. We have a new workforce, and so the difficulty of acquiring labor, whereas in the old days, people would just say, "Oh, we'll put the other shifts on or downtime with your equipment.
If we have mechanical failures or electrical failures, we'll just make up for it later on the evening shift or we'll..." Those days are done. You can't run your business that way. We recognized that nine years ago when we put in place this recapitalization effort. We don't measure utilization per se, but we know in fact, and you've heard me say this on earnings calls, with the work we've done since 2018, 2017 period, that was accelerated from 2019 to date, we've, in many cases, quadrupled our unit labor productivity per hour. In a plant with no more people, we have four times the productivity that we had seven years ago, say, at much lower cost, higher quality. It's imperative.
Yeah.
If you're going to grow, you have to spend the money. Otherwise, your equipment becomes less effective, the quality is not good, and you can't grow with a customer. Customer's looking at you saying, "I'm investing in my business. Can you grow with me?" If you haven't invested in your converting assets, what are you going to do? That's one of the why people say, "Why do we capture all this volume in the marketplace." Why over the last few years have we grown the volume that we've grown?
I think that one of the pieces of data that you have in the deck that you did submit since 2017, where we have about legacy basis, 30%, with the acquisition, 40% on an aggregate basis, and, you know, compound annual 3% growth. Think about that. Over that period of time, our box volume cut up is up over 30%, but the industry is down, and we're part of the industry number. We were talking at dinner last night, this is something we've said before publicly, but if you went back to 2020, when we became the new PCA, new public company, and you looked at our volume growth, then it's probably 275%, 300% volume growth, box volume growth. The industry is down.
Our numbers are in the industry, and the industry is down. We're the only company that has grown in that manner, done it with profitable growth. It's imperative that you have the capability with your equipment to do this.
Thank you, Mark. On the subject of investment, you know, over the last year, two years, you've announced Greif, and that's gonna cost you $1.8 billion. If you hit your numbers so far, you feel comfortable, $300 million, including synergies. You are realigning right now, have been in the North American system. You know, you shut Wallula PM2, you're moving capacity to Counce and to Jackson. That, I think, saves you $75 million. You've had three or four larger box projects from my count, including Ohio and Glendale. You know, by my math, you know, maybe just a triple-digit return on that in terms of dollars of EBITDA. Would that be fair?
Mm-hmm.
You have the energy projects. A, what do you think the total return on all that might be? We have our number. Talk to us a little bit about the energy project investments that you're doing.
What's your number?
I think, you know, you'll have added, including Greif's, the biggest piece, that, you know, half a billion dollars of EBITDA from all those projects.
Yeah.
For those listening, Mark said yes, so-
I think that's reasonable.
I mean, the fact that you have reason to agree that you're in the ballpark.
Yeah.
Okay. Talk us about the energy projects.
Well, I think everybody in this room understands what electric rates are doing and the demand for electricity, and it's all center driven. You know, we've seen this happening over the last few years, and the more and more, I was looking, you know, on a daily basis, weekly basis, monthly basis, what was happening nationwide to our electric costs and the activity around where all our plants and Mills are located. It dawned on me we actually needed to be proactive and figure out what we were gonna do to insulate ourselves out of this situation. So, earlier last year, it's almost a year ago, we determined that the best solution for us would be gas turbine installations. So we were fortunate in that we located three big 50-MW turbines.
We bought them for pennies on the dollar, and we're in the process of getting them ready to move. We'll be installing one of the units at the Riverville Mill. One unit would go to Jackson, Alabama, and one unit would go to DeRidder Mill. When we're done, well, that will give us four out of our 10 Mills that will be essentially independent of the grid, and we'll be able to produce all of our own electricity.
It's, and that's part of also the reason why we made the decision to shut the Wallula PM2 down, is that in a two-year period of time, electric rates in Washington State were up 89%, and it's unsustainable, you know, and this is home rates, industrial rates, and so we started seeing that around the country. Again, if you don't have a plan for what you're doing to improve your electricity position, you're gonna be in a significant, you know, it's gonna be pretty tough to overcome that type of cost increase.
Thank you, Mark. Thank you, Kent. Any questions from the audience? Okay, we'll keep moving on here. We talked about investments. Tell me a little bit about and last night at dinner, we were talking about power boilers. Tell me about your fiber lines. Why do you feel you're in good shape there? Any investment that you need to be doing?
No.
I guess lightweighting kind of helps sort of take away the wear and tear of it.
Through all this approach, year after year, we've always addressed the capability of our, you know, unit operations from the woodyard through pulp Mills, OCC plants, chemical recovery systems. Our Mills are in very good condition. From a holistic point of view, we've always maintained these assets in very, very good running condition. There's nothing that has to be done right now. There's nothing extraordinary that we would look at from a capital need point of view. It's just maintain what you have for your kraft operations, maintain the OCC plants. Again, we're in a good place right there.
Okay.
I mean, for the next couple of years, the bulk of the capital will go towards these energy-type projects, which are high-return projects. That will be part of the, you know, this whole premise of how do we maintain our margins? Well, part of this is through an incredibly effective capital spending program, you're able to overcome a lot of your annual inflation. That being said, at some point in time, you do have to get a price increase to continue that margin momentum. One of the keys to PCA's success on the earnings side and the margin side, has been this capability to deploy capital in a very efficient manner.
Maybe a couple last questions here, Mark, as we wrap. You've grown, you've outgrown the industry. The industry itself, when we look at square footage, and we've talked about this in our past research, has not grown. On a BSF base, so it's not lightweighting. You know, we're at 2017 levels. Now, there's some. I think the FBA and the AF&PA, they do their best and do a good job, but there's some tracking error. Invariably, you know, there's some cut up that might, in theory, should count as a box, but it's not. It's a pretty wide gap, or it's pretty stark that we're still flat, we're down versus 2016, 2017 levels. In your view, what's been happening? You're growing, but why is the industry not growing?
Well, I think, you know, there's no one answer to that. Part of the answer is just box efficiency. If you think about E-commerce, what's been happening on that side of the equation, they want just the right size box.
Yeah.
There's been a lot of efficiency on the customer side of that equation, they're only using just what they need to use to get their product out of the Amazon warehouse or the Walmart distribution center.
Do you think-?
You also have seen, and everybody in this room sees it, if you're ordering something that is not, it doesn't require a box, it's probably coming in a kraft pouch, a kraft envelope. That's taking the place of what was a box. In some cases, we've even seen the plastic word, you know, they're throwing something, even in a plastic pouch, and dropping it off at your door. There's been different uses, for containerboard, but part of it is just the customer base has gotten more demanding to, just right size their box.
You're gonna get into the mailer business, by any chance?
We're in a good place with our, with our corrugated boxes right now, but.
Yeah.
Yeah. It's a complex.
Yeah
Y ou know, discussion about why things are the way they are.
Yeah. I was kidding, but nice try, Mark, if you think you're doing that. You know, I meant what I said at the beginning, there are not many companies, if any, that have had your continuity and leadership team. That's a credit to your organization, to your board, to you and Paul there. How do you maintain that succession planning and that continuity, you know, as you evaluate your career, you know, if you talk to people publicly, you know, how long do you continue to see yourself running the ship here and, you know, keeping the schedule that you keep up, that you relay?
That's probably a good question. Ray Shirley is an example of the.
Yeah
... younger generation of leadership that we have in the organization. We have a number of people like Ray, that are with us, that we've hired from the college campuses, that have come with us over the years, that we've actually passed that knowledge on. We were fortunate enough in our early careers that somebody mentored us, passed on incredible knowledge to us. We've hired, you know, every year, we're on the college campuses. We recruit at probably 55 to 60 universities and colleges in the United States, and we're continually bringing... You know, we started this in 2019, we hire engineers into our box plants. Now we have this incredible capability in our box plants with degree engineers moving up now and being promoted through. We have a lot of capability.
Now, just like, we had a board meeting this week, probably half the seats in the boardroom were taken up with the younger generation that were there participating with us, these are the future leaders of the company. They've been taught by us over many years. Whenever I get hit by a bus or lightning, or I do decide that I'm done with this, I'm sick and tired of being harassed by Ham over there, you know, my problem is I don't have enough hobbies to want to go do something different, this is my sport of choice. In that regard, that we have an incredible mid-level management group that's ready to run the business, and they are running big pieces of the business right now for us.
We're in a very good position in terms of the organization and the capability. You know, I gave a speech at the CorrExpo in 2018. I've got three minutes here. One of the things I said in CorrExpo in Denver in 2018 was that over the next 20 years, if this industry, if you were not prepared to take care of your own technical and engineering needs, your own capital spending needs, you would be out of business probably in 20 years. That was, say, eight years ago, and look what's happening to the industry. When I was starting out here 30 years ago, I was running four of the Mills for PCA. I had 10 people in the technology group helping me run those Mills.
We have upwards of 165, 170 people in the engineering technology organization in PCA, running not just the 10 Mills, but the box plants. All of the leadership, myself, the vice presidents, the senior vice presidents, the executive vice presidents on the operational side, are all chemical engineers with MBAs. They've been with us, and they've been taught by us. This is the gift that keeps on giving in terms of knowledge and wherewithal. We're in an incredibly strong position to continue this, and we just continue to hire and hire. It goes back to the Massillon and Riverville Mills.
On day one, we had approximately 100 PCA personnel that went into each of those Mills and camped out at those Mills for a couple of months, seven days a week, to reconfigure these Mills. That's all I got to say.
We hope you don't develop any hobbies there, Mark. Anyway, thanks for joining us today.
Yeah. Appreciate it.