Packaging Corporation of America

Good morning, everyone. Thank you for joining Packaging Corporation of America's first quarter 2025 earnings results conference call. Your host today will be Mark Colzan, 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 conference call over to Mr. Colzan. Please proceed when you are ready.

Thank you, Jamie. Thank you, Jamie. Good morning, everyone, and thank you all for participating in Packaging Corporation of America's first quarter 2025 earnings release conference call. Again, I'm Mark Colzan, Chairman and CEO of PCA, and with me on the call today is Tom Hasfurther, President of PCA, and Bob Munday, our Chief Financial Officer. I'll begin the call, as usual, with an overview of the first quarter results, and then I'm going to turn the call over to Tom and Bob, who will provide further details. After that, I'll wrap things up, and then we'll be glad to take questions. Yesterday, we reported first quarter net income of $204 million or $2.26 per share. Excluding special items, first quarter 2025 net income was $208 million or $2.31 per share compared to the first quarter of 2024 net income of $155 million or $1.72 per share. First quarter net sales were $2.1 billion in 2025 and 2 billion in 2024. Total company EBITDA for the first quarter excluding special items was $421 million in 2025 and $333 million in 2024. First quarter net income included special items expenses of 5 cents per share, primarily for the closure costs related to corrugated products facilities. Details of special items for both the first quarter of 2025 and 2024 were included in the schedules that accompanied the earnings press release. Excluding the special items, the 59 cents per share increase in first quarter 2025 earnings compared to the first quarter of 2024 was driven primarily by higher prices in mix of 78 cents per share and volume, $0.27 per share in the packaging segment. Higher prices and mix in the paper segment, $0.01, lower freight and logistics expenses, $0.01, and lower scheduled outage costs, $0.01. Partially offsetting these improvements, operating costs came in about where we expected at $0.37 above last year's levels. Although we did see lower fiber prices during the quarter, we continue to experience inflation across most of our cost structure. Our focus on operational efficiency, cost reduction initiatives, capital project execution have helped minimize the negative impact of the persistent inflation. In addition, paper segment volume was lower by two cents. Depreciation and other expenses were higher by three cents per share. Our tax rate was higher by 4 cents per share, and we had higher interest expense of 3 cents per share. The results were 10 cents above the first quarter guidance of $2.21 per share, primarily due to higher prices and mix in the packaging segment. Looking at the packaging business, EBITDA, excluding special items in the first quarter of 2025, of $409 million with sales of $2 billion resulted in a margin of 21% versus last year's EBITDA of $326 million and sales of $1.8 billion or an 18% margin. Excellent margin improvement for the quarter was driven by sound execution in our price increase implementation, solid box shipment volume, record container board production, and outstanding operational performance at our mills and box plants. We were also able to end the quarter at targeted inventory levels, which puts us in great position compared to last year's historically low inventories. Our employees continued to deliver on numerous cost reduction initiatives, efficiency improvements, integration and optimization enhancements, and capital project benefits to not only minimize the negative impact from the persistent inflation we currently see across most of our cost structure, but also to capitalize on our longer-term strategic goals. I'll now turn it over to Tom, who's going to provide further details on container board sales and the corrugated business.

Thanks, Mark. The disciplined implementation of the price increases for liner, medium, and boxes, according to our announcements, was a significant contributor to this year's first quarter results. Domestic container board and corrugated products prices and mix were 72 cents per share above the first quarter of 2024 and up 41 cents per share compared to the fourth quarter of 2024. Export container board prices were up 6 cents per share versus last year's first quarter and down 1 cent per share compared to the fourth quarter of 2024. Although we began to see some pullback in the middle of the quarter related to the uncertainty created by trade tensions around the world, box demand was solid and exceeded a very strong comparative period in last year's first quarter. Total volume and shipments per day in our corrugated products plants were up 2.5% versus last year's first quarter when per day shipments were up 11% over the previous year. Also, in addition to supplying record container board production volume to meet the integrated needs of our box plants, Outside sales volume of Container Board was 30,000 tons above the first quarter of 2024 and 6,000 tons above the fourth quarter of 2024. As we look ahead to the second quarter, we expect the economic uncertainty to continue weighing on demand. However, we still believe the box shipments will be higher than the first quarter and above last year's tough comp, which was up 9.2% over the previous year. Regarding the strategic capital plan for our converting plants, I'd like to mention that in March, we had a successful startup of our new state-of-the-art, high-efficiency, full-line box plant in Glendale, Arizona. The 365,000 square foot plant was started up ahead of schedule, significantly below budget, and all equipment was operational during the first week of production. Previously, we were limited in our ability to serve and grow with our customers in this key marketplace due to the plant's limited capability and aging equipment that required us to pull from several different locations, some of which were quite far away geographically. Our new plant will increase box capacity by almost 2 billion square feet, significantly increase productivity on a unit labor hour basis, reduce costs, and allows us to optimize our service capabilities not only in the Phoenix area, but also in the growing markets in Las Vegas and portions of California. I'll now turn it back to Mark.

Thanks, Tom. Looking at the paper segment, EBITDA excluding special items in the first quarter was $40 million with sales of $154 million or a 26% margin compared to the first quarter of 2024, EBITDA of $41 million and sales of $164 million or a 25% margin. The employees of our paper business continue to deliver excellent customer service and remain focused on efficient and cost-effective operations in order to deliver outstanding margins for the quarter. Similar to the industry, sales volume was 7% below a particularly strong first quarter of 2024, along with current economic uncertainty. Volume was 2% above the seasonally weaker fourth quarter of 2024. Paper prices in mix were 2% above the first quarter of 2024 and flat versus the fourth quarter of 2024. A previously announced price increase began to be implemented during the quarter for all office printing and converting grades. Prices have begun to move up according to the terms of our customers, and we expect to begin seeing higher prices in the second quarter results. I'll now turn it over to Bob.

Thanks, Mark. Cash provided by operations set a first quarter record totaling $339 million, and free cash flow was also a first quarter record at $191 million. The primary payments of cash during the quarter included capital expenditures of $148 million and dividend payments of $112 million. Our quarter-end cash balance included marketable securities, was $914 million with liquidity of just over $1.2 billion. As mentioned in our earnings release last night, to help manage the current economic uncertainty and its impact on our demand, we have adjusted our planned maintenance outage schedule and pulled up into the second quarter an outage that was scheduled for later in the year. This will result in a 16 cents per share increase in planned outage expenses for the second quarter versus the first quarter. The revised total company estimated cost impact for the year is now $1.22 per share versus $1.18 per share previously. The actual impact in the first quarter was $0.23 per share, and the revised estimated impact by quarter for the remainder of the year is now $0.39 per share in the second quarter, $0.16 in the third, and $0.44 per share in the fourth quarter. I'll now turn it back over to Mark.

Thank you, Bob. Looking ahead as we move from the first and into the second quarter, as always, our attention will remain on what we can control. Our North American focus, together with our balance sheet strength, well-capitalized mills and plants, our commitment to strategic goals, and our proven ability to respond quickly and effectively to external factors will serve us well during a period of economic uncertainty. We anticipate continued ambiguity relative to domestic and foreign tariff actions and their effect on global trade and our demand trends. Therefore, we've made certain assumptions in our guidance to recognize potential negative impacts to volume and costs from the uncertainty. In the packaging segment, we expect domestic prices to improve with continued implementation of our price increases, along with fairly flat export prices. Although we see box shipments improving, operating costs will be negatively impacted due to lower container board volume as we run our operations to match demand assumptions. Also, as Bob mentioned, adjustments to our planned maintenance outage schedule will result in a 16 cents per share increase in outage costs compared to the first quarter. In the paper segment, implementation of the higher published index prices from the first quarter will continue, although volume will be lower with the planned maintenance outage at our International Falls Minnesota mill. Rail contract rate increases at six of our mills during the first and second quarters will result in higher freight and logistics expenses and depreciation expenses assumed to be higher as well. Considering these items, we expect the second quarter earnings of $2.41 per share. With that, we'd be happy to entertain any questions, but I must remind you that some of the statements we've made on the call constituted forward-looking statements. The statements were based on current estimates, expectations, and projections of the company and involve inherent risks and uncertainties, including the direction of the economy, and those identified as risk factors in our annual report on Form 10-K on file with the SEC. The actual results could differ materially from those expressed in the forward-looking statements. And with that, Jamie, I'd like to open the call to questions, please.

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

Thank you. Hi, everyone. Good morning. Thanks for the details.

Morning.

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

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

Yeah, George. Our bookings and billings are up 4.1% starting out the quarter, so we're starting out well at about what we expected. I think the caution relates to a number of different things. You've got, obviously, the tariffs and these sorts of things, and you can listen to all the experts and talk about it, but there is no real expert in this arena right now. because there's attempting to do things that haven't been done for a long, long time. So I think there is some caution related around that. And also, this is happening at the same time we're fully implementing a price increase. And in addition, you know, the mix is changing somewhat in corrugated in total because e-com, you know, continues to be a growth engine for corrugated. And that's, you know, really related to the second half of the year. more so than the first half. So a lot of moving parts, and, you know, that's what we're reflecting.

Bob, you want to talk about that? Yeah, George, I'll just add one other thing. George, you know, you have to also consider that, and we mentioned last night that, you know, we exceeded our guidance because of better price realization in our packaging segment. So, you know, that number, you know, the amount we exceeded our internal guidance by, you know, was more than the 10-cent beat we had you know, in the first quarter. So, you know, said another way, that was, you know, something we thought we would get more likely in the second quarter. So that, you know, you have to consider that as well when you look at our second and first quarter together.

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

Let me talk to the first part there. As far as, again, based on what we're seeing in the marketplace, as we've always done, we're running to our expected demand. across the board what we see with our customer throughout North America. Because of some of the trade tariff debate going on, we have pulled back from a very small amount of export going specifically to China. And again, it's a very small amount. But again, just as we've always done, we're running to our customer demand That being said, we anticipate the month of May we'll probably have two of our smaller machines down for the month unless something changes dramatically. And so that's how we're going to manage our inventory. That has something to do with some of what we talked about with the cost impact on these outages. We're taking the mills down for their annual outage. We're pulling up the outage we referred to that we're pulling up from the latter part of the year is at Filer City. Michigan. That was planned for the fall, and we're pulling that up to the month of May. But that will probably keep one of the small machines down for the extra number of weeks as we see the inventories and demand move around. And so we're being cautious in our own right on how we look at the world. But that's, again, we have that ability to move very quickly if we need to. There was another part of the question that you had there. Refresh me on what was that second part? Mix. Yeah.

Well, I don't remember really talking about richer mix in the first quarter because the first quarter is just a pretty stable mix. And, of course, you're not going to have a tremendous amount of graphics or anything like that in the first quarter. So, you know, the one – A couple of things that did impact us, though, in the first quarter that we haven't really even talked about, and that is we did have more weather-related closures than we would typically have in any winter. So that was impactful. And then also in southern Texas, the weather did impact the ag business down there to a large extent. But I think also what we're talking about when we talk about the mill outages and moving those up is because we do see the second-half demand increase. you know, being significantly higher than the first half. So we see an opportunity to get that done. And, you know, so it just makes good sense that we can run full out in the second half of the year.

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

Next question, please.

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

Yeah, thank you, Mark, Bob, for taking my questions, and congrats on good results in a top operating environment. In terms of just the 10 cent fee, can you just, and you mentioned that the higher prices and mix and packaging, can you just provide a little more color with respect to your operations, with something specific, specifically the way you ran your mills, with something with the contracts, where price was able to flow through faster? Just want to get a sense of how you were able to beat your own expectations by $0.10 in one queue.

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

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

Got it. I appreciate the call there, Tom. And then just, you know, following up on your comments on e-commerce, you know, you gained some share in e-commerce, I believe. Obviously, it's continuing to flow through ops and some of it, obviously, maybe more traditional brown box type products as well. Can you just give a sense, some of those business ones that you had in e-commerce, where they stand with respect to EBITDA margin and return on investment capital relative to your underlying business? Is that the business that you picked up from e-commerce vantage point, you know, 20% type EBITDA margins, call it mid-upper team return invested capital type business?

Well, Mike, I would say we picked up – our volume growth is primarily a result of our existing customers, number one. Number two is we did add some additional outside customers. We don't typically target any particular segment. We target customers that we know will be around for the long haul and that we've done business with for decades. Now, that said, e-com is the number one growing segment in corrugated, and obviously that becomes a larger segment for us as well since we do business with the e-com providers. And you know, are the margins, are the margins better or worse, whatever? No, the margins are, the margins are what they are. And they're, you know, and we make, you know, we don't take on business just for the sake of taking on volume. I mean, I think we've said that many, many times. You know, we, we have a business to run. Our customers have a business to run and we both expect to be able to make good returns in our businesses. So, you know, we've, you know, we've, we've done a lot of things in our mills that we've talked about in terms of, uh, you know, customizing our boards for, for different industries and different demands. And, uh, you know, so I think that a lot of there's been, there's been discussion about, let's say as an example, you know, well, price doesn't, price doesn't seem to move as much for certain industries or, or, you know, your mix, the mix is getting more, more towards Brown that it is towards graphics, things like that. Well, That's really just a result of what's happening in the marketplace. If e-com is growing, that means big box is probably going the other way, which also means there's less graphics and displays and things like that and some of that other what you'd call richer mix. So we're just adapting to whatever the marketplace is, and that's demonstrated also in what we've talked about, what we're doing in the second quarter.

Got it. Thank you very much.

Thank you. Next question.

Our next question comes from Gabe Hyde from Wells Fargo Securities. Please go ahead with your question.

Mark, Tom, Bob, good morning.

Morning.

Tom, I want to challenge maybe a little bit of what you said. I mean, two of the other competitors in the marketplace are talking about value over volume and trying to extract more from customers. Maybe... I don't know if they're talking about retail ready packaging or figuring out ways to upsell customers, maybe, you know, wow them when they get that package on their porch and when they, you know, the opening experience and things like that. I'm just curious if you all are seeing that as you talk to your Salesforce, you know, across the different channels, those types of opportunities, or if you've seen any change of behavior or if there's, anything that you're seeing when you're going out for RFPs, things like that?

Well, Gabe, I think that some of that's a little bit of gee whiz if you ask me, but what we see, we lead in this area, in my opinion, to offer our customers the very best value and the very best options that they may use the box for. And that's what makes the box very unique is that, you know, it can advertise, it can protect, it can do all these other sorts of things, and it's probably the greatest product in the history of mankind from a sustainability and recyclability standpoint too. But, you know, so our customers are very sensitive to those sorts of things. They want us to bring the innovation and the ideas to them, which is what we do always. So I'm not, you know, I don't want you to misinterpret what I'm saying that, that PCA is headed towards nothing but brown because that couldn't be further from the truth. But at the same time, we accept the realities of what's happening in the marketplace.

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

Yeah, on the CapEx, we're still tracking on that 840. 800 million level of spending. We broke ground on the new plant in Ohio back in February, so that's well underway, and we've got some other big projects going on. One big project at one of our mills, and then just the numerous projects reconfiguring a couple of the other box plants on the East Coast. So there's a lot of good activity happening there on the capital side.

Yeah, and on the rail increases, Gabe, you know, we had, I think, three in the first quarter, so you'll get a full quarter's worth, you know, of those in the second quarter. They happen around midway or a couple are in March. And then we have three additional that will take place in the second quarter. So that was, you know, what drove our comment around freight.

Thank you. Good luck.

Thank you. Next question, please.

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

Thank you. Good morning. A few follow-ups. First off, on the sequential pricing, which, as you know, was very strong, can you share kind of roughly speaking how much of your box business is non-contract and or has that share increased meaningfully over time?

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

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

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

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

That's more of a macro view, but furthermore, in addition, I mean, we know what's coming on. As I mentioned, we don't build these facilities like the Glendale, Arizona facility. We don't build these things and then hope the customers will come. I mean, we've got them lined up, and we built it because they have the demand for it. And, of course, that plant will be ramping up and will be – it's, it's doing incredibly well starting out. And I've got a, I got a call out all of our engineering and technical staff, as well as our plant staff, uh, and leadership teams. They've just done an unbelievable job. And I'm very proud of the fact that, you know, we can, we can start up a plant literally with no hiccups and just, you know, uh, ahead of schedule below cost and, uh, and be fully operational like that. But, uh, But we'll build into that plant as an example. And furthermore, just on a macro basis, the mix continues to be a little more second-half loaded than, you know, steady year-round, which is not unusual for our mix, by the way. But it's just as we've gotten bigger, I mean, it becomes a little more impactful.

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

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

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

Well, Mark, I think, you know, as I've mentioned in the past, and I think it's a competitive advantage we have, and that is that the investments that we have made in the mills, the investments we've made in the box plants, what we've done in the marketplace, I mean, we are literally tailoring everything to what meets the needs and the demands of our customers. So, you know, the short answer is yes. I mean, a lot of light weighting has taken place. not only with PCA but in the entire industry. And that's why I think, you know, as I've said before, when you use tons now as a measuring stick and if you don't make the adjustments for lightweighting, I think you can begin to fool yourself as to what to expect because, you know, you just can't lightweight for the sake of lightweighting and you can't just continue to run heavyweight boards if that's not going to fit the demands of the customer. So this is all very, very customer-driven, and we've been on the cutting edge of this for quite some time and are very, very happy with the position we're in. And we measure what we sell, which is MSF, and that's really important to really understanding what's changing in the marketplace and what your margins really look like.

One thing I was thinking about with the new Jackson No. 3 machine running, that one machine, and we'll have to calculate, but probably that one machine now is making more square feet of board than if you went back 15 years ago than Counts and Valdosta used to run combined with the machines that they had. And so it's just a testament that, again, we've gone significantly into taking advantage of the marketplace and the lightweights have been very beneficial for us. But machines also like Jackson have enabled us to do that.

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

I appreciate all the color. And Bob, I'm not sure if you're planning to be on next quarter's call. If not, thank you for all your help. If you are, chat next time around.

Thanks, Mark. Appreciate it. Next question, please.

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

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

Nothing in particular right now. We've had some small items, anecdotal results of steel in particular, with a few of the equipment purchases that we've been involved in. And so we've got our eyes wide open and our purchasing team is really working with the supplier base and understanding what the implications are in real-time fashion. And that's something that, again, it's been all hands on deck trying to understand. If you're ordering a piece of equipment that's coming from Germany or coming from Finland, or France or Japan, they're probably sourcing the steel and its various types of steel, the different alloys. Where is that coming from? And so there's a lot of moving parts here on the complexity of what's been happening with the tariff discussions out in the marketplace. But we've been watching that. We haven't had anything substantially that we've had to change. We're making sure that we understand what the implications are. Bob, you got anything? Yeah, that's pretty much sums it up.

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

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

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

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

I think if you went back over the last 15 years, we've made 24 acquisitions, and we've built a number of new plants, but we've probably closed, what, 20 plants or so, Tom? A little more than 20, yeah. So people tend to forget that, that we've closed and shut down a number of plants and really rationalized business. Yeah. The PCA footprint today is unrecognizable to anybody that was looking at it 20 years ago.

Okay, that's extremely helpful. I'll turn it over.

Next question, please.

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

Hey, guys. Bob, congrats, and thanks for all the help over the years.

Thanks, Phil.

Yeah, I guess first question, Tom, it sounded like you're pretty confident back half demand is going to be better than the first half with perhaps some of the wins from the investments you've made. So let's say that demand outlook does play out as you anticipate. Will you need to be drawing down production in the back half? You know, part of the reason the 2Q outlook is a little more muted, you know, pull forward to the maintenance and then running containable production with demand. So if demand is better like you expect, will you need to kind of draw down production back half?

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

Well, Tom, I guess that's differently. To the back half, you would expect... your container board production to match pretty closely the box shipments, right? Just because two key there, there's a mismatch.

Yes.

Yeah. On your possibility. So the back half, you'd like. Yes.

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

Okay. And then from a, um, commentary, I mean, April sounds like books and billing still reasonably strong. I think if I heard you correctly, a 4%, uh, maybe your, the order patterns from your customers are a little more mixed. Um, is that largely D stock on their end? Just so my question is really, do you have a view, you know, how much inventory is in the channel, whether it's the actual end customer or maybe, uh, yeah, customers in general, how long would it take to kind of flush out that D stock and how much inventory, uh, perhaps is in the channel?

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

Okay, super. And then a question for you, Mark. You guys are, as you kind of pointed out, on your price lease, well capitalized, strong balance sheet. You're going to be generating a decent amount of cash flow. Your stock's down quite a bit. Is there an appetite to kind of step up your buybacks with your share price here?

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

Okay. All right. Thank you, guys. Good luck on the back half of the year.

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

Our next question comes from Charlie Muir-Sands from BNP Paribas. Please go ahead with your question.

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

All right, Charlie, let me see if I can make a stab at a couple of these things. Yes, we did start out the first quarter with very strong bookings. First quarter is always probably the iffiest quarter there is in terms of what's really going to happen in the quarter. The major impacts in our volume in that first quarter, in my opinion, were, number one, weather, which we know took place in a number, as I mentioned. But in addition, I think when these tariffs started to roll out, and our customers became much more cautious about what they were going to do going forward. I think what you saw is they were drawing their inventories down, and that changed the demand curve quite a bit. Second quarter, of course, you know, and again, I'm going to say, you know, keep in mind that you're talking about a first quarter increase in volume over double digits that we had the previous quarter in 2024. And again, in the second quarter, we're going to be up. Uh, we're starting out a little ahead, uh, maybe even a forecast, but, uh, uh, again, it's, it's, it's a, I think we were up 9.2%. I think if I recall, uh, second quarter of 2024. So, uh, you know, we're, we're, we've got some really, really big comps, uh, that we're, that we're beating and, uh, and given the environment we're in and everything else, we feel very good about that. So, uh, I think, and then, you know, of course, then I make comments about the second half of the year, and we'll see how those play out. Great. Thank you.

Thank you. Any other questions, Jamie? Anybody trying to get back into the queue?

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

Thanks so much. I'll keep it quick. Appreciate the follow-up. So Mark, you talk to this periodically on these calls. How do you view your paper supply situation in container board as you look out the next couple quarters? Because even with the volume risks that are in the market, you're doing well relative to the industry trends. And if we take your production and look at it relative to your capacity, there's not a ton of headroom. So how do you view your ability to keep up with demand Are there any risks that you see in terms of being able to supply?

Nothing's changed. George, if you went back over the last 15 years, we've always looked out at the future needs, and also there's a number of levers that we can move to satisfy what Tom needs in the box plant side. Don't forget we are moving export around the world, a very small amount, but that's a portion of container board tons If we needed to, that could be pulled back into the domestic market, but also we've continued to improve the productivity out of the mills year after year, and we're always looking at opportunities out in the marketplace for what could we do in terms of a mill acquisition, a paper machine reconfiguration. So there's a number of things we're looking at, there's a number of things we're doing, and there's a number of things we always do to take care of what the box plants need. Short term over the next few years, I'm not worried. If you ask me about, you know, where are we gonna be 10 years from now? Yeah, if we keep growing at the rate we're growing, we're gonna, a high class problem is we're gonna need a significant amount of container board to satisfy the kind of growth trend if that were to continue at the pace we would expect. So those are high class opportunities.

No, clearly. Now, if I look at, and last one for me, if I look at basis weights, it looked like second half this past year, trends were, as you pointed out, it was a lighter basis weight versus first half of 24. I didn't feel like there was that much of a change 24 versus 23 when I look at the data. So are there mixed factors occurring such that, yeah, in reality the basis weight of your boxes is actually declining, but we're not seeing it in the aggregate data? And how would you say basis weights, you know, shifted year on year or sequentially in 25 so far? Thanks and good luck in the quarter.

George, I think basis weights are continuing to come down. They'll come down again in 25 versus 24. I think, you know, it just depends on the mix at any given point in time or whatever the case might be, but the general trend is down. And, you know, that's, again, as I mentioned, you know, we have our proprietary boards that are tailor-made really for our customer mix, and they're, you know, predicated on making sure they perform well. You can't just lightweight for the sake of lightweighting. I mean, this is really, you know, true, true paper technology here. And so it's, you know, we'll continue to see that because I think there are opportunities for us going forward to continue to do that, and we plan to take advantage of that.

You know, a good way to look at that is if you think about the last half dozen years, what we've done at the Jackson Mill, you know, when we first converted the Jackson mill, number three machine to make liner board, we were doing it without the reconfiguration. So we were not able to make the high-performance grades. And then as we finished the phase two last year of the reconfiguration, that's what's really given us the big uplift. So Jackson has been a game-changer in terms of the majority of the – calling it the volume of square feet produced of these high-performance grades that we have the capability. The Jackson machine, there's only one other machine in North America that can even compare to what the Jackson machine does. And so it's been a game-changer for PCA. But at the same time, we've modified and brought on all our other line-of-board machines to produce – These high-performance grades, yeah, that's a big beast of a machine.

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

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

Thanks, George. Jamie, any other questions?

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

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

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.