Packaging Stock

All right, guys. Next up, we got Packaging Corp of America. We're excited to have the team here. Representing the company, we've got Mark Kowlzan, the CEO; and Kent, the CFO. Mark, do you want to kick things off? Just give us a sense of what you're seeing out there?

Yes. Thanks, Phil. And as usual, I've got probably 5 minutes of prepared remarks that I want to go through and then I want to spend more time on the fireside chat piece of this. But as usual, we'll go through a presentation. We're not going to do the slide-by-slide review. We've posted the presentation on the website and have hard copies available if anybody needs anything.

Before I begin, though, I do have to remind you about forward-looking statements disclosure in the presentation. The statements are made as of today, and actual results could differ materially from any expression in any forward-looking statements.

Again, I don't have nearly as much to say as when we were out on the road in the second quarter. So far, 3Q has progressed consistently with what we called out in the July earnings call. We continue to see very tight containerboard market conditions, and we're in a much better inventory position than where we were coming out of 2Q. We had all of the outages going on during that period of time. We continue to run incredibly well. We've had 2 excellent operating months now in the mill system in July and August with no maintenance outages or any other meaningful interruptions.

And so we've been able to restock our inventory. We had a tough early part of the year trying to take care of our box plants and our customer needs because of the outages and the strong demand. And then where we are right now, even though we're running well, we need to rebuild continuing into the fall right now because we have a significant outage schedule ahead starting actually this month. We've got one of the containerboard mills down.

And then 4Q, we've got 3 mills down. And so again, and that's against the backdrop of stronger corrugated demand as we go through the holiday season right now, and that's what we're seeing. Through August, we're on track to meet or exceed our third quarter earnings guidance that we called out on the July earnings call. Costs across the board are favorable to forecast. We took the elevated freight and recycled costs that we're experiencing into account when we built the forecast.

So we did anticipate that diesel, as an example, OCC, some of those elements would probably continue creeping up. So our forecast and our guidance that we gave on the July call did take that into account, and we're glad we did that. We've done an excellent job implementing our packaging price increases, and we're ahead on forecast in terms of price realization.

We are below our initial expectation on corrugated volume, think about this, due in part to the expected sales in the ag sector with the drought and then crop effects. Everybody knows most of the news coming at us on a daily basis through a lot of July and August was about some of the ag products and what it was doing to people.

So again, it's been a tough ag summer. And then just the ag year, Florida had a tough winter. They never recovered. The Pacific Northwest, as an example, the apple crop, cherry crop, those were not as big as the expectation. So ag has been a drag on us, but we're still having a strong quarter, but we're just off slightly from what we guided when we talked on our July earnings call.

But still, if you put it in perspective, year-over-year with the Greif acquisition, we're up 24% over last year with Greif, but we're down just slightly from what we had hoped to be because of primarily ag and farm-related activity. And then last but not least, white paper. We're having a very good quarter across the board in terms of sales volume, price and mill operations.

And then kind of summarizing, when you are thinking about us for the rest of the year, I want to remind everybody, containerboard markets remain tight, and we continue with the lower export shipments. Corrugated volume seasonally improves, but mix seasonally gets weaker, just the nature of the business, more e-commerce. And so -- but again, volume remains strong in that regard.

Corrugated volumes seasonally improve again, because of the mix changing. And that's truly just the e-commerce effect of what we always see and starts in August generally. We expect price improvement from the continued implementation of the earlier price increases and the beginning of the realization of the most recent price increase in corrugated later in the fourth quarter. We will resume our outage schedule this month, as a matter of fact, with the Riverville mill and International Falls, which is a white mill going down this month. And then DeRidder, Valdosta and Massillon mill will be down in Q4.

Consistent with what we told you on the earnings call, the earnings impact of the outages is about $0.30 to $0.35 higher sequentially 4Q over 3Q. And that's, again, just the nature of the accounting with the work we do. We continue to see elevated freight and recycled prices. The question remains how elevated. We'll obviously have more insight into that when we talk to you in the October earnings call. We'll also get seasonally higher input costs in the mills as the year goes on as the weather simply gets colder. You're always using more energy, more fuels as fall rolls on into the November, December period.

White paper should sequentially improve with the completion of the 3Q maintenance outage. So September is the annual outage at I Falls. So this 3Q in the paper side of the business, when we report earnings, people are going to wonder, again, the earnings were down in 3Q, but it was just the effect of the outage that we have.

We won't guide for 4Q until October, but we remind you that 4Q is normally lower than 3Q in terms of earnings due to the outage impact and mix effects as well as just higher input costs, as I mentioned, with seasonality. Assuming freight is within reason, this year should not be as pronounced as last year with the expected price improvement partially offsetting the cost factors. And with that, Phil, we'll turn it into chat.

Lots to unpack there. Mark, on the demand side, ag season is obviously heavy in July, August. Is it less of a contributor in September? And outside of ag, it sounds like box demand overall is still pretty healthy. Just give us a little perspective on what you're seeing outside of the well-documented salad ag dynamic that did have some choppiness in demand overall.

Yes. Again, everything we've seen with some of the -- our volume being slightly off was really related to the ag and what happened with the impacts of, as you just said, lettuce in particular, some of the other food crops. But the rest of the business is strong. We've seen a huge impact with e-commerce picking up in August, and we expected that.

And so in general, across the board, if you think about our customer base, we're still seeing very, very strong demand. With the pricing activity that we're currently going through, I do want to point out, and we've said this before publicly, we will give up customers. When it comes to price, we'll walk from some customers if that's what it takes. We're not going to deal with certain matters in that regard.

And so that's a little bit of the volume impact, but very slightly. But I'm feeling really good with where we are in spite of the world we're living in. If you think about consternation on a daily basis around the world, our volume is very strong. Again, I've used this on the July call, Tom and I talked about how tight the market is. I'll still use that word today.

Containerboard availability is tight. You cannot go out on the market and buy tons and so we're fortunate, our mill system is running incredibly effectively and efficiently. We've talked about this fact before, Phil, about our recapitalization over the last decade. We got ahead of the curve, and we have the most efficient mill fleet and the most efficient converting fleet in the industry in North America.

And so we just have to plug and play right now. We started up our new box plant in Ohio, actually about a month ahead of schedule. So the new plant in Ohio is up and running, and that's our biggest plant now to date. And we're incredibly pleased with what -- how that performance is looking. So we're in a good place.

And the touch like, just to be clear, Mark, you're still talking about probably low to mid-single-digit growth rate year-over-year.

Yes.

Perfect. And then you talked about how typically earnings sequentially usually dips from 3Q to 4Q. That's just historical seasonal trend. Is there any other consideration that we should think of just given the June increase box flow-through dynamic as pricing kick in more so that trend is less relevant this year perhaps?

Yes, that is a help, and that's going to help counteract some of that sequential 3 to 4 normal decline.

So last year, we were about $0.45 difference between 3Q and 4Q if you take Greif out of the equation, okay? This year, bad guy would be freight recycle that might go against us, but price should more than offset that. So I think we'll be a little better than $0.45 different.

Okay. And any traction on September increase probably wouldn't have much contribution in the fourth quarter.

It might kick in a little later in the quarter, but...

Okay. Helpful. You used the word tight market conditions, right? When we look at the industry data for 2Q, operating rates were in the mid-90s and inventory came down dramatically. How do you kind of see that playing out the rest of the year? I mean I'd love to get your thoughts in terms of your backlog and your -- how extended it is through back half of this year.

Yes. I mean we're running full. If I had to come up with another ton, I don't know where I'm going to come up with another ton of containerboard. The mill systems are running. Our PCA 9 mills are running incredibly strong.

The Greif acquisition, the Massillon mill and [ Riverville ] mill on -- think about that, we just passed September 2 last year, we closed the deal.

And so within a year's period of time, from the accretive opportunities and the integration, we've added probably 160,000, 150,000 tons of production on an annualized basis. And I'll give you an example. When we closed the deal, the 2 mills on an annual basis, were producing probably 650,000 tons a year. We're over 800,000 tons a year run rate on both those mills right now.

And so they're incredibly valuable to us. They're incredibly necessary to supply our own internal needs. And so go ahead, Kent.

Yes. Let me interject too. Remember, too, we did the Wallula restructuring at the beginning of the year. And we're just going to be catching up with the effect of that from a supply standpoint, probably 4Q, 1Q. So -- and add in another outage in 4Q. So tight is the name of the game right now.

Okay. Well, maybe on that note, Kent, some of that transition from Wallula and debottlenecking, help us think through availability capacity in 2027 to meet demand and perhaps thinking bigger, longer-term picture, Mark, as well. What are some other avenues you're thinking about in terms of debottlenecking capacity?

I'll start it and Mark will go into detail on this, okay? So we'll get a little more out of Jackson next year. The winder project was scheduled to add about 140,000 tons on an annual run rate basis in 4Q. We probably have a little bit of that going right now. We've run Jackson a little better than we thought, but there's still a little bit more to come there.

That winder should start up next month.

Yes. Counce has a couple of projects in the hopper that will get 30 to 50 out of it in the next, call it, 1.5 years. And then Mark alluded to Greif, continued the reliability and efficiencies and debottlenecking there. So there's a little more gas in that tank as well.

Any other bigger projects that you guys are thinking about that could unlock further capacity?

I want to talk -- it's interesting. We have studied and looked at everything, including new paper machines. But the cost of capital is so high that -- and you've seen this in the industry, but specifically I could not justify putting in a new paper machine now.

And as well as we do things and as good as we are at engineering and installing a lot of our own equipment, the cost of these capital projects has increased so dramatically. And I put it in perspective in this regard. Since 2017, we spent $6.5 billion in the mills and box plants.

A significant amount of that went into box plants. If I had to start doing that today, with what I accomplished from '17 till now, the cost would probably be $10 billion to $12 billion because of the inflationary impacts of all of the capital equipment. Think about copper prices, copper, all the electronic components, steel, all of the alloys, all of the manufactured components that go into heavy industry.

So it's an incredible challenge right now. But we're in a good place. So we don't have to recapitalize. We just have to maintain what we have and then we will put in -- as we grow with our customers, we will bolt in new converting lines, and we'll maintain the converting lines, but we're not in a position where we're having to try to revitalize our fleet and our mills are running in an incredibly efficient manner because we've taken care of them for 30 years.

And so we just have to continue doing what we're doing. And part of that is the organization we have in place. We have probably 200 people in our corporate technology and engineering organization. The mills are heavily staffed. The box plants are heavily staffed now with engineers. And so we're in an incredibly strong position to continue just doing what PCA has always done, just to stay ahead of the curve.

On that note, the fear for this industry has always been at least the last 2 big runs in terms of the e-commerce growth was capacity coming on, right? The bogeyman is we're going to convert some newsprint mill, uncoated freesheet mill.

But to your point, the cost of capital to build that has increased dramatically. And even the integrated guys are in the marketplace. Mark, would love to get your thoughts in terms of does the industry at large need to recapitalize the asset base, whether it's mills or box plants. What does that mean? I mean I think that's the fear, right? The bogeyman is pricing is awesome. This is going to attract a lot of capacity. That's going to ruin the party. But I mean you made the point, everything costs a lot more now.

The cost to enter this is so extraordinarily high now. If you think you're just going to build a mini mill, who are you going to sell your product to then. The cost to build that mini mill is so extraordinarily high that unless you have already customers lined up and on the box plant side, you have customers lined up.

But if you build a mini mill, you have to build box plants. And box plants, the box plant we just finished in Ohio was $275 million. 10 years ago, you could build a box plant $50 million.

And Phil, your recycled mini mill that he's talking about is well north of $1 billion now.

Yes. 10 years ago, you could build a mini mill for $400 million. I want to put this in perspective, too. The last big integrated containerboard mill that was built in America was built in 1983 at a cost of $500 million.

If I had to build that mill today that was built in Louisiana in 1983, it'd probably be $9 billion to build that mill capacity out. So people talk about capacity and the cost to enter this. So that's our -- I look at that, that's our barrier to entry.

And there's a time factor on this as well. It's a multiyear project, 3 or 5.

Even if you were -- if we said we were going to build just a mini mill, just an OCC-based mill, 4 years -- if we had all our engineering done and we're ready to place orders, you'd probably get it done in 3 years.

But if you're going for permitting, engineering and getting quotes, you're probably a 4-year process. And at the same time, prices are escalating. So -- so again, I think that's probably the best barrier to entry that we're looking at.

Are we at a point in terms of the mill network and box network for the industry at large? We're at a recap point? Or do you have any perspective on that front?

Well, again, I think the individual companies have to deal with what they have to. You're not going to survive in terms of -- I came to PCA 30 years ago.

We had 4 mills that were old. We had 39 box plants that were old. So over a 30-year period, we've consistently focused on recapitalizing, making the mills run better and better and then really extracting all the value we could out of these assets. Same thing with the box plants. People forget this -- we've made since I've been running the company, we've made probably 29 acquisitions, Kent?

20 something.

It's up 28, 29 acquisitions. And so we're running, I think, with the Greif acquisition, probably 95 box plants today, converting operations.

Low to mid-90s.

And at the same time, we have shut down probably 30 box plants over the last 16 years, 17 years. So we've rationalized and focused on what we need to do, grew out our business in a very effective manner. And -- but again, the cost to be in this business, the capital cost.

This is heavy industry. And people -- it's amazing when we have these discussions, people really don't appreciate what it costs to be in this business. It's no different if you're talking about steel mills, aluminum smelting, pulp and paper mills, converting operations, this is incredibly capital intensive. And so...

And that might just be the answer to my question. I guess, obviously, the industry has pushed through $100 containerboard price increase already year-to-date, and there is a September increase.

What are you telling your customers? I mean it's a pretty sizable increase, certainly a lot of inflation. Have you seen pushback? Certainly, the independent box guys have been pushing back a little bit. But what's the message? And what's your philosophy in terms of pricing?

The message we get to our customers is what I just told you. What we do to stay in business costs a lot of money. And you've heard me say this on earnings calls. We expect an appropriate return for these investments on behalf of our shareholders.

And we're going to be responsible in that regard. And so...

And then we demonstrate to our customers that we can provide the service that they need, and we're always there for them. And that's our...

The world has changed dramatically.

I know we had a lot of fun early in the year when there was movement up and down RISI prices, and that led to some choppiness in terms of implementing the box price increase.

As long as I've covered in this industry, I've never seen such wide dispersion in terms of a price increase for September. Does that create any friction in terms of execution and just some of the minutia around implementing the box price increase?

I'll just speak for us. We called out our price increase. September 1, we raised the price.

Perfect. The integration of Greif has been a little choppy, at least early on, but you seem to be.

Kill me with that choppy term. I told Kent that I said choppy. When we acquired Greif last September, we made the conscious decision to go fix those assets very quickly.

And so we took advantage of the market. And I'll accept you're choppy, but we took advantage of the market at the time and also the ability we had. Think about this, the day we closed on that acquisition, we had our engineering forces in the parking lots that morning ready to go in and start fixing the mills.

And I called Kent and our people and I said, have we legally closed? It was like 9:00 in the morning. And they said, we are closed. And I called up my people and I said, we own that. You can go in now. And we started. And the good news is we expected to find what we found. We had a great workforce that was willing to really jump in there with us.

So we took advantage of the time. So through the fall into the early winter, we capitalized on the ability of my team before we got into the annual outage period this year. The fall is always -- you go through a little quieter period. We didn't have as many outages last fall.

And so we fixed the Riverville mill and the Massillon mill and took care of the converting operations. And so that's the choppiness you saw in our -- the January earnings call from the fourth quarter and then the April earnings call, but we also -- when you think about the April earnings call to the July earnings call, the accretive opportunity that now we're reflecting.

So we're getting all the value out of it. And that's going to be the -- as the Boise acquisition did, the Greif acquisition is going to be the gift that just keeps on giving.

Well, Mark's [ spoiled us ] over the years. So that's why I'm using words like choppy. But I mean you guided to like a $30 million synergy number that gives us update how you are tracking towards that.

But any new signs in terms of things to unlock value that perhaps you didn't appreciate going in now that you've owned the company for about a year now?

No, nothing really new. We did what we said we were going to do, improve the reliability of the mill and get additional production and more consistent production, squeeze some cost out by just running better and integrating some of the outside sales that they weren't making into our system. And all 3 of those were well ahead of that $30 million for this year target.

And keep in mind, when we called out the accretive opportunities, we didn't anticipate what was going to happen with OCC and diesel this year. So in spite of that, we're doing quite well, and we're well ahead of the accretive delivery on what we're seeing out of that operation.

Any color in terms of under your ownership, some of the things you guys have done from a production or reliability standpoint, any metrics you could give us to kind of size up how it was before versus perhaps exiting this year?

Yes, he'll get into more details. Okay. Uptime reliability, about 80 -- mid-80s when we bought it. Now getting into the mid- to high 90s.

And again, as I said earlier, still a little more gas in the tank.

Yes. I mean when we go in, we focus on all the fundamentals. It's not glamorous, but it's -- they're big electromechanical. It's bearings, bushings, pumps, process control.

And so we have -- my standard is 99% uptime efficiency. And quite frankly, we run a lot of our operations, 98.5%, 99% through the summer months. Now we've seen both Massillon and Riverville mill, they're hitting the 96%, 97%, 97.5% uptime efficiency.

And yet, it's the basic blocking and tackling. It's like taking an old car and rebuilding it from the wheel bearings up. And so rebuilding the transmission, rebuilding the engine and putting in the right oil and the right grease and having the right driver in place.

And so we do all of that holistically. And so the little Massillon mill, it's delivering quite well, and it's not only just delivering tons, but think about this, the quality of the tons we're producing, the 800,000 tons a year annual production I'm getting out of both those mills, the quality has dramatically improved.

So what the box plants are seeing and what our customers are seeing is dramatically better than it's ever been. And that plays heavily into our ability on how we're going out into the market, our pricing, our customer satisfaction and what we do.

And in times like these, particularly important, it's freight advantaged.

Yes. I mean the Massillon mill in Ohio is literally from the newer plant, it's like 79 or 80 miles away. So it's shuttle truck distance away. We've got the big Ashland, Ohio box plant. It's 42 miles away. So most of the tons that come out of Massillon are being consumed in a very close radius.

Mark, you and Tom obviously have shepherded the company for your long career, and I expect many more years from you and create a ton of value.

And now Kent is actually the young man in the room, but any other executives internally that you want to highlight? And just give us a little more thought in terms of how you guys think about succession planning.

Yes [ Phil ] , I saw that. We just hit our stride. I think about Berkshire Hathaway. Buffett and Munger didn't hit their stride until they were in their 70s.

And so I think about we've just -- Tom and I finally just learned how to do what we're doing. Tom, think about this. Tom is going to his 50th year now at PCA. I'm over 30 years now with PCA, but I've been in the industry as long as Tom has been in the industry.

Look, we're just hitting our stride. And as you can tell by the smile on my face, we love doing what we do. This is like my sport of choice. Had nothing else to do in terms of hobbies. So this is my sport of choice. We have an incredible organization around us. And that's one of the things I do. I spend a lot of time at this time of the year recruiting, and we've done that for decades and decades.

So Kent's generation and younger, we have an incredible depth and breadth in the organization of young men and women that we have hired, brought in. And the deal was you come be with us, you're going to make a lot of money. We're going to teach you more than anybody else who's going to teach you in this industry. You're going to have incredible job opportunities and you'll never leave us.

And that's how it's played out. So I think one of the -- one individual we'll call out is Ray Shirley. And Ray is running the box plant side of the business now under Tom. Tom's got the title President. And Ray, I hired him over 30 years ago. He's a chemical engineer, MBA from Vanderbilt.

I mentored him from the time we hired him, and I told him that you come with us, you're going to learn more, you're going to make more money, you're going to have more job opportunity. But he was instrumental in recapitalizing all of the box plant system from 2019. And he's a mill guy.

And yet he did such a great job on the box plant side through all that recapitalization. Tom picked him out and recognized his capability and said, I want to have this guy have an opportunity.

And so we've got all of these young men and women in these places now. And so they're highly motivated and engaged. And Tom and I are just -- we're kind of like the -- we're the enablers. We know we made enough mistakes in our career to know what shouldn't be done, but we also know how to enable the team around us to go do all the cool stuff. So that's my story, and I'm sticking to it.

Mark, you talked at length about the cost of doing business, the capital intensity. Does that open the door for like more M&A opportunities, just some of these independent box guys that are struggling probably to continue running their business, they're not integrated.

And some of the new entrants that added containerboard capacity that did conversions probably are having a tough stretch right now. So help us kind of think through that.

Yes. I think people have to reach the point of capitulation when they decide, can I keep doing what I'm doing and generating a full return? And I just throw good money after bad. And so they have to reach a decision point where you continue doing what you're doing or do you do something different, which includes, do I sell my business and move on.

And so there's going to be a lot of that taking place because people again, it's all about the returns. And this is -- it's not just having the cash/capital available. You've got to have the organization that can take that capital and actually run the business, know how to implement the opportunity, do the projects.

And this is where some companies can get into trouble. I told you, we've got the largest engineering organization. We do a lot of the projects ourselves. We install a lot of the equipment ourselves. We maintain tight control from pre-engineering all the way to start-up of the equipment with our own personnel. It's an incredible advantage to us to be able to do that and not be dependent on vendors with the equipment suppliers or outside engineering firms. And so you have to be in a better control of that specifically because things cost so much today. And so...

Are you getting more calls, more people...

I wouldn't say we're getting more calls, but we're hearing more discussions and we're seeing some things play out that people are starting to -- starting to look at and reflect on what they're going to do with their assets.

And we assess things like we always have. Bigger isn't always better and internal focus and the way we do things has been a pretty good road map for value creation.

And Kent, you got a strong balance sheet, so you have plenty of optionality.

And we've always prided ourselves in maintaining that optionality and flexibility to take advantage of opportunities, whether internal or external.

I think we get credit on how effective we are at capital execution. We also get credit on whether it's like dividends, share buyback, how we take care of the investor.

So every dollar that we generate is incredibly precious to us, but we recognize it. It's there for the benefit of the investors. So as long as Tom and I are around, we'll maintain that mindset.

Well, what a great way to close things. Thank you so much, both.

Thank you, Phil.

Thanks, Phil, and everybody, for attending this morning. Thanks. Have a good day. Bye-bye.

Thank you for joining Packaging Corporation of America's Second Quarter 2026 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 be a Q&A session.

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

Thanks, Jamie, and good morning, everyone, and thank you all for participating in Packaging Corporation of America's Second Quarter 2026 Earnings Release Conference Call. Again, I'm Mark Kowlzan, Chairman and CEO of Packaging Corporation of America. And with me on the call today is Tom Hassfurther, President; and Kent Pflederer, our Chief Financial Officer.

I'll begin the call as usual with an overview of our second quarter results, and then I'll be turning the call over to Tom and Kent, who'll provide further details. I'll then wrap things up, and then we'll be glad to take questions.

Yesterday, we reported second quarter net income of $192 million, or $2.15 per share. Excluding special items, the second quarter 2026 net income was $210 million, or $2.35 per share compared to the second quarter of 2025's net income of $224 million, or $2.48 per share. Second quarter net sales were $2.5 billion in 2026 and $2.2 billion in 2025.

Total company EBITDA for the second quarter, excluding special items, was $486 million in 2026 and $451 million in 2025. Second quarter net income included special items expense of $0.20 per share, primarily for costs and write-offs related to facilities closures, the Wallula mill restructuring charges and costs related to the acquisition and integration of the Greif containerboard business.

Details of the special items for the second quarter of 2026 and 2025 were included in the schedules that accompanied the press release. Excluding the special items, our earnings decreased by $0.13 per share compared to the second quarter of 2025, resulting from a $0.27 decrease in legacy business earnings, partially offset by $0.14 of earnings from the acquired Greif business. The decrease in the legacy earnings was driven primarily by higher freight costs of $0.26, higher corporate and other expenses, $0.12; lower price and mix in the packaging business, $0.11; higher labor and operating costs, $0.05; higher depreciation and amortization expenses, $0.03; higher fiber costs, $0.02; higher tax rate, $0.02; and higher interest expense, excluding the Greif acquisition indebtedness for $0.01.

These items were partially offset by higher production and sales volume in the Packaging business for $0.26; lower maintenance outage expense, $0.04; higher production and sales volume in the paper business for $0.03; and higher price and mix in the paper business, $0.02. Greif's earnings were driven by strong volumes in the corrugated business and improved operating performance in the mills and included a $0.04 benefit to depreciation expense due to measurement period adjustments to the valuation of fixed assets on the opening balance sheet of the business.

We exceeded our guidance of $2.33 on the strength of our corrugated volumes, which helped drive cost favorability in areas that we could control and offset higher-than-forecast costs for freight, recycled fiber, and employee benefits. Greif's earnings contribution also exceeded our expectations.

Looking at our Packaging business. EBITDA, excluding special items in the second quarter of 2026 of $489 million with sales of $2.3 billion resulted in a margin of 21.1% versus last year's EBITDA of $453 million and sales of $2 billion, or a 22.6% margin. We produced 1,415,000 tons of containerboard during the quarter. The legacy mills produced 1,209,000 tons of containerboard, about even with the first quarter of 2026, and 14,000 tons more than the second quarter of 2025. The acquired mills produced 206,000 tons during the quarter, significantly exceeding their production in any quarter since the acquisition.

System-wide, our inventories were down 25,000 tons from the end of the first quarter. While we ended the quarter at a low number, we've been able to build some inventory early in July with many plants down for the holiday weekend to help get us near our target levels of inventory. With not as much outage impact in the third quarter, we will be in a much stronger position to serve our customers in very tight conditions that we're operating under.

Operational performance was a mixed bag during the quarter as we were hit with some production interruptions resulting from utility power outages across the mill system. This further emphasizes our need to execute and realize the benefits of the gas turbine projects, which will reduce, if not eliminate, our reliance on the grid at 3 key facilities. That is also a testament to the organization that we are able to work through and minimize the effects of these issues to achieve the production we achieved given that we had completed outages at 5 of the packaging mills during the quarter. We managed costs very well in the areas we could control, particularly in the box plant system to help offset the headwinds we faced from elevated freight and increased recycled fiber costs.

I'll now turn it over to Tom, who will provide further details on containerboard sales and the corrugated business in general.

Thank you, Mark. Our corrugated operations turned in yet another very strong quarter in all areas. Domestic containerboard and corrugated products prices and mix were $0.11 per share below the second quarter of 2025 and up $0.04 per share compared to the first quarter of 2026 and in line with our forecast. Corrugated prices were slightly below first quarter levels until we began to realize the first increase in June. We are seeing the majority of the first increase rolling in during July, and we'll see the beginning of the second increase in August with realization split between Q3 and Q4.

Export containerboard prices were $0.01 above last year's second quarter and $0.02 above the first quarter of 2026. Export sales volume of containerboard was 30,000 tons lower than the first quarter of 2026 and 22,000 tons lower than the second quarter of 2025. We decided mid-quarter to lower export sales to build inventory so we can supply our corrugated plants to efficiently serve our customers.

As Mark alluded to earlier, we were able to meaningfully increase our inventories during the first week of July, which puts us in a good supply position for the back half of the year with our mills running full out. Demand was very strong throughout the quarter across our entire customer base. Shipments were up over 24% in total and per day versus last year, with the legacy business up 4.1%, achieving an all-time record for total quarterly shipments.

The acquired corrugated business had an excellent quarter, driven by strong volumes in both the sheet feeder and bulk businesses, which drove its earnings contribution above our expectations. We saw a meaningful improvement of the integration level of containerboard produced by the acquired mills into the combined box plant system as well as from legacy PCA mills into the acquired corrugated operations.

Given the volume, the box plants across the whole system had to step up and perform to satisfy our customers while costs were increasing, and they did just that. Our corrugated operations were favorable to forecast in almost all cost areas, which helped mitigate the freight hit we took during the quarter.

We also optimized our production and ran the right orders in the right plants to maximize efficiency and margins. Our people demonstrated their unwavering commitment to our customers to deliver this outstanding performance.

Finally, I'm pleased to report that we successfully started up the new Ohio plant earlier this month ahead of schedule. The state-of-the-art 550,000 square foot facility will further enhance our capabilities to serve and grow with our customer base in a very strategic area for us while improving our operational efficiency over the long term.

I'll now turn it back to Mark.

Thank you, Tom. Looking at the Paper segment, EBITDA, excluding special items in the second quarter was $39 million with sales of $157 million, or a 24.9% margin compared to the second quarter of 2025's EBITDA of $30 million and sales of $146 million or a 20.8% margin. Note that the International Falls outage was in the second quarter of last year and will be in the third quarter this year. Sales volume was approximately 3% below the first quarter of 2026, and approximately 6% above the second quarter of 2025. Prices and mix were up 2% from both the first quarter of 2026 and the second quarter of 2025. So another solid quarter from the Paper business with strong margins. We're continuing to implement our previously announced price increases and expect to benefit in Q3.

I'll now turn it over to Kent.

Thanks, Mark. Cash provided by operations was $376 million and after $206 million of CapEx, free cash flow was $170 million. In addition to CapEx, the primary payments of cash during the quarter included dividend payments of $111 million, cash tax payments of $78 million and net interest payments of $54 million. We did not repurchase shares during the quarter. Excluding special items, our effective tax rate during the second quarter was 25.7%. We expect the third quarter rate to be approximately 26%.

We continue to forecast $840 million to $870 million of CapEx and excluding special items, around $710 million of DD&A for the year. Our special items expense for the year through the end of 2Q included $56 million of depreciation expense associated primarily with the Wallula mill restructuring.

I'd now like to give you an update on the annual outage schedule and earnings impact for the year. Our outage expense was $0.34 during the second quarter. Our back half estimates are now $0.30 for the third quarter and $0.63 for the fourth quarter, totaling $1.41 for the year. As we indicated, International Falls, our only white paper mill will have the outage in the third quarter. In the Packaging segment, only the Riverville mill is scheduled for a third quarter maintenance outage.

I'll now turn it back over to Mark.

Thanks, Kent. Looking ahead, as we move from the second quarter into the third quarter, we expect continued strong demand in the Packaging segment and corrugated products volume to increase with 1 more shipping day. Prices for containerboard and corrugated products will be higher as we complete implementation of our first announced increase and begin to realize our second announced price increase. We'll have 1 more day of mill operation and as well as lower impact to production from maintenance outages.

We also expect better operating performance across our containerboard mill system with continued improved capabilities from our Jackson mill as well as the acquired Greif mills. Mill maintenance outage expenses will be lower in total in the Packaging segment and higher in the Paper segment.

We expect lower volume and higher prices in the Paper segment as a result of the maintenance outage and continued implementation of our previously announced paper price increases. Costs for freight across the business will remain at or around the elevated levels we experienced in May and June. Recycled fiber prices are continuing to increase and higher mill production will drive usage -- higher usage.

We expect higher prices for chemicals and purchased electricity with wood fiber and natural gas remaining relatively flat. We expect some improvement in employee benefits costs due to second quarter unfavorability that is not expected to repeat in the third quarter. Considering these items, we expect third quarter earnings of $2.91 per share, excluding special items.

With that, we'd be happy to entertain any questions, but I must remind you that some of the statements we've made on the call constituted forward-looking statements. The statements are based on current estimates, expectations, and projections of the company and do involve inherent risks and uncertainties, including the direction of the economy and those identified as risk factors in our annual report on Form 10-K on file with the SEC. Actual results could differ materially from those expressed in the forward-looking statements.

And with that, Jamie, I'd like to go ahead and open the call for Q&A. Thank you.

[Operator Instructions] Our first question today comes from George Staphos from Bank of America Securities.

So I guess maybe to start, as always, can you give us a rundown on what you're seeing in terms of bookings and billings to start the third quarter? Anything sort of unique or notable in the trends that you're seeing? And then I had a couple of follow-ons.

George, it's Tom. Yes, billings are up 1.5% so far. And we're expecting for the quarter, this is in the legacy business and up about 2%. So that's pretty much in track with what we thought. And of course, it's against a pretty tough comp. And as you may know, Prime Days were moved up a quarter. So it's going to change the numbers a little bit in the third quarter. But all in all, we're happy with that growth, and we're being pretty disciplined and selective in terms of our growth as well.

Okay. Within the 2Q volume to 3Q volume comparison, and you mentioned one consideration, is there anything else that's decelerated? Or is that the only thing that -- from what you can see that's worth noting? And relatedly, this is neither here nor there, it's our model, not yours, but mix was a little bit less than we're expecting in terms of revenue per ton. Was that related to any sort of customer factors or anything else in the mix?

And then my last question, bigger picture. Mark, for years, the company has talked rightly about its fiber flexibility, frankly, the weighting more towards virgin versus recycled, which gave you a little bit more predictability on your costs. How do you see that evolving now that you've become maybe almost as much recycled as virgin relative to the peer set?

Let me start that question up first, George. We're probably currently around 30% recycled to 70% on a given day. It flexes up and down to 35% at times. As we're pushing the system now, we're probably up closer to the 35% level. But nevertheless, it's -- we've gone through an unusual time since the beginning of the year. If you think about it, OCC, DLK recycled fiber is up about 70%. And so that impact is felt directly. So we're maximizing the virgin kraft system and taking advantage of the OCC, DLK systems to fiber up the mills. That's pretty much where we are and where we expect to be. We're not planning on any big capital expenditures right now for either fiber. Tom?

George, relative to mix, 2Q going into 3Q, as I mentioned, the Prime Days in the e-comm was very strong in the quarter -- in the second quarter. And that moved -- they moved that up somewhat. So that really impacted the general mix, which translated into price as well. And then, of course, we had the $20 reduction that was announced in RISI, which impacted price as well. But the good news is all segments of the business were very strong and were up, and we plan to see that going forward as well. Yes, and the 3Q price, obviously, is going to change dramatically as we roll through the price increase that we -- as I mentioned in my commentary.

Our next question comes from Mike Roxland from Truist.

You mentioned Greif beat by $0.10. I think you were expecting maybe a $0.04 contribution positively. You end up with $0.14. So when you think about the beat, it seems -- relative to the Street for the quarter, it seems like it was done -- it came -- most of it came from, if not all of it came from Greif rather than your legacy business. So just any color you could provide on the miss in your legacy business relative to expectations? Is that largely due to cost, mainly freight? Just any color you could have in terms of the puts and takes in the quarter relative to -- between legacy and your -- and the Greif assets.

So Mike, I'll start with this. It's Kent. And then, Tom will add some color. So Greif was a $0.14 earnings contribution. That exceeded expectations, the headline number by, call it, $0.09 or $0.10. $0.04 of that was the depreciation benefit that we called out in the earnings release, okay? So if you're looking sort of apples-to-apples, $0.05 from expectations, that was driven by largely higher volumes than we expected and very good operational performance. But also, we're running Greif now as a much more integrated system. It's much less separate from PCA legacy than when we made the acquisition, obviously, by design. So there's some puts and takes. We're moving business between trying to get things -- trying to get efficiencies maximized, and Tom can comment on this a little bit further.

There's really not a ton to add. It's just that we're running the business to the greatest efficiency we can, and we're trying to utilize all of our assets in the best possible way. So we now view this business as being totally integrated, and we're operating as one unit.

Got it. In that regard, Tom, I think you had a transition service agreement with Greif that may have expired. Can you talk about -- is there any way to quantify what the -- what you get back from the expiration of that agreement?

I'll let Kent handle that.

So the transition services agreement is running through the end of the year as we bring the last few corrugated plants in one facet of the mills on the PCA system. So we got 3 more plants coming up in 3Q and the last couple coming up in 4Q. The TSA is -- number one, we're reporting the costs and special items as part of acquisition integration charges. But really, the efficiencies we're seeing is just having better visibility to the business, being able to take advantage really of just optimizing the supply position between PCA mills on one hand and Greif facilities on the other hand. So that's really where it's coming from, Mike.

I'll add, Mike, that we look very much forward to having them all on our system, I can tell you that.

Got it. And that sounds like it will be done by year-end. That's -- putting it all together, right? You'll be done completely with the TSA.

Yes.

Perfect. One last one, and I'll turn it over. Just in terms of tariffs, obviously, there are 50% tariffs potentially being proposed to be applied to Canadian imports of containerboard, maybe boxes. Any thoughts around those tariffs and what it means for the domestic industry?

Right now, our initial read is little to no impact on PCA. It should have really nothing on the packaging business. And as you parse through it, it's not 100% clear at this point in terms of what it really applies to. So we'll take a little more of a wait-and-see approach. But right now, we don't view it as a significant driver either way.

Our next question comes from Mark Weintraub from Seaport Research Partners.

So you mentioned that you started to see the March, April increase in June. Can you give us a sense as to how much of it then of the $50 would have shown up in your box prices in the second quarter? Presumably, the balance of that, is it fair to say, would be in the third quarter? And then can you share -- I think you used the term, you expect to kind of split the June increase between 3Q and 4Q. Is that evenly? Or was that just sort of -- some of it's going to show up in 3Q and some of it's going to show up in 4Q? And to the extent that you're comfortable quantifying rough percentages, that would be helpful.

Yes. Mark, it's Kent. I'll start and then Tom will finish here, okay? On the first increase, the vast majority of that's coming in Q3, okay? Calibrated, maybe 70%, 75% of it's Q3 in July there. The second increase, the majority will come in, in 4Q, but not quite as pronounced as the 2Q, 3Q split on the first increase. Tom?

Yes, that's -- I mean, that's exactly the way we see it. And I think a lot of times, people forget that we were impacted by the $20 down that was announced that trailed into 2Q. And also the mix had some impact in 2Q from the price standpoint. All of that then comes back in 3Q and 4Q with these increases as they roll through, as Kent mentioned.

Great. And then just as a follow-up, in some environments in the past, you've been able to get more than full pass-through. And clearly, we've got a very high cost environment right now. Is -- are we in that type of an environment? What would sort of be recognizing they're going to -- there's always going to be competitive pressures as well at work. How should we be thinking about the ability to get full and/or possibly even more than full pass-through?

Well, Mark, I don't -- I'm not going to quantify that for you, but I can tell you that you did observe that, that is our mission, and that is what we always try to do. And we -- and you also mentioned, and I think very importantly that we are in a very high inflationary environment right now. And we're having a -- it's -- we're having a lot of discussions around that. I'll leave it at that.

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

You talked about being able to build a little bit of inventory early in the quarter, maybe in and around the July 4 holiday. And then, Tom, I think you also mentioned 1.5% billings. I know we can't extrapolate that out, but I think you referenced maybe 1.5%, 2% was sort of what you were thinking for the quarter on a year-over-year basis. If I got my comparisons correctly -- or correct here, I think down 1.1% for corrugated shipments in Q3 '25. So just assuming I've got that level set, how would you describe kind of the feel in the market right now from a supply-demand standpoint? And I'm sort of asking because you guys obviously delayed some sales of exports into the third quarter to kind of shore up your own inventories and then there's been some supply disruptions in the market. So just if you got customers coming to you asking for help, or anything like that.

I'm going to give you one word, Gabe, that I would use to describe the environment, and that's tight.

Okay. Got it. And then we did hear some comments about maintenance outages, maybe some folks coming out a little bit slower than what was expected. Just curious if you guys had experienced any of that or maybe it was, Mark, related to the grid volatility that you mentioned in your prepared remarks?

As far as we went through our annual outages at 5 of the mills during the second quarter, and we executed incredibly well. And in most cases, ahead of schedule and started up the mills very successfully. But we had at least 5 distinct utility power outage situations at a number of the mills. I mean, I'll give you an example, though, 1 mill, they shut us down for the better part of a full day just with their own hardware issues, and then had continuing problems for a few more days trying to get their own grid structure stabilized. Another location, basically you're in forest fire season. We had the utility shut down the entire regional system without notifying anybody. So it took down the mill instantaneously out in Wallula and impacted us for a period of time.

So we're having these types of situations where voltage droops and surges through the systems. It just -- I think it speaks in many cases to what's happening with the nationwide integrity of the system. And so -- but we overcame those issues. And again, as I said on my comments, it speaks to the ability of our individuals to rally and get through these things and stabilize the mills, but it also speaks to the importance of the 3 gas turbine projects that we're bringing online over the next 2 years and how critical they're going to be to these 3 particular mills.

All right. I know I'm going to be maybe a little aggressive here or at least give a mouse a cookie or a milk glass for a cookie. I think you said 70% realization, Kent, on the second price increase in sort of split Q3, Q4. $35 a ton, maybe 1.4 million tons, directionally, $45 million, $50 million benefit that we're thinking about on a sequential basis. And then I know maintenance costs are up, I think, $0.33, directionally. So maybe $40 million offset. And then I think there's one less shipping day. Is there anything else that we should be thinking about, I think, higher energy consumption for colder weather conditions, things like that in Q4? Anything else that we should be mindful of thinking about for Q4?

For Q4, maintenance primarily higher. Normal seasonal mix, a little bit higher depreciation run rate as I kind of called out, as I alluded to in my prepared remarks. But seasonally strong volumes. So those are your primary factors. And at least right now, trying to put a crystal ball around some of the freight and energy-based costs, it's pretty premature to do that.

Our next question comes from Anojja Shah from UBS.

Sorry if I missed it, but did you give a sense of what you expect from the Greif assets in the third quarter in your guidance?

Yes. The way I would look at it, Anojja, is you'll have the benefits of continued strong volume consistent with or even maybe a little above second quarter levels. You'll have the benefits of price coming in, but then that will be probably overcome by the fact that you have Riverville down in the third quarter, so you'll have outage expenses.

So the way I'm looking at it from an earnings contribution, and again, I'm taking this against a $0.10 contribution without the depreciation benefit we got in 2Q, you're probably going to be $0.01 or $0.02 down 3Q to 2Q in terms of the Greif contribution. And again, I'll reemphasize this, 3Q will be the last time we call Greif out as an individual contributor. It's really part of PCA from this point on.

Okay. Great. And then I don't think we've talked about this recently, but any update you can give us on the Greif synergies? I think we had about $30 million penciled in for this year, and now we're at the halfway point. Can you just give us an update there?

So between the mill production improvements that we called out last quarter, we're on track or even a little bit ahead of that. We're running in the 5% to 10% improved reliability, which we're seeing in better production. But the integration benefits now are starting to come into the numbers as well. And from an integration standpoint, adding that in, we're on track probably to exceed the $30 million run rate by the end of the year. So very comfortable with where we're at there, Anojja.

Our next question comes from Anthony Pettinari from Citi.

The 2Q corrugated demand was a bit stronger than we expected. And I was wondering, do you think there's any element of prebuy there with 2 price hikes in the market? And then World Cup, America250, I don't know if those really had an impact to you, but I'm just curious if there's anything you'd call out there.

Anthony, this is Tom. The -- yes, the second quarter demand was very strong. I mentioned some of the e-comm-driven Prime Day from Amazon and some of those related e-comm customers that we have certainly drove some of that business. Prebuy, our capacity is so tight that it's impossible to get a prebuy in right now. So that's not the case. And World Cup, I'm not sure where that discussion even started. But I think that was -- that had very little impact in my opinion.

Okay. Okay. And then just switching gears. Mark, you referenced the 3 energy projects over the next couple of years. I don't know if there's any finer point you could put on the cadence there or when those would go in. And then just the CapEx guide for $840 million to $870 million you reiterated directionally as we look to '27, is there a way to think about CapEx?

Yes. Regarding the 3 gas turbines, we're in construction phase at the Jackson mill as we speak. We're waiting on some word on deliveries of some of the electrical switchgear components that will be needed to tie in and utilize the gas turbine into the existing system at the mill. The goal would be to have that gas turbine at Jackson up online next year in coordination with Jackson's annual outage next year in the early part of the year.

And then the Riverville, Virginia and then the DeRidder, Louisiana units, we're having to go through environmental permitting there. So it's kind of like go figure, we want to put in gas turbines, but it's taking us longer to get state and federal permits than it does to put in a data center. So we should have called them data centers. But I'm thinking it's going to be -- for the DeRidder and the Riverville units, it's probably going to be more like the first part of 2028 to the mid part of 2028 to get those 2 units up and running based on the timing for the permits from the states.

Got it. And any kind of directional views on CapEx in '27 versus '26?

I think with the opportunity, we're just starting that discussion right now. And as always, I reserve the right to take advantage of any of the great ideas that we have. But it could be in line with where we've been last year and this year. We've got -- the gas turbine projects will consume a good portion. And then we always have good opportunities on the converting side. And then the mill side will continue to take advantage of any high-return projects that we identify, which we've got a number of them on the table that we're looking at right now. So I would assume that the CapEx is going to stay in this range that we've been at, but these are well-executed high-return opportunities.

Tom, do you got anything to add?

Well, I would just say that, Anthony, one thing to keep in mind relative to CapEx, I mean, this is a very capital-intensive business we're running here. And we need to recapitalize. But just like everything else, the cost of capital keeps going up as well. And so it's incumbent on us to make sure that we hit those hurdle rates and that we're able to reinvest in the business. And we're working hard at it. But it's -- you don't have to look very far in this business to see what's going on. And certainly, we're feeling that pinch that's happening in the business in terms of tight board and tight box plant capacity and things like that. So we're going to need that going forward.

Our next question comes from Phil Ng from Jefferies.

Just given how tight the market is -- and Tom, I appreciate your brevity, tight was the operative word here. But just given how tight the market is, can you just give us an update in terms of some of the capacity unlock you guys are planning from Counce, Jackson, I think some of the Greif assets. And then, Mark, I think you kind of hinted potentially there's other things you guys are circling in terms of unlocking perhaps more capacity on the mill side. Give us a little more color in terms of how that's coming along and potentially some more opportunities going forward.

Yes. The Jackson mill project that we've talked about for the last year, it's the new winder project that's coming on later this year. So -- and we've done a number of things at Jackson. So we'll see the incremental tons that we had talked about coming online. But even more important than that, the Massillon mill and the Riverville mill have delivered as I had hoped they would deliver and with the efforts that we put in over the last few quarters.

So the incremental tons will continue to flow out of acquired mills. And then Jackson project is going to bring on the tons that we committed to. We've got a few capital projects that we've identified that we're looking at for next year as an example that would bring on some incremental tons. So -- and which is pretty much what we do every year. But it's the 25,000, 50,000 tons of annual incremental opportunity with some capital spending, but that's kind of where we are. No one big project, just a number of little things.

Phil, I would add -- this is Tom. I would add that when I said tight, I was referring to not only our ability to source domestically, but also our ability to source globally. So it -- again, this comes back to the commentary that we're going to have to manage our own and figure out ways to do so. But it's a unique situation.

Perfect segue, Tom, to my next question. When I think about your margins, returns, they've remained quite good even with the demand and inflation shock we've seen in the last 2 years. Your margins -- EBITDA margins kind of bottomed out like 19-ish a few years ago. But just looking over a very long duration, your margins have been very tight, call it, in the low 20-ish range. Supply/demand certainly feels pretty tight right now, the tightest it's been since the pandemic. And demand, frankly, hasn't even really recovered in a big way yet on the box side.

So it feels like you got a great runway for margins and returns to improve next year. But I think my question really here is bigger picture, guys. Is PKG, PCA, and the broader industry in a position to kind of rebase that return margin profile structurally higher? What's different this time around? And certainly, you guys are spending a lot of capital for these projects to kind of enhance your return profile going forward. But give us kind of a little more color on how you're thinking about this long term?

Well, let me start this out, and then Tom can take it. But again, just re-reminding everybody that over the last, say, 8 or 9 years, if you think about year-to-date 2026, we've spent about $6 billion on the box plants and mills to recapitalize, build new plants, basically recapitalize the converting footprint and then continue to optimize the mill system and build out the mill system. So that's what's enabled us to maintain the double-digit, the 20-plus percent type of margins we've been in. But at the end of the day, we've said this all along year after year, it doesn't matter how much capital you're willing and able to spend. At some point in time, you've got to back that up with price also. Tom?

Yes. It all comes back to earning your cost of capital. That's what it comes back to. And you have to be very -- you have to be incredibly disciplined about it. And we're very fortunate that we embarked on this approximately 15 years ago to recapitalize our business because I'd hate to be in a position right now. We're suddenly at the -- with the cost of capital you got today to have to do that all over again. But we've got -- we do have good plans and a good runway to continue to do what we need to do to take care of our customers.

But when I said -- when I use the word -- term selective and disciplined relative to customer growth, that revolves around some of the things that we're talking about relative to capital and our ability to serve those customers and get paid appropriately for it. So that's our mission. It doesn't change, but it is -- it's a challenging situation as I mentioned, not only domestically, but globally right now, there has not been some of the same type of investments made that we've made. And that's my observation.

Just to continue on with what Tom is talking about. If you go back over the 15- or 17-year period, the total capital spend on the mills and box plants and all of these efforts, we probably spent $10 billion to enhance PCA's capability. And you've also heard us talk about we expect an appropriate return for that investment. And we're not ashamed to say that.

That sounds great, guys. Makes total sense given all the investments you're making.

Our next question comes from Hillary Cacanando from Deutsche Bank Securities.

So obviously, significant pricing strength this year, but with input costs still being high, do you think there will need to be additional price increases later this year? Just overall as an industry. I'm not saying you specifically, but just as an industry.

Hillary, we don't comment on price going forward. So we'll just -- we'll leave it at that. You can come to your own conclusions.

Okay. Got it. Okay. So last quarter, I think you said Riverville and Massillon facilities are operating at about 10% above preacquisition levels. Could you talk about where those facilities are operating today in terms of percentage above preacquisition level? And are there still meaningful productivity opportunities remaining?

Yes. If you went back historically and looked at the Boise acquisitions, the reconfigurations we've done, everything in my career, I've always looked at ultimately about a 30% improvement in productivity. In some cases, we've seen 40%. It depends on how much capital you need to spend and are willing to spend to get the incremental capability out of a mill. There comes a point in time where you have a diminishing return for every dollar spent. And so we're very prudent in how we do that analysis and how we step forward to these opportunities. But it's always about what do we need to do to supply the converting side of the business and do it in a prudent manner.

But just reminding everybody that we're really 9 months into the acquisition here. We'll be lapping a full year come September. But we're feeling pretty bullish on the productivity coming out of both Massillon and Riverville and not just the productivity, but the cost to produce those tons has come down significantly. And we're looking forward to continuing to ramp up the productivity of both those mills. So stay tuned. I'm not going to give you a number. I'm just going to say that historically, we've always done significantly more than we've already done.

Any further questions?

We have an additional question. This is from George Staphos from Bank of America Securities.

Just wanted to come back to some of the cost factors in the second quarter to try to get at the earnings power. And it's really more of a grab bag, if you will, Mark. So the outages that you were not expecting because of utilities, what do you think that cost you? If you can talk about the corporate costs, where it shook out relative to what you're expecting, what was that variance? And also, I think if I did my math correctly, maintenance this year now is looking to be maybe a $0.05, $0.10 more than, I think, the first quarter guidance. Correct me if I'm wrong here, but I just want to run down those things.

Okay. George, you -- it's Kent. You asked for a fair amount. So the corporate variance, that was largely a benefits obligation that higher than forecast. It was a mark-to-market obligation on compensation and benefits. And that was about a $0.05 variance from 2Q to -- from 1Q to 2Q, and that showed up in the Corporate segment. And I'm sorry, George, I'm taking these out of order. What was your -- what was the first question?

All the utility outages that were unplanned, what did that cost you if you had -- recognize there's always stuff that goes wrong in a quarter, but that you can't plan for.

I think that probably hit us for about 10,000 tons of production all in.

Okay. And then lastly, maintenance expense this year for the year relative to the prior guide, I want to say it's a $0.05, $0.10 higher, but correct me if I'm wrong. And if you could just affirm what the number is and the variance, that would be great.

George, on full year maintenance for full company, I thought we brought it down a few cents from where we were from -- at $1.41 for the year, including 4Q. And I thought we brought it down maybe $0.02 or $0.03 from where we were at the end of 1Q. I can clean that up in our -- after the call, I'll go double check that. But I thought we were maybe $0.01 or $0.02 better than we were coming in.

No worries, probably my miscalculation.

[Operator Instructions] And sir, I'm showing no further questions at this time. I'd like to turn the floor back over for closing remarks.

Thanks, Jamie, and thank you, everyone, for joining us on the call today, and I appreciate everybody's time. We look forward to speaking with you in October and giving you the details and wrap up for 3Q. Take care. Have a good day. Bye-bye.

And with that, ladies and gentlemen, we thank you for joining today's presentation. You may now disconnect your lines.

All right, everyone. Thanks for being here. Gabe Hajde, for those of you who may not know, Wells Fargo, Senior Paper and Packaging analyst. I'm joined by my colleagues today in the room, Richard Carlson and Bailey Gordon. We'd like to welcome you to the Packaging Corporation of America presentation this morning. Representing the company are Chairman and CEO, Mark Kowlzan, to my right and CFO, Kent Pflederer.

Mark has been with the company since 1998. I believe I got that right, CEO for the past 16 years and Chairman for about a decade. Kent took over as CFO just about a year ago, been with the company for 19 years and has also served as PCA's General Counsel. Many of you in the room are familiar with PCA. They are solely a domestic producer of corrugated products and office printing paper. They've been in the corrugated business. They're the third largest supplier in North America, but often considered best-in-class for sure from a margin standpoint, balance sheet management perspective, capital allocation.

And on that note, I think you guys bumped your dividend last month by about 20%. So again, thank you all. This is intended to be interactive. So to the extent there are questions, I think there can be a microphone for that. And with that introduction, I think, Mark and Kent, you guys put out a slide deck pretty recently and have a couple of prepared remarks.

Yes. Our deck is on our website, too. So -- and then we want to start the fireside chat with a business update. It will probably take me 5 minutes to go through this, but it will set the stage for a good Q&A after that. So before I begin, I just want to refer everybody to the forward-looking statements, cautionary note that we always make in terms of actual results could differ materially from those expressed in the forward-looking statements.

So with that, we'll get into the good news. Corrugated volume remains robust, and we finished April and went through May at levels consistent with what we told you on the April earnings call. For April and May, corrugated shipments per day were up over 24% compared to last year. On a legacy basis, the shipments were up 4.5% in April, 3.5% in May. So a very healthy period.

Bookings were also very strong in both months and continue to be strong in June so far. While macro risks certainly persist, the economy remains resilient and customers are not signaling a slowdown with their ordering patterns. Now some bad news. Freight and recycled fiber are headwinds. Thus far, we've done an excellent job managing the fiber piece of this. And even as recycled prices have escalated more than we planned, we are slightly favorable to guidance for fiber through May, helped primarily by shifting our usage toward virgin and maximizing yields.

However, freight is expected to be in the neighborhood of $10 million to $12 million unfavorable to guidance for the quarter. Freight rates continue to increase into May and are still near peak May levels. We do not expect any freight rate relief in June. Additionally, we've had to ship greater distances and utilize more spot freight to keep our box plants supplied in the very tight conditions we're running under.

As for pricing, we are right on our forecast through May. Like we told you on the earnings call in April, the first net $50 increase is beginning to be meaningfully recognized and corrugated in June with substantially all of the rest coming in during the upcoming third quarter. Given our inventory and demand situation as well as higher freight and other operating costs, we increased containerboard prices another $50 effective June 1.

This increase is now being implemented, and we would also begin to meaningfully show the results in the third quarter. To comment further, containerboard conditions are very tight and open market supply is hard to find. We drew down over 90,000 tons of inventory in March and April as we had very strong corrugated demand and a heavy annual planned outage schedule.

We needed to begin rebuilding box plant inventories in May and June to support a seasonally stronger back half of the year with expected continued corrugated demand growth and more planned linerboard mill outages in Q4. We hope to exit the second quarter with inventories at or a little above where we began the second quarter. To help us accomplish this, we've had to reduce or defer some of the export sales in May and June, and we'll see lower outside sales in the second quarter than we had forecasted in April because of that.

The acquired Greif operations are having a very good quarter so far with very strong volumes at the corrugated operations level, supported by excellent performance at the mill level. The mills had a record production month in May. And frankly, there's room to do even better with some more operational consistency. But we're getting there as we had planned, and we're very pleased with what we're seeing.

And it's also, as we said in April, we expected and we're seeing this. It's continuing to contribute to the bottom line now. Even with higher freight and recycled costs, the acquired operations are on forecast, consistent with what we told you on the April earnings call. So where does this leave us now? While we called out freight unfavorability against our guidance for the quarter, it should largely be offset by stronger-than-expected volumes, the resulting efficiencies in the cost structure from running full, as well as favorability in other operating costs.

Reducing export sales and building some inventory will hit us for $0.03 or $0.04 in the second quarter, but will ultimately benefit us with higher integrated sales in the box plant side of the business. Price is right on plan so far. The first increase is proceeding normally, and Greif is contributing to the bottom line.

So where does this put us in Q2? To be clear, we are not managing to make the guidance that we gave you on the April earnings call, but rather to set this up to serve our customers through the back half of the year in a very tight market condition. That said, a good June could help us achieve the guidance number.

What that will require is continued strong corrugated volumes and price realization that freight and recycled prices don't continue to increase but stay around the May levels, and we operate at our potential across the mill and box plant system to maximize efficiency and continue to control costs that we can control.

And I think that you can take what I said that the third quarter is, in fact, setting up very nicely. Obviously, demand will be the key to how nicely, but we should have some price tailwinds, higher production with a limited annual planned outage schedule and appropriate levels of containerboard supply to satisfy our box plants and customers with continued demand growth and higher seasonal volumes.

So with that, Gabe, we'll go ahead and just open it up for Q&A and discussion between you and any of the investors.

Thank you for that opening update there on the quarter. A little bit of a sneak attack on us, but I think overall, good news. So a couple of things. I want to make sure I got some numbers right, up 4.5% in April, up 3.5% year-on-year in May. And so we always get this question, end markets. I even cringe when I ask this question, but one of the themes that we're hearing from a lot of our peers is we're starting to see this data center build-out.

And to the extent there are components, whether it's electrical or otherwise that are going into those, just anything that you would call out, it feels like the industrial aspect of the economy, so less so on the FMCG side is doing better and showing signs of life. We're seeing it in the PMIs. Any color that you can give us by end market?

I think what you just said is true. For us, across the board, our customer base is very strong. Ag is a good example. Different parts of the country had very strong ag season. Some parts of the country had the winter weather in January that impacted them. Florida was a good example of the January freeze. But all in all, ag has been strong. But manufactured goods are very strong.

What you're saying about data center buildout, electronic components, even on the automobile side of things. When the world had pushed to go to EV, there were less engine and transmission components. We historically had shipped a lot of product between the auto producers in their production lines, the transmission components, engine components.

So that's starting to come back now as more combustion engine production is taking place. So we're seeing pretty healthy activity across the board, even some of the homebuilding manufactured goods that go into the homebuilding products. We've seen our manufacturing activity there pick up. So it's a pretty healthy broad pickup with all our customer base.

So you guys made the Greif acquisition. I want to kind of continue to build on this. It -- from our vantage point, positions you well to continue to kind of outgrow the market. I had the question situated a little bit differently. But as we see this inflection, should it persist, how do you feel like from a capitalization standpoint, from a resource standpoint that you guys are positioned to -- should this -- again, like should it continue, especially with some of your peers and sort of retrench mode, be able to monetize this on a go-forward basis?

I mean Greif is going to be the -- you've heard us use the expression with Boise over the years that Greif will be the gift that keeps on giving for the next few years. We'll continue to get more production out of the Massillon and Riverville mill. We're continuing to improve how we go to market on the CorrChoice corrugated side of their business. And what we can do with the equipment we have there.

So that will be another opportunity that continues to play out well for us. As far as containerboard production, we've always said this. We've got enough containerboard in our system with what we're doing for the next couple of years, but that's a high-class problem for us. We're always looking out in the future about how we grow our mill system out, where we get our tons from.

And -- but it always provides a challenge/opportunity for us. But Greif, I'm very pleased with what we're doing. May was a record month in the 2 mill operations. As a matter of fact, the Massillon mill had the best month in its history of operation. And that's saying a lot. So again, I'm very pleased with what we're seeing out of the Greif business. Ken, do you want to say anything?

Well, also the corrugated operations are having a very, very strong second quarter as well. And we're excited about that, both in what they're doing and also what they can do. Some -- a very good profitable bulk business on top of the sheet feeder business and some potential good opportunities down the road of what we can do there.

Yes. April and May were some really good numbers coming out of the CorrChoice side of the business.

Okay. One of the things -- 2 things. One, we get pushed back sometimes or one of the bear thesis on the industry, which I think you don't spend much time thinking about is, "Hey, they're slashing production here in North America capacity. That's not a real way to run the industry." It's more on the price side is where I'm going with this is that by our math, there's been maybe $25 a ton of inflation on freight, logistics costs.

And now I think -- I don't like to pick troughs, but recycled fiber is probably up $20 to $25 a ton, maybe wipes out the first price increase. And so now we're sort of on to the second. However you want to contextualize it, do you feel like with the second price increase that you will have recovered this year's inflation? Or are there aspects that we're still chasing?

I'll let you know. Yes. As you can tell with the comments I just made about what the energy costs have done to transportation. And it's interesting when you talk about OCC cost. It's not just the -- what it costs to buy a ton of OCC. It's delivering that ton of OCC to your plant, to your mill, the transportation element of that. So OCC is up because it's commanding a higher price and it costs more to get it to your mill significantly more because of diesel costs as an example.

But we're doing a very good job managing the cost structure outside of the transportation piece. We talked a little bit in the prepared remarks about how we've -- we're doing a good job on the fiber side.

We've always talked about fiber flexibility in PCA. Even though we have gone up in recycled content with the Greif acquisition, we still have the best positioned mill system in terms of integrated capability with wood converted to pulp in our mill. So we take advantage of that. And now is a good example of how we're taking advantage of the integrated virgin kraft, and -- so it's paying dividends for us.

One last one on cost. So you called out $10 million to $12 million on the freight side. I don't remember off the top of my head the cadence of maintenance expense, but I think it was supposed to go down in the third quarter.

A little bit, yes.

Yes. Okay. And then you're talking about ending the quarter, I think, with flat inventories, which suggests, I think you said down 90,000 tons, so you'll build in the month of June.

So we drew down in the straddle months on the quarter, March and April. We went down about 90,000 tons in those 2 months. So we had to enter build mode again back in May to get us back to where we really need to be at the end of the second quarter to support the back half of the year.

And does that serve as a tailwind, is kind of question number one.

And that's -- if you think about some of the comments I just made, we actually deferred some of our export sales that we ship to probably 30-some-odd countries around the world. We don't ship a lot to any one country. It's a few thousand tons here or there. But because of the domestic demand in our box plants being so high, that's our priority. That's our highest margin business. We actually have deferred some of that export sales, some of the domestic containerboard outside sale in order to accommodate what our box plants need 2Q and into 3Q and 4Q in terms of -- because 3Q is always going to be a big volume and now with the e-commerce in 4Q.

So we're really setting up a comment I made. We've taken a little bit of a potential impact in 2Q, but it's for the benefit of the back half of the year. So it's a high-class problem to have. But think about the number. I mean, to draw down 90,000 tons of inventory for PCA, I can't remember the last time that number has ever been that big in a 2-month period of time.

And so -- even though we had some mills going down for their annual shutdowns, we didn't have any extraordinary -- it wasn't like we were rebuilding mills and doing conversions this year. They were just the annual shutdowns for a week, but it speaks to how strong the volume really is that we pull 90,000 tons out of our inventory system. And to the point, the box plants every day, it makes me smile that they're raising their hand, needing more and more and more to take care of what their customers are telling them. So we're in a good place.

Okay. So I'm going to flip gears a little bit. I mean I don't think the message is pretty clear, I think, on the $2.37 guide for the second quarter is that it kind of depends on the rest of June. But I also think folks that invest in PCA don't worry necessarily about the current quarter. It's about the medium and long term. I'm going to go back to something you said about the industry being tight, open market tons and again, some of the supply rationalization that's occurred.

Some of the work that we're doing and the feedback and I think some of the bullishness on the industry is that when you think about asset replacement cost or how to recapitalize your system, you guys have done a really good job over the past decade doing that.

Mills are getting more expensive to either build fresh, different market, but $3,000 a ton to build Waco is a pretty high benchmark. So do you think that's driving different behavior in the marketplace in the kind of current near term? And then from your vantage point, what could that do for the industry or margins or however you want to express that sort of over the next 5 to 7 years or...

Well, I think, again, it sets up the industry for a very good period of supply/demand and pricing in terms of how everybody has to go to market. But the barriers to entry, if you think about over the decades, people would say, well, we'll build a mini mill. Well, 10, 15 years ago, you could build a mini mill for $300 million, $400 million. Now to build a mini mill, you're talking well over $1 billion to $1.5 billion to build a mini mill.

And so the barriers to entry have become incredibly financially great. So it's going to create a pause in how people think about the potential returns on a very high-risk investment because if you build a mini mill, now you've got to go sell the tons. So it's not always an easy build a mill and we're going to go move tons out into the marketplace.

So I think the industry is in an interesting place right now. We're in a really solid position with our assets. We've been doing this for 30 years. We've been reinvesting, focusing on our -- what we do well. We've been growing our organization capability. And so whether you call it just good fortune/good planning, but our assets, our organization are in an incredibly capable place right now to take advantage of the market for the foreseeable future.

What's the saying? Good luck is good preparedness, meeting opportunity. Okay. So I guess sticking with the -- or going to mix of business, I think that's evolved a little bit for PCA over the past, call it, 3 years. Can you talk about that, the origination of that, the initiatives to change, or if it was a function of where the growth was, so kind of skating to where the puck was going, and what that looks like maybe.

Well, we've been -- on the converted side of the business, we've maintained that flexibility that we grow with our customers for decades and decades. You've heard the number of, 2/3 of our business is local account business. Maybe 20 years ago, that was a small local account. And now it's a big -- not just a local account, but it may become a national account that at one time was a local account.

But we continue to have a very close relationship with the customer base where we remain very nimble in terms of how we can accommodate their growth needs. We work with them in understanding what they're going to do with their investments so that they don't have to worry about where their boxes are going to come from. And the way we run the capital program, we can shift capital needs and capital opportunities in a very short period of time to accommodate what we see happening.

As an example, we maintain a standing order with one of the converting producers out there in terms of a converting piece of equipment that we favor. But we have a standing order in with that producer for at least half a dozen of their converting lines every year. And in some cases, we don't have a designated home for them yet.

We just know we're going to be using them when they get delivered in the following year. And so we have that capability ongoing that we're able to bolt these down and get going and take care of the customers. So that's just kind of one simple example of how we're able to take advantage of the engineering organization we have and the marketing and sales prowess that we have that we execute very quickly and take care of the customer and do it in a very profitable manner.

So on that downstream, the converted box aspect of the business, do you see any opportunity? I mean, I think 4 or 5 years or so, we had down shipments. Now we were coming off of an unrealistic peak during the pandemic. But I'm going to say, grocery delivery or, again, places where you can deploy capital to capture some of the potential growth areas over the next couple of years. Are you seeing any green shoots there or anything as it relates to new end markets that were not necessarily as big today, but could be.

I'm not going to get into specifics. Our sales and marketing people are always working with the customer base in that regard. And that's one of our -- people talk about the secret sauce. That's one of our capabilities that we're able to move very quickly with that type of a customer need and that they can depend that we will take care of them in that regard. So as they're moving very quickly into that new opportunity, we're in lockstep with them taking care of their packaging needs. So it's been a good relationship with a lot of our customer base.

I want to bring up an unfortunate circumstance up in the Pacific Northwest, there was a mill incident. And you recently kind of reoriented some of your production up there. I'm curious with, I think, NORPAC from our understanding, limited running at this point. Are you seeing any change in your order book up in the Pacific Northwest as a result of that?

No.

Okay. Let's see here. So you raised the dividend, capital allocation. Are there other opportunities? I mean you obviously just take Greif, the balance sheet will be back to where you want it to be. Are there other opportunities that are out there on the M&A side?

There always are. We're always looking at different things that come available. We pass on a lot of things. A couple of the announcements that have been made recently, we were aware of, we had looked at, we passed on. They just didn't fit our metrics and our financial requirements on returns. So we're always looking. There's always something for sale. But I think I've been running the company for over 16 years. And during this period of time, we've made probably 27 acquisitions. And Boise and Greif are the 2 biggest, but we've made a lot of acquisitions, grown the company, done it very, very prudently. And I think the investors appreciate that.

Yes. We maintain the balance sheet flexibility to do that, but we've also proven that we've gotten very good returns and value generation out of our internal capital spend, and we return value to our shareholders, and that's an important priority for us, as evidenced by the recent dividend increase as well as some share repurchases.

I think it's interesting when you started out on this last question, if you went back to the 2021 period of time and then '22, '23, '24, '25, there was a decline in industry volume. PCA during this period of time, our legacy business is up 7% -- and so think about that, the industry is down, but PCA is actually up in volume during this period of time.

And so -- but if you went back over the last 30 years, it's the same thing. We're probably up 300 on an organic basis. And then the past acquisitions, we're up over 300% volume in our box side of the business, but the industry stayed down. And -- but yet, we just continue to outpace the industry. Now, there's been some quarters where we haven't.

Part of that is if you're dealing with a big competitor that makes an acquisition and then they layer on that volume. But over the period of time, we significantly outperformed all of our competitors in our box volume growth, and we've done that decade after decade, and the plan is we will continue to do that. That's how we're built. That's how we're organized, and that's how we think.

Anything in the audience? Just suspecting the answer is no. Typically, people aren't raising to ask a question. Okay. I suspect I know the answer to this question, but I feel it's a little obligatory. You have a lot of gas in the tank. I know you're passionate about this business. People look up to you in the organization. You spent a lot of time recruiting engineers. That's something I think that's a differentiator for PCA over time. So two-part question. One is, can you talk about that a little bit and why that's important in the organization? And then kind of the succession planning, I think you said you guys still had a couple of years left, but just folks in the organization that are chomping at...

Thomas Hassfurther and I are at the same age. And Tom just celebrated his 49th year at PCA. And I've been in the industry as long as that. And I don't have enough hobbies to occupy my time. So I like doing what I do. This is my sport of choice. And I think I'm pretty good at it, but I also enjoy it. And Tom feels the same way. But we have -- we've actually -- from a succession point of view, we've built an incredible organization around us. And that's what we've concentrated on over the years to give the folks around us that opportunity to learn the way we learn to have the same opportunities.

And so that when the day comes that we do want to retire or we get hit by lightning, the organization doesn't miss a beat. And part of it is, if you think about, we've been -- for decades, we've been consistent in how we execute operationally and how we go to market, right? And so the playbook is really simple. There's a couple of pages.

And so there's no reason to think that the people that we have hired over the years that have been part of our organization that we have trained the way we were trained won't just take that same simple playbook and continue to do what we've done. So I feel really good about the group. On the operational side, I'll give you an example on the mill side.

Most of the people that are in the senior ranks running the mill organization, they're all chemical engineers with MBAs. And so we all think the same. We've all been through the same activities. The box plant side now is they've been reorganized over the years. Ray Shirley is a good example. I hired Ray 30 years ago. Ray is a chemical engineer. He's got a Vanderbilt MBA.

And when I hired him 30 years ago, I told him this, I said, "You come with us, we're going to teach you more about running mills and box plants than anyone will ever teach you in the world, and you'll never leave us." And so we have this diverse group of younger talent base around us. And so it reaches all the way down to the college level. This year, over the last month, with interns and full time, we've brought in 185 engineers into the PCA North American organization.

There's like, I want to say, 85 to 90 full-time that started over the last month. And then the rest are interns and co-ops that are working. And so we're continually rotating this type of huge number of engineers into the organization and off the college campuses for interns and co-ops and many of them end up getting hired. A lot of these young men and women when they come in, they might be sophomores and they're coming in for the summer or coming in for an intern period of time.

If they're really good at what they're doing and we establish a relationship with them, we send them back to school with an agreement that their tuition, room and board, all their costs are paid until they graduate. If they have debt, we pay their debt, and they come to work for us. And if they choose not to come to work for us, they get 5 years to pay us back. Most of them come to work for us.

But now we've captured them at a young age. And so they come back the next summer and they work again. And so we actually start teaching them when they're 19 years old, as an example, and bringing them in. And then also, in some ways, we wean out the ones that aren't just going to make it with us. So we do that early on. And so we have the people that are the young leaders of the future.

That's inspiring and quite frankly, differentiated from what I hear at least from a lot of industrial companies. So I think that's a really positive thing. Last one for you. You have a couple of energy projects. I think DeRidder, you went garage sailing, I think, is what you've said in the past opportunistically.

You talked about targeting at least 20%, I think, IRRs on kind of high-return projects like that or cost savings. I don't think you've given us a dollar amount on what the CapEx outlay will be. If you're willing to update us in terms of where those projects are at, timeline and expected spend?

Yes. As we've done over the decades, we've purchased a lot of steam turbines from mills that have been shut down and redeployed them into our assets for pennies on the dollar. We've also -- it dawned on us with the data center build-out that was taking place over the last couple of years, we needed to become even more independent.

And so I located 3 gas turbines at a mill that had been installed a few years back that were not used very much. But these are big 50-megawatt units. So I bought 3 of them, and we currently actually decommissioned them, demobilized them and have shipped them to the 3 mills of the Riverville mill in Virginia, the Jackson mill in Alabama and the DeRidder mill in Louisiana.

But over the course of the next 1.5 years, those 3 gas turbine installations will help basically create 3 more mills that are energy independent off the grid, give us those type of double-digit return projects. And -- but it gives us -- we'll end up with 4 mills that are truly independent of the utilities and self-generating.

That's a really huge, huge opportunity. But we'll do it at a fraction of the cost. If I could buy a new 50-megawatt Siemens gas turbine today, it would probably be -- I'll just use an example, probably $100 million purchase. I bought these three gas turbines for $5 million and presents a good opportunity.

You couldn't get it even if you wanted it until 2030.

Yes, it would be 4 or 5 years to get delivered. So we do a lot of things. It's like he said, junk pickers here.

Garage saleing.

Yes.

It's not junk. All right. With that, I think it wraps it up.

All right. Good.

Thank you, guys, for the update. Appreciate it very much.

Thanks. Appreciate everybody attending. Thanks.

Good day, everyone. Thank you for joining Packaging Corporation of America's First Quarter 2026 Earnings Results Conference Call. Your host for today will be Mark Kowlzan, Chairman and Chief Executive Officer of PCA. Upon conclusion of his narrative, there will be a Q&A session. Please also note today's event is being recorded.

I would now like to turn the floor over to Mr. Kowlzan. Please proceed whey you're ready.

Thanks, Jamie, and good morning, everyone. Thank you all for participating in Packaging Corporation of America's First Quarter 2026 Earnings Release Conference Call. Again, I'm Mark Kowlzan, Chairman and CEO of PCA. With me on the call today is Tom Hassfurther, President; and Kent Pflederer, our Chief Financial Officer.

As usual, I'll begin the call with an overview of the first quarter results, and then I'll be turning the call over to Tom and Kent, who will provide further details. And then I'll be wrapping things up, and then we'll be glad to take questions after.

Yesterday, we reported first quarter net income of $171 million or $1.91 per share. Excluding special items, first quarter 2026 net income was $215 million or $2.40 per share compared to the first quarter 2025 net income of $208 million or $2.31 per share.

First quarter net sales were $2.4 billion in 2026 and $2.1 billion in 2025. Total company EBITDA for the first quarter, excluding special items, was $486 million in 2026 and $421 million in 2025. First quarter net income included special items expense of $0.49 per share primarily for the Wallula Mill restructuring charges as well as for costs relating to the acquisition and integration of the Greif containerboard business and also costs related to the closure of corrugated products facilities.

Details of the special items for the first quarter of 2026 and 2025 were included in the schedules that accompanied the earnings press release. Excluding the special items, our earnings increased by $0.09 per share compared to the first quarter of 2025. This increase was driven primarily by higher prices and mix in the legacy packaging segment for $0.17, lower fiber costs in the legacy packaging business, $0.11, lower maintenance outage expenses of $0.09; lower labor and operating costs in the legacy packaging business for $0.08, higher prices and mix in the Paper segment, $0.02, favorable volume in the paper segment for $0.01, lower tax rate, $0.01 and lower share count, $0.01.

These items were partially offset by higher freight costs of $0.13, lower production and sales volume in the legacy packaging business, $0.11, higher depreciation expense in the legacy packaging business, $0.05, higher labor and operating costs in the Paper segment for $0.03, higher corporate and other expenses, $0.03. Also, the acquired Greif operations, including interest on acquisition indebtedness, generated a loss of $0.06 during the first quarter but primarily as a result of lower volume and higher costs due to the January storm that affected the Riverville and the corrugated operations as well as higher-than-forecast freight and recycled fiber costs and unfavorable mix.

We exceeded our guidance of $2.20 on the strength of our operational and commercial performance during the quarter. including favorable volume and mix in the legacy packaging business and better-than-expected operating cost performance and lower labor and benefits costs. These were partially offset by higher freight costs and lower-than-expected earnings from the Greif business.

Looking at the Packaging business. EBITDA, excluding special items in the first quarter of 2026 of $482 million with sales of $2.2 billion resulted in a margin of 22% versus last year's EBITDA of $409 million and sales of $2 billion or a 20.8% margin.

We ran at full capacity during the quarter and completed the outage on the Counce #1 machine during the quarter and completed the outages on the Counce #2 machine and at the Jackson mill earlier in April. The Wallula mill reconfiguration was successfully completed, which immediately helped us reduce our cost of fiber, power and labor.

For the quarter, we produced 1,398,000 tons of containerboard during the quarter. The legacy mills produced 1,210,000 tons of containerboard which was 25,000 tons less than the fourth quarter of 2025 and 40,000 tons less than the first quarter of 2025. System-wide, our inventories were down 39,000 tons from the end of the fourth quarter and we meaningfully reduced the inventories carried by the acquired Greif plants.

Operational performance during the quarter was exceptional with improvement in corrugated demand heading into a very busy outage schedule in the second quarter and an increasingly tight linerboard situation, we needed to run well and their mills delivered. Jackson set new production and speed records. We safely completed the Counce outages over the last month, and we're able to bring both machines up earlier than scheduled and make up for some of the weather issues earlier in the quarter. while helping us keep up with corrugated demand.

In February, we saw Riverville produce at approximately 10% higher rate than what it was capable of doing when we completed the acquisition. Our Board of Directors approved the gas turbine projects for the Jackson, Alabama mill and Riverville, Virginia mills that we talked about on the last call. and we're scoping a third project for the DeRidder, Louisiana mill, which we will be submitting in the period of May at the Annual Board meeting.

I'll now turn it over to Tom, who will provide further details on the containerboard sales and our containerboard business in general.

Thank you, Mark. Our corrugated operations turned in a very strong quarter in all areas. Domestic containerboard and corrugated products prices and mix were $0.17 per share above the first quarter of 2025 and up $0.06 per share compared to the fourth quarter of 2025 and up approximately $0.12, excluding the Greif operations. This is mix related as mix improves in the legacy PCA business 4Q to 1Q, but declines in the Greif business during the first quarter. .

Export containerboard prices were flat with last year's first quarter and down $0.01 per share from the fourth quarter of 2025. Export sales volumes of containerboard was up 6,500 tons from the fourth quarter of 2025 and down 13,000 tons from the first quarter of 2025. In the legacy business, corrugated shipments per day were up 2.8% versus last year's first quarter, a new record on a per day basis.

With 1 fewer day, total shipments were up 1.2%. We saw good growth across our entire book of business with legacy shipments running consistently 2% to 3% ahead of last year from the middle of January through the rest of the quarter and very strong so far in April. Even with the situation playing out in the Middle East and higher fuel prices here in the states, we're seeing a resilient economy and continued strength in our customer ordering patterns across the board.

We expect the second quarter to shape up similarly to the first in terms of demand and year-over-year growth. As Mark alluded to earlier, we are tight on containerboard, and we will need continued exceptional performance that we have come to expect from our mill operations to support our customers. Including the acquisition, shipments were up 22% per day and 20% in total compared to last year's first quarter.

We began to see the seasonal pickup in the volume and improvement in mix from the acquired operations as the quarter progressed. We're off to a great start in April. We expect to see good sequential improvement in both volume and mix during Q2. We intend to complete systems integration by the end of the third quarter with all operations running on PCA's decentralized systems.

As we progressed on our integration efforts, we focused on inventory reduction at the Greif plants and made great progress reducing carried inventories by around 10,000 tons during the quarter. We have room for further improvement and we'll continue these efforts in the second and third quarters. We will be working to implement our price increases during the second quarter.

Reported containerboard prices are up net $50 per ton from the beginning of the year. Due to the timing of how things played out, we did not get a meaningful benefit during the first quarter. We have had a lot of individual negotiations with our customers on how to implement this increase, and we are not going into any detail on that.

What I can say is that, in general, we expect to start to see the benefit during May with the normal implementation period beginning in June. So we expect some benefit during Q2 with the majority coming during Q3.

I'll now turn it back to Mark.

Thanks, Tom. Looking at the Paper segment, EBITDA, excluding special items, in the first quarter was $38 million, with sales of $160 million for a 23.6% margin compared to the first quarter 2025's EBITDA of $40 million and sales of $154 million or a 26.1% margin. Sales volume was approximately 3% above the first quarter of 2025 and approximately 4% above the fourth quarter 2025.

Prices and mix were up 1% from the first quarter of 2025 and flat with the fourth quarter 2025. We remain very pleased with the performance of the paper business, which continues to generate high margins, driven by strong commercial and operational performance. We are working to implement the previously announced price increases and expect to benefit in Q2.

I'll now turn it over to Kent.

Thanks, Mark. Cash provided by operations was $329 million. And after $165 million of CapEx, free cash flow was $164 million. In addition to CapEx, the primary payments of cash during the quarter included dividend payments of $112 million, share repurchases of $59 million, cash tax payments of $18 million and net interest payments of $11 million.

We expect higher cash payments for taxes and interest in the second quarter. We repurchased 266,000 shares during the first quarter at an average price of $228.78. We have approximately $224 million of remaining repurchase authority.

Excluding special items, our effective tax rate during the first quarter was just under 23%. This is lower than our forecasted 2026 full year book effective rate of 25% due to favorability from the vesting of employee equity awards during the first quarter. We expect our second quarter to be approximately 26%.

We continue to forecast $840 million to $870 million of CapEx and $700 million of DD&A for the year.

I'd now like to give you an update on the annual outage schedule and the earnings impact for the year. Our outage expense was $0.14 during the first quarter. We now expect $0.36 in the second, $0.31 in the third and $0.64 in the fourth, totaling $1.44 for the year.

In the Packaging segment, the Counce and Jackson outages were completed earlier this month, and outages are scheduled at Tomahawk, Filer City and Wallula later in the second quarter. In the Paper segment, the International Falls mill outage is scheduled for the third quarter.

Finally, before Mark provides commentary on our second quarter forecast, I want to give you a little bit of detail on some of the sequential differences in costs from 1Q to 2Q. I just mentioned that we will incur approximately $0.22 of additional outage costs in Q2 with maintenance outages at 5 of the packaging mills. We are also expecting less sequential benefit from 1Q to 2Q and the reversal of cost increase for labor and benefits than we would normally expect.

Our employee stock compensation expense will be approximately $17 million higher for 2026 then for 2025 due to a change in timing of the recognition of expenses beginning with the awards we made earlier in the year. This will be evenly split between the second, third and fourth quarters. and this higher expense will time out over the next 2 to 3 years as old awards vest.

In addition, we were favorable in the first quarter on benefits costs, which we believe was timing related, and do not expect to repeat in the second quarter. As for operating costs, we normally benefit from lower fuel costs and better fiber and chemical yields as we move out of winter.

This year, fiber and chemical usage benefits will be more than offset by higher input prices across the board on chemicals as well as recycled fiber and to a lesser degree, wood fiber. Our overall cost in these areas will be higher in the second quarter than in the first.

Natural gas prices have remained fairly stable, and we expect to see normal seasonal energy cost improvement on fuel costs with slightly higher purchased electricity costs. And obviously, we will have higher freight costs with higher diesel fuel prices expected to continue into the second quarter.

And with that, I'll turn it back over to Mark.

Thank you, Kent. As we move from the first quarter into the second quarter, we expect demand in the Packaging segment to remain strong and corrugated volume to increase with 1 more shipping day and some seasonal improvement, particularly in the acquired Greif operations. .

Prices for containerboard and corrugated products will move higher later in the quarter with the implementation of our previously announced price increases and improved corrugated mix. Packaging mill production will be slightly higher with 1 more operating day and improvements at some of the mills more than offsetting the production impact of maintenance outages across the system.

Mill maintenance outage expense will be higher. We expect flat volume and higher prices in the paper segment as we continue to operate at full capacity and implement our previously announced paper price increases. Cost for freight, fiber and chemicals will be up due to higher prices and energy costs are expected to be seasonally lower.

The sequential improvement in expenses for wages and benefits that we normally experience from the first quarter to the second quarter will be less than in the past years due to the higher stock compensation expenses and benefits costs in the second quarter that Ken called out earlier.

Finally, our tax rate will be higher due to the tax-related benefit of share-based compensation awards that vested in the first quarter. Considering all of these items, we expect second quarter earnings of $2.33 per share, excluding special items.

With that, we'd be happy to entertain any questions, but I must remind you that some of the statements we've made on the call constitute 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 the annual report on Form 10-K on file with the SEC.

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

[Operator Instructions] Our first question today comes from George Staphos from Bank of America.

I appreciate the details. I guess the first question maybe to start, as always, can you talk a bit about bookings and billings into April? Any granularity that you're seeing that you can relay in terms of growth or declines in the quarter so far? And any sense of prebuy that you're seeing, Mark, just because the price increases have been discussed since January?

George, this is Tom. Now I'm going to -- I'll give you the legacy bookings numbers are up at 4.5%, bookings and billings are up 4.5%. Now that I want you to keep in mind that with the Greif assets, we are moving some business back around -- within the system and primarily more from the legacy to the Greif assets as opposed to the other way around.

So we view the business environment as being very good right now.

Regarding prebuy, we see no pre-buy at all right now. In fact, this has been muddy waters, as you might say, regarding the price increases and that sort of stuff going at the moment. So we see no pre-buy at this point in time. Our customers continue to operate with very lean inventories, and I think they'll continue to do so.

Next question. Can you talk a bit about why Greif was a loss of $0.06 in the quarter? I think that was down -- that was a little bit worse than the fourth quarter figure, which I think was $0.05. And how is the business performing as the company typically relays, you're doing better on production, the mills are looking better. yet we still had some losses there? What's happening there? How is performance, when does that improve? And I had 1 last follow-on.

George, as we called out on the January call, the January storm impacts were very significant. And quite frankly, the Riverville mill was the most impacted mill in the system. For the better part of the week, we didn't move any production out of there. And we called out at your meeting down in Fort Lauderdale we were probably around $0.05 of impact as a result of the storm.

But Ken, why don't you gave a little more color to that?

Yes, that's right, George. So we had about -- we had weather impacts that hit not just Riverville, but corrugated operations were disrupted as well, and they don't come back on the sheet feeder side, as well as able to make up in the corrugated side.

Greif is -- and Tom can elaborate on this a little more. Greif is a seasonal business. Mix was a little lower than we had forecast in January and February, but returned nicely in March. So all that in, that was a -- throw-in higher recycled and freight costs and we came in with the number that we reported.

Now on the positive side, Greif operations in February were about as good as we've seen them. The productivity at the mills was, as Mark called out in the script, about 10% higher than we'd seen prior to acquisition. And it was so good, we actually dialed it back a little bit in March in order to bring the inventory levels in where we brought them in.

So Tom, do you have any further on that?

I'll just add that -- just to add a little color to it. we did not expect, and we're not aware of the seasonality, especially related to the box business side of Greif in terms of the first quarter. So that first quarter is by far their weakest quarter in terms of volume, and then it accelerates after that all the way through the year.

So that was a bit of a surprise to us. But the good news is it's returned in the second quarter quite nicely and exactly as they had forecast. So that's the good news. And then this also is allowing us some flexibility in the system to really move some business around to be more efficient in terms of our operations.

And also don't forget that there was a lot of activity and a lot of work still going on in the mill system of Greif during that first quarter.

Understood. Last one, and I'll turn it over, if possible. Is there a way to provide some further quantification or at least direction on the sequential changes? So we know what the outage hit will be 2Q versus 1Q. You talked about the stock comp expense being up, I think, $17 million. But what does that mean in terms of the 1Q to 2Q variance? And is there a way to, if not precisely, maybe ballpark a bit for us, freight, energy, other costs, what that inflation looks like 1Q to 2Q? Tax, I think, is like a, call it, $0.06, $0.07, $0.08 effect 1Q to 2Q. Have a good quarter. .

Okay. George, I'll tackle that one. So on the stock comp expense, we called out we'd be $17 million higher. So that means 2Q is going to look much more like first Q -- much more like 1Q than it has historically in the past where you were beneficial 1Q to 2Q. Okay? So we'll be running maybe $6 million higher in 2Q than we were in '25.

On some of the others. So freight fiber chemicals, estimate maybe $0.15 higher 1Q to 2Q. Normally, we're flat to slightly beneficial in those areas, okay? So that's a little bit of a drag there. And George, I'm sorry, I think I'm missing one of the other sub parts of your question.

Yes. tax, I think, is we can do our own calculation, but that's probably a nickel, dime .

Yes.

Our next question comes from Michael Roxland from Truist Securities.

This is Nico Piccini on for Mike. Just first off, kind of to piggyback off the cost question. What do you have at your disposal outside of price to offset those costs, recognizing that in 2Q, it seems like you might have some uncovered costs with the price impact really hitting later in the quarter?

As far as levers to deal with cost, I mean, obviously, the only thing you can do is run incredibly well, very efficiently and just execute at the top of your game, which we generally do that. But that's what we're facing with the headwinds on some of the price escalation. Tom?

I think the other thing that we're doing is we are optimizing the mill system now, now that we have Massillon and Riverville running much better and much more reliably. So we're moving that mix around to the mills that are best suited to run that mix and from a freight standpoint are better off.

Then we also were doing that in the box business as well. Within the Greif system, as I mentioned, we are moving quite a bit of business around to optimize that system and to optimize our freight opportunities. Outside of that, as Mark said, we have to operate incredibly well. And that's the gist of what we've got in our arsenal to offset some of these cost increases.

Got it. Understood. I appreciate that. Just quickly on Greif, having owned, I guess, the business for 8 months now, maybe, putting quite a bit of work into the mills. Do you have any sense of upside to the original $60 million synergy target now that you've kind of progressed through integration and getting the mills on the system? .

So without upside, but I think I should give you at least an update of what we're looking at right now. Based on what we saw and what Riverville and Massillon could do in February, we're going to be at a run rate of about $15 million to $20 million of just productivity improvements from those mills. We will then start layering in over the next few quarters, freight optimization. And actually, I mean, that's ongoing right now. That's not a future thing. That's ongoing right now.

But freight optimization and then integration opportunities from additional tonnage from PCA into the Greif system as well as from Greif into the PCA system. So that work is ongoing. But at least I wanted to give you an update on kind of where we were at from a run rate standpoint right now, we're well on target to be at that $30 million run rate by the end of the year.

Mark and Tom, anything further to add there?

No. work continues on a daily basis to take advantage of all these opportunities.

Our next question comes from Mark Adam Weintraub from Seaport Research Partners.

Great. Maybe just first starting a little bit more on Greif, trying to square. So if we look at the last 6 months based on kind of the EPS number, I mean, it seems to me it's probably a little less than $100 million in EBITDA from the business. And I believe kind of coming in, the base was close to 240 and then we were going to get synergies on top.

And I realize maybe synergies show up in the legacy business as well. So maybe this is kind of complicating the analysis. But I'm really sort of just trying to gauge the magnitude of upside from things like seasonality, et cetera, et cetera. How much additional firepower is there relative to what we've seen in Greif over the last 6 months when you think about the contribution the business can be providing on a kind of full year basis as the synergies, et cetera, are fully layered in and the mix and seasonality issues are come to bear more favorably?

Okay. Mark, it's Ken. I will start and then Tom will add some color on this, okay? Going from 1Q into 2Q, we believe now we're going to get the full performance out of this business. with the mills running consistently at higher productivity rates and entering a seasonally stronger business and start to pull some more integration through.

We're forecasting sequentially improvement conservatively about $0.10, 1Q to 2Q. So we expect to be accretive in the second quarter and going forward. Most of that improvement is from mix improvement and productivity improvement and then a little bit of price increase layered on top of that. We expect them to continue to improve 3Q just as the business and the seasonality even improves more. Tom?

Well, I would just remind you, Mark, that when we finalized the acquisition, and we got involved in taking a good hard look at the assets, primarily the mills, we knew there were some difficulty and some hard work to do, and it turned out that we were right, okay? And so it's -- we get off to a start that says, we're going to have to shut some time down at the mills and get some work done and make a big investment, do all those other sorts of things associated with it. .

And now we're coming on the other side of that, and things are significantly better, and they're performing very, very well. So this will accelerate as we go forward. And as I mentioned earlier, and I think this is really vital to our system because we need some extra capacity on the box side as well. and they're providing that, and that's going to be some significant upside.

Okay. Great. And I'm not going to try and drag you through kind of all the delta drivers. But I guess, as I think about what seems to be embedded on the upside because you told us some of the downsides going from 1Q to 2Q. It doesn't seem like there's a huge amount of upside being given for some variables, which in particular, pricing in the 2 quarter numbers.

Is it fair to say that you would, at this juncture, assuming things continue along the path they are that you're going to see the real big change is going to be 2Q to 3Q. That's where the earnings are going to really -- and to the extent that you're comfortable providing any color on that, that would be helpful. I realize you don't give guidance more than 1 quarter ahead, but it does seem in this particular instance that the good stuff is really showing up in 3Q in a big way.

Mark, you're exactly right. We'll start seeing some benefit later in the second quarter with some price movement, but the big benefit comes into the third quarter.

That's right. That's exactly correct. .

Our next question comes from Anojja Shah from UBS.

I had a question on D&A. It was actually much higher than we expected in Q1, but you maintained $700 million guidance. So how come it's not a straight line first of all for the quarter? And second, what's embedded in 2Q in that $2.33 guide?

Our depreciation reported for the first quarter includes a chunk that's attributable to basically completion of Wallula restructuring, okay? So I think that explains the large reported number increase that you're referring to.

So on the excluding special items basis, we're looking at about a $0.03 increase 1Q to 2Q in DD&A.

Okay. And then going back to demand in April, you talked about you're seeing very strong demand. Any particular end markets showing strength or weakness? And what I'm really trying to get to is if you're seeing any early signs yet on GLP impact? And I realize you might not see it as much as some other types of packages, but just are you hearing anything on this from your customers?

This is Tom. That's a very good question. I'll take the second half first. Our food and beverage customers continue to perform quite well. And of course, that's the largest segment in corrugated. And so I think there's a lot of sensitivity around that, especially GLPs. But they adapt quickly.

And we're seeing a lot of products come out with protein in them and all these other sorts of things that are that didn't have such in the past and they're performing very well. So there's a lot of things going on in that segment that I think are very positive as our customers have adjusted quickly to varying demands and it's still performing very well for us.

In addition, I think that I've called out building products probably for the last few years that has been down. but it's starting to show some resurgence as well, which is an important segment for us. Those are probably the biggest movers I can talk about.

Our next question comes from Anthony Pettinari from Citi.

Just following up on the timing of the price hike. I guess Pulp & Paper Week had prices down in February and then up in March and up in April again. And as you implement the price hike, is this sort of a, I don't know, like a negotiation around the net price? Or could you have some instances where prices actually go down before they go up? I know it's kind of a strange question, but I just can't remember a time where Pulp & Paper Week had 3 consecutive months where it was down before it was up and then up again.

Well, it's hard for me to remember too, Anthony, and I've been in this business a long time. But all I can tell you is that we're not really going to comment much on at all about what we're doing relative to our customers and our negotiations. I'll just call it muddy. How about that? And that's about all that's about all I can tell you.

Okay. Okay. Sounds good. And then just, Kent, on the 1Q to 2Q bridge, you outlined some, I guess, sequential headwinds that we typically don't see around the share-based comp and then the tax rate lower in 1Q. Should we think about these as sort of like onetime things just for 2026? Or if we think about seasonality going forward or seasonality next year, is that share-based comp going to have a similar kind of profile?

Okay. So share-based comp is going to run at a higher level this year. It will run at a higher level next year, but step down a little bit as 1 tranche of the old awards vest, and then it will do similarly in '28. So you're going to be a little bit higher, but it's going to time out through '28 basically. On the other items, the costs, it's just going to kind of depend on the market basically. And we're expecting them at least to be elevated during the second quarter, and we'll continue to manage through it.

Okay. That's helpful. Maybe just one last one, if I could. Like you obviously increased your exposure to recycled board with Greif. You had a large competitor that just bought a recycled mill out West. I'm just wondering, if you think about PCA's pass for the next 3 to 5 years, and you obviously are going to need more board, do you think the incremental opportunity is in recycled?

I mean, it's obviously probably lower capital cost just from like what your customers are asking a view, you have historically had a great virgin kraft liner offering. But is recycled kind of the direction going forward in terms of if you were to put in an incremental ton from a capacity perspective?

You take advantage of the opportunity that comes along, whether it's a recycled opportunity or a virgin kraft opportunity. And so really the decision we made when you look at the various options you have. But we're certainly not -- we can take advantage of recycled as we've done for decades and also we know how to run integrated operations extremely well also. Tom?

Yes. Anthony, I'll just add that directionally, we want to be able to optimize whatever properties fit our customers' demands. But I want to remind you that, I mean, we are still primarily virgin kraft, and we're not going to change that because one of the things that it does for us, as I've mentioned in the past, is we can optimize performance a lot better with virgin kraft than we can with recycled. .

Our next question comes from Phil Ng from Jefferies.

A question for Kent. I appreciate the color that you gave in terms of some of the step-up in costs, whether it's freight or chemical sequentially. When we think about that for the back half, is the 2Q run rate like on a year-over-year basis, like a good way to think about the rest of the year? Or does that potentially step up just based on timing of how these contracts were potentially on freight or chemical costs and stuff of that nature? .

No. Phil, I think the best you can do right now is take 2Q and apply that to the rest of the year. That's the -- and we'll do the best we can to manage through freight optimization activities and running our operations as efficiently as possible. But in terms of how the market is on what we're buying, again, I would look at 2Q right now, that's the best you can do.

Okay. All right. That's helpful. Just that's a good run rate. And then I guess a question for Tom. I know you used the word muddy a few times in terms of implementing this box price increase. And that feels like it's just more timing if someone knows, but when we think about the net 50, you've been in this business for a long time, is your expectation the implementation of the box side all said and done, how does that feel? Does this feel more challenged just because the macro is tougher or kind of business as usual?

No, it's more business as usual. I mean there's not -- it's not -- none of these are easy, but it's -- we were obviously very disappointed with the downturn at the -- the announced downturn at the beginning. We didn't see it. But hey, it is what it is. And we're dealing with it. But our expectation is to implement this in the same time frame that we typically always implement, both our noncontract and our contract business.

And Phil, I'll add one thing that I think is really important is that the consumer has been very resilient in these times. And our customer base feels very good about their business going forward. And there's a big factor coming in also that we haven't even talked about, and that is the tax refunds that are coming to the consumers, and that will show up in the economy as well. So I think that's another positive for us that's going to help us in the second half.

That's great color, guys. When I bring those 2 pieces together, I know there's a timing dynamic in 2Q. Should we expect price cost to be neutral or positive, how do we think about it? I know there's definitely noise in 2Q, but as we look at the back half, can you help us think through that?

Well, like we said, I mean the price will impact at the end of Q2, and then we'll really roll in, in Q3. That's when you'll see the big difference.

Okay. And just one last one for me. You guys are running hard, mills are running tight. I know you guys are bringing on capacity in time with Jackson and Counce. How is that ramping up? And then anything that we should be mindful in terms of noise to the P&L or whether to step up the start-up cost, D&A?

And then Greif, you guys are working to add inventory down, which makes sense you want to be more efficient. But if you're that tight, why don't you use that inventory to kind of meet some of that demand?

Let me talk about your first part of your question. Again, we just executed the 2 big outages at Jackson and Counce and executed them very well. A lot of that work was to gear up Jackson as an example, to hit the next productivity opportunities with the speed on the machine. And so where we want to be, that was done well.

Counce, we just executed the first phase of a rebuild our #2 paper machine. That machine had been rebuilt 35 years ago. And so we executed that and finished that work 4 days ahead of schedule and started up running very well. So we continue to bring on this capability to deliver more quality product as we need it.

And also just the Greif system, we fully have recognized the opportunities that we saw when we did the due diligence. We're running -- basically the last couple of months, we've been in that 97% plus performance and as far as uptime efficiency on the machines out of the Massillon and Riverville system, and we continue to work through opportunities there. So that will continue to see benefits. So Tom?

Yes. One of the reasons that we reduced the inventory and we're working down the inventory quickly is because we want those sheet feeders and box plants to be running the correct grades that run for the PCA system, so we can optimize the fiber in terms of performance for the customer.

They're not just stuck with running whatever 1 of their 2 mills might run. So that was -- that's really important to us from a cost standpoint going forward, as I mentioned earlier, is to optimize those assets. And so therefore, that's why we're doing what we're doing. But you make a good observation. I mean it is tight and especially in linerboard. So we're cognizant of that.

And that's why we -- that's as an example, also why we moved Counce outage up into the first quarter to make sure that we're going to be in good shape going forward from a linerboard point of view.

Our next question comes from Hillary Cacanando from Deutsche Bank Securities.

So you mentioned a third gas turbine project in Louisiana. Could you just provide more details on that project in terms of additional CapEx and time line? And any update on the gas turbine projects in Jackson and Riverville facilities?

Yes. We did get the Board approval on the gas turbine projects at Riverville mill and Jackson mill at the last Board meeting, and then we're planning on seeking approval for this third same -- it's a duplicate unit that will be going in those 2 mills for the future DeRidder project. .

The capital, it's in the same ballpark. I don't want to give you numbers right now until after we've we reviewed this with the Board, but same capital allocation and the same type of return metrics that we're looking at, very, very good opportunities too, which would give us Jackson, Riverville and DeRidder would be electricity independent off the grid in the same manner that Valdosta is, So we'd have 4 of our 10 mills that are electricity independent, which would be a huge benefit to us. So that's really all I want to say about that.

Got it. Great. And then just on the high level, what needs to change to bring the cost down? I mean, do you think hypothetically, if the war is war ends tomorrow, hypothetically, like does that change anything for you in terms of cost outlook or because it takes time for supply chain to adjust like if that really wouldn't change anything?

Well, again, I think what the conflict has done in the Middle East is raw materials such as various chemicals that depend on petroleum, we've seen chemical costs increasing. So the question is, does that ramp down over a period of time if the supply-demand balance for petroleum products comes into balance again, we'll have to wait and see.

Natural gas, we've been fortunate here in the United States. We have plenty of supply. So we're not impacted by that. Transportation fuels has been the big increase on diesel up over 50% in the last few months. So that definitely, for all intents and purposes, should normalize over a period of time if the conflict winds down.

And so I would expect for what we would see would be the transportation cost in terms of diesel impacts.

Thank you. Jamie, are there any other questions? I don't see anybody else on the queue. Anybody want to follow up?

[Operator Instructions] This question comes from Pallav Mittal from Barclays.

Just one for me. So at start of the year, you had said you expect the total industry demand to be up in 2026. So just wanted to follow up on that. I mean, 4 months almost done. Anything that you can add on that or quantify in terms of industry demand for 2026?

I think I understood your question regarding demand. And demand, yes, we think demand is up and I gave you the number, at least for legacy, is running at about 4.5% right now. And that's a very good number, and I think that will continue through the quarter. and we'll continue to -- and we've got some positive things going on in some of our key segments as well. So yes, we see demand improving. .

My question was more on the industry demand for the year. Any comments on that? Clearly, I think you are gaining share in terms of industry demand for 2026.

I'm not sure we understand what you're asking.

I'm just trying to ask, anything in terms of overall industry demand for 2026, up 1%, 2% for the year.

No, we don't get into forward discussions about demand expectations.

Other than our own.

Other than this quarter and what we're looking at for this quarter.

Jamie, I think that pretty well wraps it up. Anything else?

We do have a follow-up from Mark Adam Weintraub from Seaport Research Partners.

All right. We've got time. Go ahead, Mark.

So my phone cut out. So I think you might have addressed this a little bit, but did you buy back stock? I think you were saying something again, my phone cut out. I just wanted to confirm that you did buy back some stock during the quarter. And if so, what prompted that? .

No, Mark, we did. We bought back 266,000 shares roughly. Really, the prompt was we'd awarded earlier in the quarter and just to take out the dilution from the awards.

And in showing no additional questions. Mr. Kowlzan, would you like to make any final closing comments?

Yes, I'd like to thank everybody for taking the time to be with us today and look forward to speaking with you at the end of July regarding the second quarter results. Have a good day, everybody. Thank you. .

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

Hope you all are doing well for day 2, and we're starting off with a bang with Packaging Corporation of America. I've covered PCA, actually, in theory, back to when it was still part of Tenneco, it goes back to the 1990s. And there -- 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 the 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 and in the audience today as well as Ray Shirley, EVP of Corrugated. He's been with PCA 30 years as well. So again, not many companies can support that. And Mark, without any further ado, I turn it over to you.

Thanks, George. Appreciate it very much, and welcome, everybody. Thanks for taking the time to be with us this morning. We're going to spend a couple of minutes. We want to update you on the first 2 months of the quarter. So I'm going to read through this like it was like beginning of an earnings call. So you got to bear with me before we get to the Q&A on the fireside chat. So 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, and there are copies being made available for investors today.

Everything we say today is subject to forward-looking statements disclaimer. And 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, and we intend to fully implement that increase. Our view of the market has not changed from what we communicated in the earnings call, and 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 are running our mill system full out, and we need the tons ahead of our outage schedule coming up as far as annual outages. And also as we get into the second quarter, which is normally the beginning of the 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. And again, we've got from West Coast, East Coast, Gulf Coast up to the New England states, we've got a comprehensive view of what's happening. Our January legacy corrugated shipments, which include disruptions from the winter storms that impacted us during the last week of the month were up 4.5% per day over last year.

February is up 3% in the corrugated and sheet plants through the end of last week. Bookings are up 7% to 8% and over both of these months. Bookings remain incredibly strong and the business is very robust in spite of the winter weather phenomena that we've had. We feel good about March and the strong book of business that we're seeing. So nothing's changed as we're getting ready for March. Back to the January winter weather. We estimate that the storm effects were around $6 million or about $0.05 per share. There are 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.

And 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 the week. So 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 are now seeing very strong operational performance on a daily basis, with efficiency starting to meet our expectations and production exceeding our expectations. And with that, I'll start the Q&A, George.

Thank you, Mark. Great rundown. 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 to the extent you can share in this way?

Good news for us, we have such a diverse book of business. We're seeing good volume growth across the board with the exception of what George just said in terms of housing has been in a 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. And so 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. So we anticipate, though, with more of a, let's just say, a reasonable approach to the auto industry.

We would hope that we would start seeing a pickup there. And so with 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 they provide. Think about everything that's in a corrugated container when you go to Lowe's or Home Depot or your local ACE hardware store. And so 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. And so again, we're pretty bullish in that across the board, with our 13,000-plus customers, we've seen good organic growth. And 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 will but needs to reindustrialize quickly for various reasons. Do you believe that's actually going to happen from what you see and from all your talks with your customers, what would that mean for your business? Or is it really going to occur that near-shoring will be less of an effect for you.

Well, I think it happens. 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 but the problem is it doesn't come back easy. And so it's not going to happen next year, year after next, but it will start. We're already seeing that. We've seen reshoring going on for the last 7 or 8 years. There's a lot more that goes on in this country than what's taking place 10 years ago. But part of the obstacle, as you can imagine, is the capital cost of any industry. I mean if you think about heavy industry is that it's heavy industry. It's lots of steel, very complex demands on materials, concrete, steel, copper, all the electrical components, the demands on your engineering base. So there's a lot that has to take place.

But we're already seeing that. It's probably, in my view, if at the state level and the federal level, there is support and that is clearly defined then that will take place, and that will be very positive for the corrugated products industry.

My other -- I'm sorry, 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 and from your standpoint, what kind of systems did you find? How is the integration going there? So.

When we closed the deal on September 2, we immediately moved in our technology and engineering people into both mills at Massillon and Riverville. And so as we talked in the January earnings call, we took advantage of this transition period to put the PCA touch on these mills. So in 5 months, we've significantly, I would say, rebuilt the Massillon mill all the way down to pumps and motors and bearings and so that mill is in tiptop shape now, the Riverville mill being a bigger mill, big bonus mill equally in good shape now. And so we've identified longer-term opportunities. What I'm encouraged by when we did the due diligence and we looked at the potential of those 2 mills, in my mind, I said, well, they're producing, say, 600,000 tons combined run rate with how they were running that business.

And I looked at that and I said, these 2 mills easily can run at the 800,000 ton plus level to supply our own needs. And in 5 months, we've achieved that. And so those 2 mills are incredibly valuable to us. And so not only is there 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 5-month period of time. And so we've done that all with the Packaging Corporation of America Technology and Engineering group. And so we're in a very good place now, and the mills are doing just what I hope they would do. So and again, as we used to say in terms of the Boise acquisition, it was a gift that kept on giving. So we look at Greif acquisition in the same way. It will be continuing to be the gift that keeps on giving.

And we're on track on the systems integration piece of this. Obviously, the sooner the better. The sooner we have the day-to-day management insight to the acquired operations that we had at PCA, the more effective we're going to be. And we have a heavy lift here over the next 6, 7 months to do it, but we're on track and these are going to be running as PCA plants very soon.

What's the heaviest piece of that and to the extent that you can comment?

Yes. Well, it's going from what was a more centralized environment at Greif to a decentralized entrepreneurial environment of PCA.

Any questions from the audience for PCA. All right. Well, we'll keep forging ahead as you guys are taking up your questions. 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. But would you agree with that point? And 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?

Yes, absolutely. I mean, 8 years ago, it's not that we did not want to do, say, the e-commerce, but the plants were not ready to take that, call it, the go and blow business, the plain brown box business. And interrupt what would be a more profitable, high-margin local account business, the specialty box business. But 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 blow business to the complex business on any given day. And so 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.

And 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. But we couldn't do that prior to, say, 2018 because we literally did not have the capability in these plants. So think about that. And since 2017, PCA 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. Nobody else that can do that.

And I'll add 1 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. And there's opportunities to profitably serve national accounts, additional local customers, yes, we do it. So it's all in furtherance of profitable growth.

Yes. 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 the business we won't do. It's just -- it's not economical for us. It doesn't make sense. And again, we're very cognizant of that.

And, 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.

Any questions from the audience? Mark, have you gotten -- 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 busy with other accounts. I noticed box plant 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 Scores? Do -- are there other KPIs to make sure that you're doing well or it's just say, hey look, the margin, the volumes, they're all the KPIs that we...

We still have the largest number of sales people in the industry. We have an incredible close relationship with these customers. And so we work hand in hand with the customers on what their needs are, 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 want to do, what they're investing in. And then we were able to plot the course to be able to be ready to service them to 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 office 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 pricing historically, if you went back over the last 25 years, within 3 or 4 months, we've always captured that full price and the yield loss factor through the box plant side of the business so.

Understood. And 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? And I'm not talking about the recent price drop by the index just in general in terms of...

Again, as I stated, and 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, 2024s 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. And then even though all the consternation with tariffs and everything going on in the world, we held flat through 2025 with that volume and now we're into January and February and the numbers I just told you, we're up significantly over last year's and 2024s level, and the book of business is stronger than the actual daily cutoff. So we're feeling good that our customers are in a good place. We're seeing this nationwide.

And what gives me a better feeling is that not only we do good currently, but there's upside with opportunity, as I said, with housing, with the protein side of the business with beef. We all know beef herds are at 70 some-odd-year lows. So over the future years, if the beef herds are built back up and that takes place. So there's a lot of upside that will take place. Also at a time when the industry hasn't recapitalized at the rates that we have so 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 past utilization, if you can measure it in the converting network and 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, say, if you have even a little bit of growth in corrugated markets over the next couple of years, the corrugated supply side could be tighter 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. Maybe think about that. 20 years ago, 30 years ago, box plant might be running 2 8-hour shifts. It had plenty of capability to run over time. In some places, we're running one 12-hour shift. Over time, people started adding personnel, adding shifts, running 3 shifts a day. There's a lot of overtime. But at the same time, there was not a lot of reinvestment in the assets, in the converting asset. So 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 change the oil at least, employ on new tires. The problem is it's still a 30-year-old race car competing with new race cars.

And with all the new technology available. I don't care what you're doing, okay, 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. And think about the workforce. The workforce is aged. We have a new workforce. And so the difficulty of acquiring labor because in the old days, people would just say, we'll put another -- put the other shift on who will work Saturday and everyone is working over time. Don' worry about downtime with your equipment. If we have mechanical failure or electrical failures, we'll just make up for it later on the evening shift or will come in on a weekend. Those days are done.

You can't run your business that way. And so we recognize that 9 years ago when we put in place this recapitalization effort. And so 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, '17 period, that was accelerated from 2019 to date, we've, in many cases, quadrupled our unit labor productivity per hour. So in a plant with no more people, we have 4x the productivity that we had 7 years ago at much lower cost, higher quality. And so it's imperative. 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 is looking at you saying, "I'm investing in my business, can you grow with me?" And if you haven't invested in your converting assets, what are you going to do?

So that's one of the -- why people say, what is PCA, 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 one of the things of data that you have in the deck that you did submit since 2017, where we have about 30 -- legacy basis 30% with the acquisition, 40% on an aggregate basis and on compound annual 3% growth.

So think about that over that period of time, box volume cut up is up over 30%. But the industry is down, and we're part of the industry number. And we were talking at dinner last night, and 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 than with profitable growth. And so it's imperative that you have the capability with your equipment to do this.

Thank you, Mark. On the subject of investment over the last year, 2 years, you've announced Greif, that's going to cost you $1.8 billion you'll get -- 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 shut Wallula PM2, you're moving capacity to Counce into Jackson that I think saves you $75 million. You've had 3 or 4 larger box projects from my count, including Ohio and Glendale. On my math, maybe close to triple-digit return on that in terms of dollars of EBITDA, would that be fair? So and then you have the energy projects. So a, what do you think the total return on all of that might be, we have our number? And talk to us a little bit about the energy project investments that you're doing? What's your number? I think you will have added, including Greif's the biggest piece of that $0.5 billion of EBITDA from all those projects. Yes. Those listening Mark said, yes so.

I think that's reasonable. I mean the -- reason for the growth that you're in the ballpark.

Yes. So talk to 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 electricity-driven. We've seen this happening over the last few years. And the more and more I was looking 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 needed to -- we actually needed to be proactive and figure out what we were going to do to insulate ourselves out of this situation.

And 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 are fortunate that we located 3 big 50-megawatt turbines. We bought them for pennies on the dollar and we're in the process of getting them ready to move. And so we'll be installing one of the units at the Riverville mill, 1 unit would go to Jackson, Alabama and 1 unit would go to DeRidder mill. When we're done, that will give us 4 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. And it's -- and that's part of also the reason why we made the decision to shut the Wallula #2 machine down that in a 2-year period of time, electric rates in the Washington state were up 89%. And it's unsustainable, and this is home rates, industrial rates.

And so we started seeing that around the country. So again, if you don't have a plan for what you're doing to improve your electricity position, you're going to be in a significant -- it's going to 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 talk about investments. Tell me a little bit about how -- last night at dinner, we were talking about power boilers, talk about your fiber lines. What do you feel you're in good shape there? Any investment that you need to be doing or I guess, lightweighting kind of helps sort of take away into...

Through all this approach year after year, we've always addressed the capability of our unit operations from the woodyard through pulp mills, OCC plants, chemical recovery systems. So 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. So 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 craft operations, maintain the OCC plants. So again, we're in a good place right there. Okay. I mean within the next couple of years, the bulk of the capital will go towards these energy type projects, which are high-return projects.

And so that will be part of the -- this whole premise of how do we maintain our margins? Well, part of this is to 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. But one of the keys to PCA success on the earnings side and the margin side has been this capability to deploy capital in a very efficient manner.

Maybe a couple of last questions here, Mark, as we wrap. You've grown, you've outgrown the industry. The industry itself, when we look at square footage, we've talked about this in our past research, has not grown. And on a BFS basis it's not lightweighting. We're at 2017 levels. Now there's some -- and I think the FBA and the AF&PA they all do -- they do their best and do a good job, but there's some tracking invariably, there's some put up that might, in theory, should count as a box, but it's not. But it's a pretty wide gap or it's pretty stark that we're still flat or down versus 2016, 2017 levels. In your view, what's been happening? Why is the -- you're growing, but why is the industry not growing?

I think 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. And so there's been a lot of efficiency on the customer side of that equation that they're only using just what they need to use to get their product out of the Amazon warehouse or the Walmart distribution center. And 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 -- kraft envelope.

And so that's taking the place of what was a box. And in some cases, we've even seen the plastic word, something -- they're throwing something even in a plastic pouch and dropping it off at your door. But there have been different uses for containerboard, but part of it is just the customer base has gotten more demanding to just rightsize their box.

You go into the miller business by any chance?

We're in a good place with our corrugated boxes right now, but it's a complex discussion about things aren't the way they are.

I was kidding, but -- next to line, Mark, if you are planning on doing that. I meant what I said at the beginning, there are not many companies, if any, that have had your continuity and leadership team and that's a credit to your organization, to your Board, to you and Paul, Eric. How do you maintain that succession planning and that continuity. As you evaluate your career, if you talk to people publicly, how long do you continue to see yourself running the ship here and keeping the schedule that you keep up that you relay.

Best part of your question. Ray Shirley is an example of the younger generation of leadership that we have in the organization. We have a number of people like Ray that are with us that we hired from the college campuses that have come with us over the years that we've actually -- we passed that knowledge on. We are fortunate enough in our early careers that somebody meant toward us passed on incredible knowledge to us. We've hired every year, we're on the college campus as we recruited probably 55 to 60 universities and colleges in the United States. And we're continually bringing -- we hire -- we started this in 2019. We hire engineers into our box plants. And so now we have this incredible capability in our box plants with the grid engineers moving up now and being promoted through. So we have a lot of capability.

And I'll just add, we had a Board meeting this week. And half the seats in the boardroom were taken up with the younger generation that were there participating with us, and these are the future leaders of the company. But they've been taught by us over many years so whenever I get hit by a bus or lightning or I do decide that I'm done with this, and I'm sick and tired of being harassed by ham over there. My problem is I don't have enough hobbies to want to go do something different. So this is my sport of choice. And so in that regard, 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. So we're in a very good position in terms of the organization and the capability.

I gave a speech at Core Expo in 2018. I've got 3 minutes here. And one of the things I said in Core Expo 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. So that was, say, 8 years ago and look what's happening to the industry. When I was starting out here 30 years ago, I was running 4 of the mills for PCA. I had 10 people in the technology group when we run those mills. Now we have upwards of 165, 170 people in the engineering technology organization in PCA running not just the 10 mills, but the box plants.

And all of the leadership, myself, the Vice President, the Senior Vice Presidents, the Executive Vice Presidents on the operational side are all chemical engineers with MBAs. And they've been with us and they've been taught by us so this is the gift that keeps on giving in terms of knowledge and wherewithal and so we're in an incredibly strong position to continue this. And we just continue to hire and hire goes back to Massillon and Riverville mills. On day 1, we had approximately 100 PCA personnel that went into each of those mills and camped out of those mills for a couple of months, 7 days a week to reconfigure these mills. So that's all we've got for today.

We hope you don't develop any hobbies there, Mark.

Anyway, thanks for joining us today.

Thanks for joining. Thank you PCA.

Thank you for joining Packaging Corporation of America's Fourth Quarter and Full Year 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 be a Q&A session.

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

Thanks for the introduction, Jamie. Good morning, everyone, and thank you all for joining us today and participating in Packaging Corporation of America's Fourth 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, our President; and Kent Pflederer, our Chief Financial Officer.

I'll begin the call with an overview of our fourth quarter results, and then I'll be turning the call over to Tom and Kent, who will be providing more details. After that, I'll wrap things up, and then we'll be glad to take questions.

Yesterday, we reported fourth quarter net income of $102 million or $1.13 per share. Excluding the special items, fourth quarter 2025 net income was $209 million or $2.32 per share compared to the fourth quarter of 2024 as net income of $222 million or $2.47 per share. Fourth quarter net sales were $2.4 billion in 2025 and $2.1 billion in 2024. Total company EBITDA for the fourth quarter, excluding special items, was $486 million in 2025 and $439 million in 2024.

Excluding special items, we also reported full year 2025 earnings of $888 million or $9.84 per share compared to 2024 earnings of $815 million or $9.04 per share. Net sales were $9 billion in 2025 and $8.4 billion in 2024. Excluding special items, total company EBITDA in 2025 was $1.86 billion and $1.64 billion in 2024.

Fourth quarter net income included special items expense of $1.19 per share primarily for the [indiscernible] Mill restructuring charges as well as costs relating to the acquisition and integration of the Greif containerboard business and costs related to the closure of corrugated products facilities. Details of the special items for both the fourth quarter and full year 2025 and 2024 were included in the schedules that accompanied the earnings press release.

Excluding the special items, our earnings decreased by $0.15 per share compared to the fourth quarter of 2024. The decrease was driven primarily by lower production and sales volume in the legacy PCA business for $0.23, higher operating costs, $0.23, higher maintenance outage expense $0.14, higher depreciation expense in the legacy PCA packaging business or $0.07, higher freight expense, $0.06, higher interest expense, excluding the Greif acquisition debt for $0.01 and lower production and sales volume in the Paper segment for $0.01. These items were partially offset by higher prices and mix in the Packaging segment for $0.50, lower fiber costs, $0.10, lower fixed and other expenses, $0.04 and higher prices and mix in the Paper segment, $0.01. The acquired Greif operations, including interest on the acquisition indebtedness generated a loss of $0.05 during the fourth quarter primarily as a result of extended outages at the Massillon mill in October and December to perform reliability maintenance activities and manage our inventory at the acquired operations.

Looking at our Packaging business. EBITDA, excluding special items in the fourth quarter 2025 of $476 million with sales of $2.2 billion resulted in a margin of 21.7% versus last year's EBITDA of $426 million, sales of $2 billion or a 21.5% margin. For the full year 2025, Packaging segment EBITDA, excluding special items, was $1.83 billion with sales of $8.3 billion or a 22.1% margin compared to the full year 2024 EBITDA of $1.6 billion with sales of $7.7 billion or a 20.8% margin.

We ran to demand during the quarter and with the planned DeRidder maintenance outage and a full quarter of ownership of the acquired Greif operations, we produced 1,407,000 tons of containerboard. The legacy mills produced 1,235,000 tons of containerboard 20,000 tons less than the third quarter and 75,000 tons less than the fourth quarter of 2024. System-wide, our inventories were at the same level as at the end of the third quarter. and with the acquired Greif operations, 84,000 tonnes up from the beginning of the year.

Operational performance during the quarter was again strong across the entire mill system and corrugated system, and we manage costs extremely well throughout the company. We made good progress on the integration and improvement of the acquired Greif assets with better reliability and performance at both mills and completion of key systems integration activities. We do not expect to take any additional outages at the mills until their annual maintenance outages later in the year, and we'll operate the business at capacity. We're on track to complete the Wallula restructuring activities by mid-February, and we begin -- and we will begin to benefit from the improved cost structure beginning in March.

I'd like to give an update on the gas turbine energy projects that we're currently working on in the engineering phase. The plan includes the installation of gas turbines at the Jackson, Alabama mill and the Riverville, Virginia mill, over the next 30 months. These locations have relatively high purchase power costs and good, reliable gas supply as well as demand for the additional power that we can internally generate. We expect that these projects would involve roughly $250 million of total capital, some to be spent in 2026, but most of it coming in 2027 and 2028.

The expected returns are in the mid- to high teens, and most importantly, it would make us energy electricity independent at these facilities and protect us from future rising electric rates. We're finalizing the scope and we'll seek Board approval during the first quarter. We're also working on plans for a third installation at one of our mills and we'll provide more details at the appropriate time. We have a lot of good options in that we're considering all of these.

I'm now going to turn it over to Tom, who will provide more details on containerboard sales and the corrugated business. Tom?

Thanks, Mark. Domestic containerboard and corrugated products prices and mix were $0.50 a share above the fourth quarter of 2024 and down $0.32 per share compared to the third quarter of 2025. This is mix related as our fourth quarter is seasonally less rich incorporating more holiday-driven e-comm.

Export containerboard prices were flat with last year's fourth quarter and down $0.01 from the third quarter of 2025. Export sales volume of containerboard was up 12,000 tons from the third quarter of 2025 and down 15,000 tons from the fourth quarter of 2024. In the legacy business, corrugated shipments per day and in total were down 1.7% versus last year's record fourth quarter when per day shipments were up more than 9% over 2023. That said, 2025 fourth quarter legacy box plant shipments were the second highest ever. For the year, our corrugated shipments were essentially flat with 2024. Our order book strengthened in November and December and though we were ultimately disappointed with December shipment volume, we've seen the strength reflected in January shipments so far. While our corrugated volume and mix ended up below our fourth quarter forecast, the underlying volume trends were positive heading into 2026.

To provide a little more color, December got off to a strong start, leading us to believe that we would grow our volume over last year. Later in the month, customers appeared to manage their already low inventories further down for year-end. The exception was e-commerce, which continued to remain strong well into the first week of January. In addition to the volume implications, this unfavorably impacted our December mix. The good news is that January is up significantly in terms of bookings and billings from a strong comp in 2025, where we were up 5% over 2024. January bookings in our legacy corrugated and sheet plants are up over 11% and billings are up 8% on a per day basis through last Thursday. We are seeing improvement across our customer base, which is a good sign for healthier underlying demand.

Based on what we've seen so far, we are forecasting solid year-over-year growth for the first quarter and seasonal improvement in our mix. Our containerboard system is tightening up, and we will need to run at full capacity to support our demand. Including the acquisition, shipments were up 17% over last year for the fourth quarter and 6% for the year. The acquired plants had a very good quarter, outperforming our expectations and are also off to a strong start to the year. We made good progress on integration and are working toward operating as a single corrugated system as soon as we can with systems integration work ongoing.

We still have work to do to optimize the inventory levels and paper grades carried by the acquired plants. We are working off the remaining containerboard purchase and trade commitments and ended the quarter at approximately the same inventory levels that we began, which is higher than what we had forecast. We had planned to bring the inventory levels down significantly while simplifying the grades carried the plants and leveraging the larger integrated system. This will take place over the next 2 quarters and better day-to-day visibility once our systems are in place will certainly help us.

Last week, as you know, we notified our customers of a $70 per ton price increase on our linerboard and corrugated medium grades effective March 1. We will work as we normally do to implement the full price increase.

I'll now turn it back to Mark.

Thanks, Tom. Looking at the Paper segment, EBITDA, excluding special items in the fourth quarter was $37 million with sales of $154 million or 24.2% margin compared to the fourth quarter 2024 EBITDA of $39 million and sales of $151 million or a 25.9% margin. Sales volume was 1% above the fourth quarter of 2024, and 4% below the third quarter of 2025.

Prices and mix were up 1% from the fourth quarter of 2024 and down less than 1% from the third quarter of 2025. Performance exceeded our expectation on higher sales volume and strong underlying operating performance at the International [ Falls ] mill. For the full year, Paper segment EBITDA was $148 million or with $615 million of sales for a 24.1% margin. 2024 EBITDA was $154 million on sales of $625 million for a 24.6% margin.

I will now turn it over to Kent.

Thanks, Mark. Cash provided by operations was a fourth quarter record $443 million, and after $319 million of CapEx, free cash flow was $124 million. In addition to CapEx, the primary payments of cash during the quarter included share repurchases of $153 million, dividend payments of $112 million, net interest payments of $53 million, cash tax payments of $15 million. We repurchased 760,000 shares during the quarter at an average price of [ $201.03 ]. We have approximately $283 million of remaining repurchase authority.

For the full year '25, cash from operations was $1.55 billion with capital spending of $829 million and free cash flow of $725 million. Our year-end cash on hand balance, including marketable securities, was $668 million, with liquidity of about $1.25 billion. Our final recurring effective tax rate for 2025 was 24.7%.

Regarding full year estimates of certain key items for the upcoming year, we currently estimate dividend payments of $450 million. Total CapEx to be in the range of $840 million to $870 million, and DD&A is expected to be approximately $700 million. Our full year interest expense in 2026 is expected to be approximately $139 million and net cash interest payments should be about $147 million. The estimate for our book 2026 book effective tax rate is 25%.

We have planned annual outages in 2026 at all of our mills which will cover a higher number of outage days and tons in 2025. Including lost volume, direct costs and amortized repair costs, we currently expect the outages to total about $1.39 a share. The current estimated impact by quarter during the year is $0.16 in the first, $0.35 in the second, $0.24 in the third and $0.63 in the fourth.

I'll now turn it back over to Mark.

Thanks, Ken. Our employees put in a tremendous effort and delivered outstanding results for PCA during 2025 when business conditions were challenging at various times. We completed the acquisition of the Greif business and achieved significant progress on integration and improving the operations. We successfully started up our Glendale, Arizona plant and completed numerous capital and operational projects to improve our capabilities and efficiency in our corrugated business and continue to serve and profitably grow with our customers. Our Paper business continued to deliver outstanding results through its commitment to customer service and manufacturing excellence.

As a company, we still have many key strategic capital opportunities in progress or ahead for the 2026 year and beyond. Our balance sheet remains high quality. We have the flexibility to continue to take advantage of internal or external investment opportunities that generate shareholder value. We continue our time-tested and balanced approach towards capital allocation, investing in our business to profitably grow our earnings and cash flows and returning value to shareholders through dividends and buybacks. We accomplished a lot in 2025 and are positioned to accomplish even more this year.

Looking ahead, as we move from the fourth and into the first quarter, as Tom mentioned, we see demand improving and expect year-over-year growth in corrugated volume in our legacy box plants and strong shipment volume from the acquired plants. First quarter volume is seasonally lower than the fourth quarter and even with one more shipping day, overall volume is expected to be slightly lower than the fourth quarter. I will now be running our mills full, but production will be lower than the fourth quarter with 2 fewer operating days, slightly more outage tons and Wallula running in its new reconfigured state. We expect slightly lower inventory levels at the quarter end.

Price and mix will seasonally improve, and we expect to see some benefits from our containerboard price increase in March. Export containerboard sales will be slightly higher than the fourth quarter, and prices should be flat to slightly down. Paper volumes will be lower with 2 fewer operating days and price/mix is expected to be slightly lower and will begin to improve in March with our recently announced uncoated [ FSI ] price increase. With the exception of fiber prices, we expect price inflation across most of our direct, indirect and fixed operating and converting costs.

In addition, wood, energy and chemical costs will also increase due to winter conditions that impact usages and yields for these items. Our cost structure will begin to benefit from the Wallula reconfiguration during the month of March. Labor and benefits costs will be higher due to the normal timing-related items that occur at the beginning of the new year for annual increases, the restart of payroll taxes and share-based compensation expenses. Freight will be slightly higher, and we expect slightly lower depreciation expense. Lastly, scheduled outage expenses will be lower, and we assume a lower corporate tax rate.

Considering these items, we expect first quarter earnings of $2.20 per share, excluding special items. We are, in fact, assessing last weekend's winter storm across multiple regions which caused some of our plants to be down earlier in the week and which could negatively impact shipments and operating and transportation costs for the quarter.

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 the annual report on Form 10-K on file with the SEC. Actual results could differ materially from those expressed in the forward-looking statements.

And with that, Jamie, I'd like to open the call for the Q&A.

[Operator Instructions] Our first question today comes from George Staphos from Bank of America Securities.

Thank you for the details. I hope you're doing well. I guess the first question I had is on operations in the mills. And I guess, yes, in the mills overall. We have the outages. You call out the sequential pickup in variable costs for inputs. We have fewer days and also going to try to take down inventory to some degree. Kent, is there a way to maybe size or give us a bit more granularity on what looks like it will be a decent increase in cost per ton in the containerboard business? We're not surprised by the 1Q sequential drop, but just trying to figure out in earnings. Just trying to get maybe a little bit more granularity on what the cost per tonne might look like 4Q to 1Q.

I'm not sure we're going to run the system full. We've got the typical seasonal weather impacts taking place along with the recent storm. So there's some uncertainty there. But again, we're basically faced with the normal year-over-year inflationary concerns that we always see in January with labor, medical benefits, cost type matters. And then just the winter usage and yield matters with energy and wood. Again, I'd like to give you a number, but I don't have that off the top of my head.

That's okay, Mark. I guess maybe a related question. I know you're still assessing but what have you built into your guidance for the quarter related to the winter storms from an earnings standpoint were more sort of a factor standpoint from a volume versus cost qualitatively.

George, we're just starting -- we've had plants down from the Texas region all the way across the Gulf region up through the Mid-Atlantic. Some of these areas are still down without power. We've got power outages continuing in Tennessee. The Dallas region is -- has thought out and coming back, but things are things are coming back as we speak, literally on the call this morning. The mills ran through this, the 2 biggest mills that were impacted, the [indiscernible] mill in the Riverville, Virginia mill. Both mills did run through this quite well. We had exceptional support from all of the employees and the mills ran through this. The problem was we couldn't ship any tons out during the period of time.

So just in the last 24 hours, we started moving trucks and rail into counts in Riverville, but nevertheless, we've had a huge number of the box plant system down for the few days. Tom, do you want to add a little color on that because...

I think the important thing is, George, to understand, it's going to be very hard for us to get our arms around this until we find out what the impact is on that book of orders that were not shipped in the short term and whether they'll pick back up with our customers going forward. Obviously, our customers were down as well. So it's -- we've been through these before and sometimes, if it's too long of a process, there are orders lost. Other times, we get right back up and we can catch up. So we'll just have to see as this month goes on and really kind of probably as this winter goes on because they're calling for another big storm coming on the in the Mid-Atlantic and Southern region this weekend. So we'll just have to see what happens.

But I think overall, I mean, we've -- I think we weathered it pretty decent, although we had a lot of box plants down and the transportation is another big issue that exists, whether it's rail or truck, if we get the product out once we get the -- once we get the plants and mills up and going.

George, back to your first question, it's Kent. Ex-freight and with a little bit of a little of benefit and -- but not all of it, we're about $15 million total on the cost line in the mills. And so running that through, that's maybe $10 a ton.

Okay. I appreciate that, Kent. Last one, and I'll turn it over, just be mindful. What gives you comfort that at Massillon, you're through the reliability issues? And for that matter, what gives you comfort? And what caused the inventory mismatch in the acquired facilities, again, presuming it's going to be worked down, but hopefully by 1Q, but what caused that?

Yes, I'll talk about the operational matters, and then I'll let Tom talk about the inventory. During the month of -- if you went back to the acquisition in September, we spent 6 straight weeks with probably 200 PCA personnel assisting Massillon, along with contractors, essentially rebuilding Massillon mill from bearings, bushings, pumps, motors, we put our hands on everything, gas turbine rebuild. Again, all of the mechanical infrastructure.

And then during the period of time during December that the mill was down, we continue to address some of the even finer detail items, some operational improvements even down to lubrication technology, again, more bearing monitoring. So I'd like to say that over a 3.5 month period of time, we've essentially rebuilt the Massillon mill. So it's -- it's become the little mill that could. It's -- we've improved operational efficiency at both Massillon and Riverville from the from probably a 15% improvement overall in operational efficiency, the way we measure efficiency. So both mills are very close now to running to the PCA standard efficiencies.

Tom, do you want to talk about the inventory...

So George, I'll at least start on the Massillon piece to quantify it. We were maybe 10,000 tons above where we'd forecasted finishing up the year. Some of that we're taking purchase commitment tons. Some of that we were a little bit lower than forecasted shipment volume.

So Tom, I'll let you...

Okay. So I think, George, think of it this way. We had -- we knew we had a lot of work that needed to be done. -- we knew we had to get our reliability up in a number of things. And fortunately, we had the financial flexibility to go do that right away to prepare us for 2026 and the demand we saw coming forward in 2026. Now that said, that everybody did an outstanding job, and we've got -- we're in good shape starting in 2026.

But there is another big piece of this that was part of that inventory miss, and that is that we had -- the Greif had a lot of containerboard purchase and trade commitments that were in place that we just chose to absorb basically in the fourth quarter. And we don't have a lot of visibility from a systems point of view into a lot of their day-to-day activities, like we do it PCA. So those were the main drivers for the inventory miss. And -- but I think the most important thing is we got all that work done upfront and put ourselves in good shape for 2026.

And our next question comes from Michael Roxland from Truist Securities.

Just wanted to -- Tom, I wanted to follow up on that last point in terms of the purchase and trade commitments that it had in place. Can you just provide some more color around those commitments. Is it something that you're looking to keep? Is it something that you're looking to get rid of once those contracts expire? Just any color you can provide around those commitments and what you're looking to do with them?

Okay. Mike, I'm going to ignore the color part and just tell you that those commitments and purchases we no longer are keeping or pursuing or anything like that. Those were agreements that Greif had, we would not typically have any of those in place, and we're discontinuing those. We met the commitments and we're moving forward from there.

Perfect. Got it. And it sounds like demand hasn't inflected and need to run full. But you have 2 less shipping days in 1Q. So this is a theoretical question. I mean if you had those 2 extra shipping data in 1Q, would things be looser and volumes be softer? Or has demand firmed up enough such that you would still be running full either with those 2 actual shipping is?

If we had the 2 extra days, we'd still be running full. I mean, the way we've looked at the entire year for the full 2026, we expect to run the entire mill system fallout. And so -- which is a high-class problem to have.

So Tom, do you want to add anything?

It's -- this is just a matter of a 30-day period that we're looking at as opposed to the long term. So we would absolutely be running full out if we had the 2 extra days.

Got it. And then just from a demand perspective, you guys have called out in recent quarters the housing environment, you've called out protein. Any inflection in those particular end markets that are contributing to this better demand?

Well, I think, as I mentioned in the comments that the underlying demand is improving and it's improving in all the segments, which is what's really positive for us. As I've talked about over the last -- certainly last year and maybe even going into the previous year, auto building products, durables, those segments were down and continue to be down all the way through the fourth quarter. But -- and they work their inventories down to the bare bones also, by the way. And we're seeing some pickup in that area and that's a real positive for us because those are still large segments for us.

And we're -- obviously, we're doing well in the other segments and the other segments continue to do well. But I think consumer sentiment is getting better. The GDP is up 4% the previous quarter, a little over 4% forecast to be up over 5% this quarter. If you just think about at worst box demand could trend at half of the GDP and that's a big number in terms of demand. So everything underlying demand is very positive right now, Mike.

Got it. And just one quick follow-up, just on a housekeeping question. Are you reflecting the $70 per ton in your 1Q guide? So is that a -- is that -- you [indiscernible] for March 1. Is that included in the $2.20 you're guiding for 1Q?

The answer is no. We have a little bit into March, but not the full benefit.

[indiscernible] you are baking in though -- so you are counting that in your once you got to a little -- to some extent.

Just a small just a small amount is what we're putting in the forecast. As you know, these price increases, I mean, they take place over -- for us, they take place over about a 90-day period and then we have some contracts that extend the midyear, and that sort of thing. But for the most part, I mean, we're baking in -- of course, it's effective starting March 1, but we can't bake in the full amount, obviously.

Our next question comes from Mark Adam Weintraub from Seaport Research Partners.

Just a few -- 2 quick clarifications. One, just to be clear, the $70, you get that in containerboard in March, but you're talking about because it takes a while to flow through into boxes is why it would have a fairly de minimis impact in 1Q. Is that correct?

Correct. Correct, Mark. Yes.

And just second clarification, just to make sure I wasn't missing something. If there were 2 more shipping days, then you would have more demand on your mill system, not less in the short term? Correct?

Yes.

Okay. And then just 2 -- just going back to costs. Last year, you had talked about $0.50 to $0.60 impact going from 4Q to 1Q and that you expected to get about half of it or even perhaps a bit more than that back in the second quarter because some of it's seasonal, et cetera. Could you share those types of metrics this time around?

Yes, we can, Mark. It's about $0.45 to $0.50 4Q to 1Q. And we will get excluding Wallula, a little under half of that back. But then Wallula, the cost improvements there start kicking in more so in the second quarter.

Okay. Super. And then the -- can we also contrast how the containerboard box markets feel now relative to how they felt this time last year. I mean, obviously, you went with price increases January 1 last year. You got at least in terms of what pulp and paper weak reflected partial increases. How does it feel this time around versus the last 2 years?

No, I'm only going to -- I can only speak for PCA. So let's just -- I want to qualify that. How does it feel for us? I mean it feels improved in fact, much improved, I think, because there were still a lot of question marks in place a year ago. new administration was going to take hold. A lot of things were up in the air. We dealt with [indiscernible], we were already dealing with potential tariff stuff and all these other things that were question marks hanging in the air. Those are all pretty well cleared up at this point in time.

And I think the most encouraging thing is what I just mentioned earlier relative to GDP and consumer sentiment. GDP being up over 4% last quarter, projected to be up over 5% this quarter. Those are big numbers and make a big difference in terms of corrugated box demand. And also, I think another great metric is, for the first time in over 4 years, you've got wages that are now ahead of inflation. And that will also improve the consumer settlement going forward. They may not feel it immediately, but I think throughout the year, I think that's an important metric for our business.

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

Not to be combative here, but I'm curious like, I think GDP is projected to be up 3%, 4% in 2025, yet box demand has been pretty muted, [indiscernible] is disappointing. There seems to be a clear inflection in your tone. I'm curious if you can -- is this something specific to what PCA is doing, maybe the new Glendale box plant and internal initiatives. We heard from someone else this morning more hunters on the field versus gatherers. It just -- there's obviously been a clear change in tone on the demand side.

And then we've been dealing with the seemingly jockeying around of orders and inventories at quarter end and then the first month of the new quarter. Any visibility, any work you guys have done to try to discern if that's going on here? Or again, if this is more durable in terms of order patterns?

Well, Gabe, I wish I could [indiscernible] give you great answers here. But all I can do is anecdotally talk about the fact that we do have these discussions with our customers. We are trying to find out what they're thinking and what they're doing because that's important to our ability to adapt our business accordingly. But I can tell you there is a much more positive eye across our entire customer base right now. These starts and stops we experienced last year was quite unusual, quite frankly, because I think everybody was trying to figure out what consumer demand really was and what -- and CapEx spending from companies and all these other sorts of things. what was really going to occur because start, stop, start, stop, I mean, we had -- I have customers that talked about having product that they were importing that they then add value to and then sell in the market that were stuck in ports in different places, waiting for tariffs to find out what the tariffs were going to be, all these other sorts of things.

So it was an unusual year in my opinion. And a lot of that -- a lot of that's now cleared out, and I think that's helped the visibility going forward. And I think it's also helped the positivity going forward in terms of predictability. So that's about the best I can tell you.

All right. On the Greif acquisition, some of the feedback that we've gotten is that it feels maybe a little bit of slow out of the gate. And I know you guys had a plan going in. But maybe, Mark, can you just talk about, let's say, a [ imprint ] mill rebuilds in 3.5 weeks, was that part of the plan? And as you project forward and think about the acquired assets, you talked about running full for the rest of this year, but for planned maintenance outage. Do you expect that to be kind of reaching that, I guess, EPS accretion level in the second quarter, first quarter, second half of this year? Just any thoughts on that?

As far as the 2 mills, the Massillon mill and the Riverville mill, we learned a lesson from Boise and we also have a different organization in place now than we did 13 years ago. But we took advantage of the fact that we have the technology engineering group in-house and decided that after the acquisition, we would execute an immediate corrective action at the mills and go in force and do what PCA does well, and that's provide operational expertise. And so we took a couple of months in the fall right through December at Massillon and essentially addressed all of the issues that normally might take a few years to address.

And so all of the normal maintenance matters are behind us now, we got -- we've identified like the gas turbine opportunity at Riverville. We've identified some bigger long-term cost takeouts at Riverville. And then we'll continue just to instill the day-to-day normal practice at Massillon and Riverville in terms of operational expertise. But no, we accelerated that execution and took advantage of the opportunity this fall when we not only have the capability, but we're going to manage inventories to our needs, and so we took advantage of that.

Got it.

And Gabe, Gabe, sorry, on the accretion piece, we are forecasting it to be slightly accretive in the first quarter and then improving as we get on and seasonality improves as well there.

One quick last one, hopefully, on CapEx. Just I guess, directionally, I think things are probably coming in maybe a little bit heavy in '26 and you talked about maybe only a smidge of the [ $250 ] for the 2 gas turbines, the majority of that hitting in '27. Just directionally, would we expect things to be flattish next year on CapEx or down I know we're just kicking off '26, but just any preliminary thoughts?

I think we're in a range right now that is in this low 800. But the gas turbines will continue to keep the number on the higher end here. We're finishing up the big box plant in Ohio. We've got a couple of other projects that will finish up this year on the box plant side. We've got on a bigger pieces of capital, you've got the Jackson, Alabama, winder installation and improvements there. So there's a few discrete big pieces. Some of those will be ramping up this year.

My goal, quite frankly, would be to see the number come down. There's a number of reasons for that. Part of it is just the psychological discipline that you want the organization to take a pause once in a while and step back and then look at what's been done over the last few years and then go truly put some optimization on all of the capital. So without giving you a number and quantifying that number, my goal would be to bring the number down below the $800 million level. We did that back in 2022 into 2023. And then we had the opportunities and we brought that number up into the $600 million level. Last year, $800 million with the bigger projects and new box plants. So it really depends on the opportunities, but we are mindful of the discipline required to spend the money wisely.

So long answer to a question, but the goal would be to get it down, but we will take advantage of the opportunities.

Our next question comes from Anojja Shah from UBS.

I just wanted to ask more specifically what changed in January. It does seem like there was a pretty sudden upturn in demand. And I know you talked about less uncertainty versus last year, but consumer confidence numbers are still kind of depressing and CPG earnings tone hasn't really changed. So do you think your customers are responding to maybe [indiscernible] a stimulus in the One Big Beautiful Bill? And then after we get through tax refund season, we can see some choppiness again in demand. What are you hearing from your customers on that?

I think the upturn in demand is a couple of things. One is, obviously, as we talked about from an inventory standpoint, they ran inventories incredibly low so you can't continue to operate forever at these tremendously low inventory numbers. But I think there is -- I think there is a lot more positivity going forward. With tax reform, number of different things. I mentioned wages and some other things. Consumer sentiment, depends on what survey you're looking at, too. One day, you get a survey, it's positive. The next one, it's a little more negative. I think the questions get landed and a number of different things occur.

But I think, overall, anytime you get more money in the pockets of the consumer, we're going to see more demand and that ultimately reflects in the box business. And I think from our customer's point of view, of course, we try to align with the very best and the ones that tend to be the winners in their space they tend to have a much more positive viewpoint going forward. And as I said, all the noise that took place in 2025 with all the different things that were going on with the new administration I think a lot of that fear is cleared on that, and I think people can see demand improving and count on it a little bit better than they did in the past.

Yes. Okay. It's good to hear. Let's hope you're right. And then for my second question, did I miss the cash tax expectation for 2026? And could you get a meaningful step down year-over-year this year? Because I don't know, maybe just immediate depreciation expensing provisions on Glendale or anything else?

No, we didn't provide what the cash tax forecast would be for the year. It will be higher, though than we paid out in '25 of the Greif acquisition and being able to take some of the immediate depreciation on those assets was a big help. So -- but we'll be approaching it maybe a little more normal levels, but we will still get some benefit from the bonus depreciation provisions.

Our next question comes from Anthony Pettinari from Citi.

For the price increase for containerboard and boxes, should we expect the timing and implementation of the price hike for the kind of the Greif portion of the business to be pretty much identical to the legacy business? Or do they -- are there any sort of existing contracts or terms that might make it a little bit different or longer?

We would expect the acquisition plans to roll out the same as PCA.

Got it. And I mean, there were some pretty large mill closures in the industry last year. And obviously, you have Wallula understand that you don't sell into the open market as much as others. Can you just talk about sort of availability of board in the open market from a PCA perspective and just sort of what the market feels like given some pretty major supply actions that happened at the end of last year?

Yes. All I can tell you is from a PCA perspective, we're going to have to run the mills full out. Things are going to be tight. We're not going to have additional board that we're going to be able to sell into the open market. And that's all I can comment on. You can draw other conclusions from your comments relative to the industry.

Got it. Got it. Maybe just one last one. In terms of the CapEx for '26 [ $840 to $870 ], I think you said the energy projects would be a small sliver of that. I'm just wondering if you can quantify that. And then if there are any other major projects maybe on the box plant level that we should think about for '26 that you point out?

Again, we're finishing up the detailed engineering right now and getting ready to get approval. So there will be a small amount of -- if we're spending $250 million you might spend $50 million this year on ordering equipment and getting steel different things ordered. But the bigger pieces of capital this year of the 800-plus are coming from the completion of the new Ohio box plant, the big project down at Jackson. The Jackson winder project and all of the expansion down at Jackson was over $100 million of project over a 2-year period.

And then we've got a couple of other big projects at the counts #2 machine. It's a couple of phases of work, but the first phase begins this March. And so we're putting in a considerable amount of effort to upgrade the #2 paper machine. And then we're finishing up a project in [ Seracese ], New York. And so there's a couple of other big box plant upgrade projects that are finishing up. And then the rest is just the numerous normal projects that we always bring on the -- on the converting side, new converting pieces of equipment that are being installed, corrugators, converting lines, upgrades so it's spread out evenly, but that's the good news that we're continuing to invest and grow with the customers as they need us to.

Our next question comes from Phil Ng from Jefferies.

Question for Tom. The pickup in orders in January. How much would you attribute that being from that destock that you saw reversing? Is that uptick pretty broad-based, isolated to end markets. When I look at the spread between bookings and billings, it's quite large, largely normal for what I can tell. I think that's a bullish indicator, but just give us a little more color on how we kind of interpret on these things.

Okay. I think, Phil, it's very difficult to separate out anything relative to inventory restocking. There's some of that. I don't think that's the majority of it by any stretch. I think that our customers are preparing for more demand. They've got more demand. That's what we're hearing. I think that the -- right now being late in the month we've got a lot more visibility as an example, into February, and February remains very strong. So it's kind of following on to January, which helps the bullishness of the forecast. And in general, it's just a much more positive feeling across the board.

And as I mentioned earlier, we've got some of those segments that were real laggards last year that are beginning to show some new life and come back to what I'd consider to be a little more normal demand that we've seen in the past. And I think as housing begins to come forward again. I think with mortgage rates now having dropped under 6%, that's a real catalyst for new homebuilding and remodeling, et cetera. So that will be a big benefit for us in that sector.

Got you. And then pretty encouraging and all that great stuff. And then I think your commentary is you expect to be running full out all this year? Is that a function of demand getting much better this year. I mean, certainly, the Wallula piece is part of it. But predicated on that, like what kind of box shipment should we assume free to be running full out?

Well, it's -- we're definitely going to be up. And I think one of the things that we're really focused on this year, although the capital intensity in this business is tremendous, as alluded to in these numbers, that we have to spend capital every year to get the job done. I think as Mark mentioned earlier, we are going to be really focused on maximizing the returns on the capital that we've put in place, and this is going to be a great year for us to really test that. And so we're very well positioned for significant growth in the business.

And -- but again, you don't build for some exorbitant amount of growth because that never happens in this business. So we're well positioned for the normal growth plus a little is where we're really positioned for. So I think we'll be in good shape. And of course, then we've got the ability to spend more capital if needed, if those opportunities present themselves.

Okay. Tom, I don't want to pin you on a number, but it sounds like you're expecting '26 box demand for the broader industry to be more normalized this year. And then do PCA kind of stuff kind of grow.

No, what I'm saying is that the -- I think the demand is going to definitely be up this year. And we at PCA we'll do what we normally do in terms of how we perform versus the total demand.

Okay. Makes sense. And then a question for Kent. It was helpful color. You said you expect the Greif deal to be modestly accretive in 1Q. I think last quarter, you gave us a framework in terms of LTM EBITDA in that $240 range and maybe $20 million of run rate synergies by 2Q, appreciating things move around. Is that still a good way to think about it? Or perhaps some of that gets pushed out a little bit in terms of achieving those targets?

No, that's a very good way to think about it. That's where we still are. And I think we'll be in a better position to talk about some synergy opportunities in the next couple of calls going forward now that we're able to operate this thing at full capacity.

[Operator Instructions] Our next question comes from Charlie Muir-Sands from BNP Paribas.

Just a couple of follow-ups. You've obviously outlined a big list of all the projects that are the focus of CapEx at the moment. If we think ahead sort of 12 months from today, given that you're going to be running, you said all out throughout this year, you anticipate how much more capacity do you think we'll have in 12 months' time from today versus now? And how are you thinking about any kind of constraints or things you might need to do in order to get ahead of that? And then I've got one follow-up question.

The short answer to that is, I'll let you know then what we're planning to do going forward. Nothing's changed in terms of how PCA goes about our business to look at supplying containerboard into the converting side of the business. Tom just said it, we never get too far ahead of ourselves, part of the impetus for the Greif acquisition is that we had 2 mills that we looked at that say we're producing in that 600,000 tonnes run rate a year. We looked at that we know how to improve the operations. And we said, we'll probably get over a couple of year period of time depending on how much capital we want to spend, probably another 200,000 tons out of the 2 mill system. And so that provides the growth runway for the next couple of years for us. So that's how I'm looking at it.

But it's going to be tight. We're going to have to run very well as we normally do, run very efficiently. But never forget, we're always looking at on the horizon of where the next containerboard capacity will come from in PCA and we've got different levers to pull in different ways to get there. But that's one of the high-class problems that we face all the time.

Tom, do you want to add to that?

No, nothing really more to add other than we we'll grow with our customers. That's how we operate.

And just the follow-up was you quoted your bookings and billings numbers so far. Can you just clarify, is that a fully legacy PCA number? Or is that line getting blurred now? Have you moved customers from growth operations into PCA or vice versa? Or is that an all-in number?

Okay. That's -- I'm giving you essentially the legacy PCA number, but also the visibility I do have into our Greif business it doesn't quite mirror that, but it's pretty close to that.

Are there any other questions, Jamie?

Mr. Kowlzan, at this time, there are no more questions. Do you have any closing comments?

Yes. Again, I want to thank everybody for joining us today. And also, I just want to put out a big thanks to the folks at the Riverville mill and [indiscernible] mill, in particular, a number of the employees and managers spent 3 or 4 days living at the mill during the storm and protecting the assets and running the mill and safeguarding things. So from up here in Lake Forest to the facilities. Thank you.

And then, [indiscernible], the box plants that are down and people that have been without power. Again, it's been a struggle, but things are coming back. So we appreciate everybody's effort and the dedication that we have from our PCA employees and look forward to talking with everybody on the next call in April. Thank you. Have a good day.

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.

Good day, and welcome to the Packaging Corporation of America Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Mr. Mark Kowlzan. Please go ahead.

Thank you, Elissa. Good morning, everyone, and thank you to all of you for participating in Packaging Corporation of America's Third 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; and Kent Pflederer, 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. And then after that, I'll wrap things up, and we'll be glad to take any questions.

Yesterday, we reported third quarter net income of $227 million or $2.51 per share. Excluding the special items, third quarter 2025 net income was $247 million or $2.73 per share compared to the third quarter of 2024 net income of $239 million or $2.65 per share. Third quarter net sales were $2.3 billion in 2025 and $2.2 billion in 2024. Total company EBITDA for the third quarter, excluding special items, was $503 million in 2025 and $461 million in 2024. 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 third quarter of 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 1 month of the acquired [indiscernible]. 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 third quarter of 2024. This increase was driven primarily by higher prices and mix in the Packaging segment for $0.73, lower fiber costs of $0.16, higher prices and mix in the Paper segment, $0.02, and the lower maintenance outage expense of $0.01. Partially offsetting the improvements were higher operating costs, $0.33; lower production and sales volume in the Packaging segment, $0.16; higher depreciation expense, $0.07; higher freight expense, $0.07; higher fixed and other expenses of $0.07; and higher interest expense excluding the Greif acquisition debt of $0.02 and lower production volume in the Paper segment for $0.01.

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 $0.04 above the third quarter guidance of $2.80 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 third quarter of 2025 of $492 million, with sales of $2.1 billion resulted in a margin of 23.1% versus last year's EBITDA of $446 million and sales of $2 billion or a 22.2% margin. 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 third quarter of 2024 and 59,000 more tons of containerboard in the second quarter of 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.

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 5 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. All mill infrastructure and unit operations were cleaned and inspected. We took the 2 paper machines at the larger Riverville facility down for 5 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.

I'll now turn it 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 third quarter of 2024 and down $0.02 per share compared to the second quarter of 2025, which was all attributable to containerboard mix. Export containerboard prices were up $0.01 per share versus last year's third quarter and flat with the second quarter of 2025.

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 first quarter of 2026.

Total shipments were down 1.1% in the third quarter of 2025 versus last year, reflecting 1 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. Margin performance was very strong again, with Packaging segment EBITDA margins improving to 23.1% versus 22.6% in the second quarter and 22.2% 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 PCA's, and our new colleagues have gone beyond the call of duty to continue to develop strong customer relationships and serve those customers.

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 second quarter of 2025 and down 32,000 tons from the third quarter of 2024.

I'll now turn it back to Mark.

Thanks, Tom. Looking at the Paper segment, EBITDA excluding special items in the third quarter was $40 million, with sales of $161 million or a 24.9% margin compared to the third quarter of 2024 EBITDA of $43 million and sales of $159 million or 27.1% margin. Sales volume was 1% below the third quarter of 2024 and 10% above the second quarter of 2025. Prices and mix were up 2.1% from the third quarter of 2024 and 0.5% from the second quarter of 2025. Performance reflected the seasonally stronger third quarter, and sales volume was higher than expected.

I'm now going to turn it over to Kent.

Thanks, Mark. Cash provided by operations was an all-time quarterly record of $469 million. And after $192 million of CapEx during the quarter, free cash flow was a record $277 million. In addition to CapEx and funding the Greif purchase price, the primary payments of cash during the quarter included dividends of $113 million and cash tax payments of $19 million. Our quarter end cash balance, including marketable securities, was $806 million, with liquidity of approximately $1.4 billion.

To update you on annual shutdown expenses, we now expect $0.45 in the fourth quarter for the legacy PCA system and $0.02 for the acquired business. The legacy system expense is expected to be $0.29 higher than the third quarter of '25 and $0.17 higher than the third -- than the fourth quarter of '24. We are revising our capital forecast for the year to be approximately $800 million from our previous forecast of $840 million to $870 million. This is primarily as a result of timing of expenditures, and we have not changed our overall capital plan. 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 1-year period after the acquisition. Our preliminary evaluation in addition to working capital includes approximately $870 million of property, plant and equipment, $530 million of intangibles and $280 million of goodwill.

We recorded $12 million of depreciation and amortization of the acquired assets during the third quarter, and we expect an annual run rate going forward of approximately $130 million. As a reminder, annual net interest expense is expected to increase by $95 million, and we recorded $8 million in additional interest during the third quarter.

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 $0.03 in the third quarter, which will not occur going forward.

I will now turn it back over to Mark.

Thanks, Kent. For the fourth quarter, we expect per day corrugated shipments to be higher than the third quarter, with 3 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 DeRidder 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. 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. We will benefit from a full quarter of improved operations at the Riverville mill. We'll be managing production to achieve lower inventories, as Tom mentioned. Considering these items, we expect fourth quarter earnings of $2.40 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-K on file with the SEC. Actual results could differ materially from those expressed in the forward-looking statements.

And with that, Elissa, I'd like to open the call up for any questions, please. Thank you.

[Operator Instructions] First question is from George Staphos, Bank of America.

I guess maybe the first question is -- normally comes up during Q&A. Can you talk about bookings and billings as we're starting fourth quarter? 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.

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

Got it. And you said the tough comps just actually will be difficult through 1Q, that was part of your script, were 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 comps?

Well, actually, George, outside of a couple of end markets, our business has been very, very good. Those couple of markets that were -- that we've struggled -- it's not we've struggled, they've struggled in the marketplace. I mean, everybody's read about beef. That's a big segment for us. And the cattle herds are down to a 70-year low. So 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. 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.

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 million of EBITDA reasonable for the combined business, what does maintenance look like? And then I had one or two last follow-ons that will be quick.

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 in very good condition. The two mills, we've had -- from September 2 that day, we've had upwards of -- on a given day, 100 of our PCA personnel in the mills at Massillon 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 the corrugated?

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

But in typical PCA fashion, 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.

One note, George. Look, we took the machines down at Riverville for basically about a 5-day period, each machine in September. But during the time we ran in September, we improved operations. We are 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. 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?

Yes. So George, going into the acquisition, historical bright performance, [ 240 ] 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 that on a run rate basis.

Quickly, $0.20, maybe a sequential increase in D&A as part of the 240s kind of rough math. And anyway, I know it's kind of tough on live, Mike, but any way 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?

The comment about inventory, again, it was mentioned. We've got 10 mills now in the system. We've 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 inventory down. We've already started that. So...

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.

All right. With that, next question, please.

Next question is from Mike Roxland, Truist.

Just wanted to follow up with you, 1, on the numbers that you just mentioned in relation to George's question, the $240 million of EBITDA, the $60 million of synergies. Now that you've owned the assets for roughly 6 weeks, can you talk about any potential upside to those numbers that you foresee from those assets?

Right now, again, I'd rather just let you know that we're -- every day, we're seeing positive results from the work we're doing. So again, I think a lot is going to depend on the marketplace in the future and what we can do to take advantage 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 10 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.

Got it, Mark. Any comments you can make in terms of the improvements, whether in terms of efficiency costs, 1 out with respect to Massillon? You extended -- you mentioned in your comments and those in the press release that you extended the maintenance outage to 5 weeks. So can you talk about maybe some of the benefits that you're receiving from the [indiscernible] that you put into the mill?

Yes. I mean, it's quite remarkable that with the capability we have in PCA, we've got upwards of 200 people in our technology engineering organization. And again, from September 2 that morning, both mills, we are working simultaneously and we had for at least a 6-week straight period of time, at least 100 PCA personnel in Massillon working full time to assist the mill and improving their capability.

I don't think there's anything in that mill that hasn't been touched. 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, role changes, power equipment, boilers, turbine generators. So I feel very good that comprehensively, we understand the opportunities we need to take advantage of going forward.

The Massillon, as an example, we understand the limitations. We understand the upside. Some of it's going to 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 -- when we converted some of the Boise acquisition, we're spending $0.5 billion, i.e., DeRidder, Jackson, Wallula, [ Praise ] conversions. But I told you before, we expect to be -- the work at Massillon, the work at Riverville, it will be the tens of millions of dollars. So over the next couple of years, $10 million here, $10 million there for system improvements, upgrades and technology and capability, but the bones of the mills are good. We just need to update them and then like 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 1.5 months.

As an example, both mills, we 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 profile. So huge improvement there, and that translates into customer experience with the product through core choice. So again, feeling very good about it.

Got you. I appreciate the color there. And one last question before turning it over. Greif EBITDA for the 1 month you owned the assets came in a little lower than we expected given recent performance prior to your ownership. Was that all due to the outages, these will get Massillon and Riverville? Or was there any economic downtime that you took due to choppy backdrop or as you manage elevated inventories? And then any initial thoughts on 2026 CapEx?

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 million during the quarter. So it was those. In terms of economic downtime, no, we didn't factor that in in the Greif results for September, no.

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, the biggest pieces of capital spending this year right now are a couple of big projects on the converting side. We've got 1 big project going on in Ohio right now, and that's a new facility in upstate New York. We're totally upgrading 1 of our facilities as a big CapEx project that will -- both those projects will finish into next year. But we're always taking advantage of the -- of these capabilities to insert new converting lines and to 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 on the January call.

Next question is from Gabe Hajde, Wells Fargo.

Mark, I wanted to ask, I see this number, and I think you can strip out input costs. So it's -- I'm going to call it the frictional inflation treadmill. But running kind of around $1 year-to-date, so I think in this quarter, it was $0.33. So if I annualize that, we're looking at kind of $170 million. 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 me -- one good piece of that, that we're dealing with, but everybody is dealing with and 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 3 significant projects that we're going to introduce into early next year that will take 3 of our mills essentially electricity independent within the next 2.5 years.

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

Okay. But is that -- is it particularly elevated this year? Or is that something that sort of...

Well, again, it's just -- I think the biggest factor was electricity rate increases nationwide.

Yes.

If I'd take one element of cost, it would be electricity.

All right, Mark. But 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? Maybe we do because -- kind of build on tender...

On the contrary, I don't see energy electricity costs flattening out with the demand from all of the data centers that's ongoing. Electricity rate increases, I just don't see that it's going to abate anytime soon. That's why we've taken upon ourselves that we've got the plans to 3 more of our mills. We've got a couple of our mills are in very good shape right now with electricity independence. But within 2.5 years, we'll take 3 more of our mills and essentially get them off the grid, and we'll be in good shape.

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

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

Understood.

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 thermal gas that you burn, the gas turbines will give us that complete efficiency on the combined cycle from steam generation and electricity generation. And these will be projects, again, we'll introduce to you early next year. A lot of the discussion on the January call will give you a lot more details.

Yes, 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 lightweighting? And how that's shown up maybe in your own volumes, not necessarily specific to price increases, but more thinking about lightweighting on that front?

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 the -- again, you hear Mark talk about, as I indicated that when -- 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 those specifications relate to a lot of the technology that we have put into our Board's proprietary technology that gives us lightweighting capabilities that we believe is unique to the marketplace. Those are solutions that we take to our customers. And 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.

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

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

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 going to spend. It's very similar to what we did at International Falls over the last 14 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. But 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.

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 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.

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

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, the PP&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.

Okay. And presumably, you'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, et cetera. In the past, you've been able to, through business wins, grow a lot faster than the industry and fill out these new box plants, et cetera, that you are building. Have you had business wins of late that you have visibility on that can give us confidence that you can continue to outperform on the volume side?

Mark, this is Tom. We haven't changed anything that we typically would do. Absolutely nothing. We've been -- 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. And yes, we continue to have wins, but these aren't -- these are wins that we earn. They're not -- these aren't wins that you just go out and have something to offer that nobody else is doing necessarily, but we have to earn these wins.

And 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 the starts and stops that we've seen consistently go on throughout the year relative to tariffs and a bunch of other things certainly are impacting the business.

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

I think the containerboard capacity, 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 what PCA does. And I think in addition, even on the corrugated side, we've closed some facilities. We've rationalized some poor assets, things like that, and we'll continue to do so. And again, it's -- we will run to the demand that we see out there.

Okay. Tom, just since you mentioned -- and I apologize, I know I'm going a little long here. But I think you have 2 box plants which you're going to be closing in the fourth quarter. Can you give us a little color around the decision to do that?

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 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 rightsizing to the demand we see in a particular market.

I think people tend to forget, Mark, if you think about the last 16 years, we probably made 25 acquisitions. And during that period of time, we probably shut 20 some-odd plants.

20-odd plants, yes.

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

Next question is from Anthony Pettinari, Citi.

With Greif, your mix into recycled will increase. And I'm wondering if it's possible to say how many funds of OCC PCA might [ buy ] kind of with the Greif assets. And as you look at your end markets and talk to your customers, as you think about the next 3 to 5 years, is there any reason to think recycled demand will grow faster or maybe slower than [ Greif liner ]? Or do you not necessarily think about it that way?

I look at it as an opportunity. Quite frankly, I'll look at Massillon 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 it's not on a total percentage basis. It's really just taking advantage of the opportunity, and we'll play into that in the marketplace. But the recycled medium will work very well with us.

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

Okay. And any quantification of like OCC consumption, tons? Or I'm not sure if you disclosed but...

Anthony, 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 going to move up about 10% on the whole to 30-ish going forward, if that helps.

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, but the box plant projects that you referenced, does the CapEx spend for that from '25 to '26, 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?

The first part on your CapEx, we would expect as we finish up the two bigger projects, one in Ohio and 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 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. We will avoid having to spend some major pieces of capital on any new plans for the next couple of years.

So in that regard, we'll continue to do some converting installations as far as [ Evolve ], [ Sunrodie-cutter ] type stuff, some corrugator opportunities. But as far as major plant projects, that will mitigate itself. And then I see the next couple of years, the big projects are going to be some of these energy projects. We'll take advantage of that. It's probably a 2.5-year process. We'll get into the details in January and the first part of next year. But these are projects that have 1.5 years 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 going to be asking us, what are you doing with all the cash on hand? That's going to be the high-class problem we get into. And so I'm not worried about the CapEx, all of our capital that we've been spending over the years. 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 -- your part of the question on electricity. No, we're not wheeling power into the grid at any of our facilities. We are -- we do have 1 facility in particular that's essentially 100% independent, but we're not wheeling power into the grid.

Next question is from Philip Ng, Jefferies.

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 [ PCA ] levels, and then you called out some of the inventory where it's a bit more elevated at Greif.

So curious, when we think about '26, does that translate to more downtime than we should kind of be appreciative, which could potentially mute some of the EBITDA contribution from Greif? I think Kent gave a number in that 240 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 a friction that we need to be thoughtful of that could be impactful next year?

I think, again, the work we just did in Massillon for the approximately 6 weeks really gave us a comprehensive look at the mill. We literally touched everything in that mill from the ceilings down 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, roles, systems on paper machines that we want to upgrade to the PCA standards. So we've already got our plan in place.

But these changes will take place on monthly outages. It's not the 3-week outages required. It's the 24-hour outage and the annual outage for 5 or 6 days a week type of thing. So no, we'll be in good shape next year. Riverville is in a similar situation. We've got to just continue to take care of the mills, and we'll invest appropriately. And -- but no, I'm bullish on the -- what we've got facing us for the next few years. No major -- we went through a 40-some-odd day outage at Jackson a few years ago, and we don't see any of that type of situation, so we'll be in good shape.

So it sounds like you would largely be able to do the work that you want to 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?

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.

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

Okay. Philip, number one is, I'm not going to give you what -- how much these segments are. I'm just -- I just told you they're relatively large segments for us, and those are the ones that are impacting us the most, and beef and building products being down. Beef is more of a long-term thing. So it's going to take a little while as I told you, the herds are down to 70-year lows, and these things take 2 to 3 years to rebuild, and we're only a year into the process. So that's going to take a little while.

Building products, very reliant on what happens with interest rates, and they're coming down and what the cost of materials are and how quickly things can be approved and those sorts of things in the nation. And remote remodeling bottoming has begun to go the other way. So that's a good thing. The other segments that we're in have been pretty steady and steadily growing and the -- our customers are pretty bullish on things going forward. So I think overall, I mean our portfolio is in really good shape.

Tom, you're not hearing from any of your customers that they have desires to kind of work down the inventory to close out the year?

Yes, Philip, I forgot that part 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 that inventory is about -- is peeled down about as far as they can do it. Because, again, it goes back to 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. So I think our customers have been very cautious.

[Operator Instructions] This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Mark Kowlzan for any closing remarks.

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

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