Packaging Corporation of America

Good day and welcome to the Packaging Corporation of America third quarter 2025 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event has been recorded. I would now like to turn the conference over to Mr. Mark Colvin. Please go ahead.

Thank you, Alyssa. Good morning, everyone. Thank you for all of you for participating in Patching Corporation of America's Third quarter, 2025 earnings release conference call. Again, I'm Mark Coles, then chairman and CEO of PCA. And with me on the call today is Tom Hasfurther, president, and Kent Flutterer, 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'd 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. The third quarter net income included special items expense of 22 cents per share, The $0.22 were costs related to the acquisition of the Greif Container Board 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 Container Board business on September 2nd. Our results included one month of the acquired operations from Greif, which impacted earnings per share by 11 cents after special items. 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 19 cents per share compared to the third quarter of 2024. This increase was driven primarily by higher prices in mix in the packaging segment for 73 cents, lower fiber costs of 16 cents, higher prices in mix in the paper segment, 2 cents, and a lower maintenance outage expense of 1 cent. Partially offsetting the improvements were higher operating costs, 33 cents, lower production and sales volume in the packaging segment, 16 cents, higher depreciation expense, seven cents, higher freight expense, seven cents, higher fixed and other expenses of seven cents, and higher interest expense excluding the Greif acquisition debt of two cents and lower production volume in the paper segment for one cent. 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 container board than the third quarter of 2024, and 59,000 more tons of container board than the second quarter of 2025. Our container board inventory in the legacy system increased by 15,000 tons during the quarter in preparation for the fourth quarter deritter 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 costs and optimize production capabilities with the support of our considerable in-house technical and capital execution expertise. The acquired mills produce 47,000 tons during the month. Having closed the acquisition on September 2nd, 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. Massalon had a scheduled annual maintenance outage, which we extended to five weeks and completed earlier in October. We did a comprehensive refurbishment of the mill, including reliability improvements on the paper machines, the OCC plant, and the power plant. All mill infrastructure and unit operations were cleaned and inspected. We took the two paper machines at the larger Riverville facility down for five days a piece 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. will 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 container board 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 container board and corrugated products prices and mix were 72 cents per share above the third quarter of 2024, and down 2 cents per share compared to the second quarter of 2025, which was all attributable to container board mix. Export container board prices were up a penny 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 one more workday this year. For a little context, on a per-workday basis, July shipments were about 6% down from last year, while August was less than 1% down and September was less than 2% down. 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 PCAs, 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 Container Board 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 a 27.1% margin. Sales volume was 1% below the third quarter of 2024 and 10% above the second quarter of 2025. Prices in mix were up 2.1% from the third quarter of 2024 and half a percent 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 2015, and 17 cents higher 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 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 one-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 container board supplier to Greif before the acquisition, and shipments of container board 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 three cents 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 three less shipping days. Export container board sales will be higher than the third quarter, but relatively low when compared to traditional fourth quarter volume. Container board 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 29 cents higher than the third quarter. We expect prices in 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 River Hill Mill. We will 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, Alyssa, I'd like to open the call up for any questions, please. Thank you.

Thank you. We will now begin the question-and-answer session. To ask a question, you may press star, then 1 on your telephone keypad. If you are using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. First question is from George Staffos, Bank of America.

Morning, George. Thanks for the details. How are you doing? I guess maybe the first question, as 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.

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

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

Well, actually, George, outside of a couple of end markets, our business has been very, very good. those couple of markets 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. You know, 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, you know, we've been very pleased with the results in all of our other sales segments.

Thanks, Tom. As regards to Greif, I know we'll get more color over time, but any big picture, any large sort of boulders you could tell us about in terms of what you're finding with Greif relative to the deal model? And is there any way at this juncture you can give us a view on what the maintenance might look like? So in that regard, again, is $300 million of EBITDA reasonable for the combined business? What does maintenance look like? And I had one or two last follow-ons. That'll 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 and in very good condition. The two mills we've had from September the 2nd that day, we've had upwards of, on any given day, 100 of our PCA personnel in the mills at Massalon 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 corrugators?

Yeah, let me just say in total, I think the best way to summarize this, George, is probably that it is an organization that is very customer-focused. 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 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, you know, very, very accretive to our earnings going forward.

One note, George, you know, we took the machines down at Riverville for basically about a five-day period, each machine in September. But during the time we ran in September, we improved operations. We were running like 97.2% for the month of September in Riverville. 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.

Yeah, so, George, going into the acquisition, historical gripe 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.

Thanks, Kent. Quickly, 20 cents, maybe a sequential increase in DNA as part of the 240 is kind of rough math. Anyway, I know it's kind of tough on the live mic, but any way to talk about what the inventory is, strategy quantify what the tons coming down might mean in the Greif system relative to where you've been. Thank you, and good luck on the quarter.

You know, the comment about inventory, again, it was mentioned. We've got 10 mils now in the system. We've got an 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'll take some time to work the inventories down. We've already started that.

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

All right. With that, next question, please.

Next question is from Mike Rockland, tourist.

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

Thanks, Mike. Good morning.

Good morning. I just wanted to follow up with you 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 six 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 every day we're seeing positive results from the work we're doing, so Again, I think a lot's 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, you know, in terms of efficiency costs, whatnot, with respect to Massillon? You extended, you mentioned in your comments and also in the press release that you extended the maintenance outage to five weeks. So can you talk about maybe some of the benefits that you're receiving from that extra work that you put into the mill?

Yeah, I mean, it's quite remarkable that with the, capability we have in pca you know we've got upwards of 200 people in our technology engineering organization and again from uh from september 2nd that morning uh at both mills uh we were working simultaneously and we had for at least a six week straight period of time at least 100 pca personnel in massillon working full-time to assist the mill in uh 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, roll 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 Massalon, 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, you know, when we converted some of the Boise acquisition, we were spending half a billion dollars, i.e. DeRitter, Jackson, uh, Wallula, uh, for these conversions. But I told you before we expect to be, you know, the work at Massillon, the work at Riverville, it'll be the tens of millions of dollars. So over the next couple of years, you know, 10 million here, 10 million there for, for system improvements, upgrades in technology and capability. But, uh, But the bones of the mills are good. We just need to update them and then, you know, like I say, run these mills the way PCA looks at the business and takes care of the business. So I'm feeling very bullish on what we've seen just in a month and a half. As an example, both mills we saw, you know, we started at Massalon the week before last and we saw at least a 50% improvement just in the quality, you know, profiles, moisture profiles, basis weight profiles, physical test profiles. So huge improvement there, and that translates into customer, you know, experience with the product through Core Choice. So, again, feeling very good about it.

Gotcha. I appreciate the call there. One last question before turning it over. Excuse me. Grife, even though for the one 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 that you took at Massillon and Riverville, or was there any economic downtime that you took due to your choppy backdrop, or as you managed elevated inventories? And then any initial thoughts in 2026 CapEx? Thank you.

Hey, 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... we're taking advantage of our opportunities. I think I would like to say that just to remind everybody that the biggest pieces of capital spending this year right now are a couple of big projects on the, uh, converting side. We've got one big project going on in Ohio right now, and that's a new facility. And then in, uh, in upstate New York, we're, uh, uh, totally upgrading one of our facilities as, as a big, uh, CapEx project that will, uh, both those projects will finish into next year. But we're, we're always, uh, you know, taking advantage of the, uh, of these capabilities to insert new converting lines and upgrade converting operations. But we'll give you a better feel in January what we're looking at. We do have some very interesting energy opportunities that we'll give you more detail with next year in the January call. Thanks very much, and good luck in 4Q. Thanks, Mike. Thanks. Appreciate it. Next question, please.

Next question is from Gabe Hyder, Wells Fargo.

Mark, Ken, Tom, good morning. Good morning, Gabe. I wanted to ask, I see this number, and I think you kind of strip out input costs, so I'm going to call it the frictional inflation treadmill, but running kind of around a dollar year-to-date, so I think in this quarter it was 33 cents. So if I annualize that, we're looking at kind of $170 million today. 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?

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

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 it particularly elevated this year, or is that something that sort of... Well, again, I think the biggest factor was electricity rate increases nationwide.

Yep.

If I 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 we've got to build a lot of data centers. On the contrary, I don't see 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 it upon ourselves that we've got plans to, you know, three more of our mills. We've got a couple of our mills are in very good shape right now with electricity independence, but within two and a half years, we'll take three more of our mills and essentially get them off the grid and we'll be in good shape.

Well, 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 gas turbine technology. We've moved ahead and we've got some great projects that we're going to be in. Understood. We've got some facilities. I mean, without getting into the details, Gabe, we've got some facilities that already burn a lot of natural gas and power boilers, but we're not getting the advantage of the downstream electricity generation. So on a combined cycle thorough efficiency, you're not getting all of the upside opportunity for each therm of gas that you burn. The gas turbines will give us that complete advantage. you know, efficiency on the combined cycle from steam generation and electricity generation.

Appreciate that.

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

Yes, sir. Tom, one, you know, 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, you know, potential price increases or trying to do more with less, whether it's lightweighting and how that's shown up maybe, you know, in your own volumes, not necessarily, you specific to price increases, but more thinking about lightweighting on that front. Thank you.

Gabe, obviously we don't talk about any forward pricing at all, so I'm going to pass on that one. But I will tell you that, again, you hear Mark talk about, as I indicated, that 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 boards, proprietary technology that gives us lightweighting capabilities that we believe is unique to the marketplace. Those are solutions that we take to our customers. 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, you know, 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.

Thank you. I'll hand it over.

Thank you. Next question, please.

Next question is from Mark Adam Weintraub. CPOD research partners.

Thank you. First, just want to just follow up on Greif with the big increase in DNA from purchase accounting. Just want to reconfirm in terms of CapEx related to those assets, I think you in the past talked about 50 to 60 million, and with that type of spend, you can get them up to packaging, corp, efficiencies, etc., Is that still a reasonable number, which obviously would be a lot lower than the $130 million DNA you had talked about?

Yeah. 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 on a lot of little systems and taking care of some of the technology. 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, you know, 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, you know, accelerated depreciation? Or is that sort of not something 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 to PP&E, we were able to take bonus depreciation on and reduce our cash taxes out pretty significantly this year. So, yeah, I think you see that in our cash for the third quarter.

Okay, and presumably you'd see that next year as well. So kind of shifting gears, if I could, Obviously, it's sort of been a pretty difficult environment industry-wise, box shipments, etc. 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, etc., 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. 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. We continue to have wins, but these are wins that we earn. 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 a lot of lift, obviously, from the economy, and these starts and stops that we've seen consistently go on throughout the year relative to tariffs and a bunch of other things certainly are impacting the businesses. Great.

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

I think the container board capacity, I think you're seeing a consistent trend in this industry that it right-sizes 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, you know, again, it's, you know, we will run to the demand that we see out there.

Okay, Tom, just since you mentioned that, I apologize, I know I'm going a little long here, but I think you have two box plants which you're 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, you know, 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 right-sizing 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 down.

20-some-odd plants, yeah.

During that period of time, we built a number of new plants and essentially recapitalized the rest of our footprint. But as Tom said, we run to demand, but people lose sight of the fact that we have gone ahead and enclosed a number of our older plants that just don't fit the... fit our needs anymore. Thanks so much. Next question, please.

Next question is from Anthony Pitinari, CT.

Good morning.

Good morning.

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

You know, I, I look at it as an opportunity. Um, quite frankly, uh, I'll look at Massalon 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. Yeah, market, the key is that, you know, we do need the medium, and the 100% recycled medium is, you know, 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, I mean, 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... Hey, 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, you know, 30-ish going forward, if that helps.

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, you know, 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?

First part on your CapEx, we would expect as we finish up the two bigger projects, the one in Ohio and the one in New York State next year, CapEx will continue to be kind of flat in that range. We would probably take advantage of that opportunity The good news is, and Tom has mentioned this and I've mentioned it, Greif gave us the opportunity with the core choice converting side of their business. It's going to help us minimize what we have to do in some of these regions. We will avoid having to spend some major pieces of capital on any new plants for the next couple of years. So in that regard, we'll continue to do some converting installations as far as EVOL, sun rotary die cutter type stuff, some corrugator opportunities. But as far as major plant projects, that'll 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 two and a half year process. We'll get into the details in January in the first part of next year. But these are projects that have, you know, year and a half payback type projects. Very, very high return projects. But as far as the level of CapEx, you know, 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, you know, we've got a very good track record of return on our investment with this capex spending. So, uh, as far as what you're modeling, just, I would just continue to model, uh, what our trend has been and we'll update you next year. There was one party. Oh, you're part of the question on electricity. Uh, no, we're not wheeling power into the grid at, uh, at any of our facilities. We are, we do have a one facility in particular that's essentially a hundred percent, uh, you know, independent, but, uh, but we're not wheeling power into the grid.

Oh, that's very helpful. I'll turn it over.

All right, next question, please.

Next question is from Philip N.G. Jeffries.

Hey, guys. Appreciate all the great color. So, Mark, you talked about potentially some of these energy projects 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 PKG levels, and then you called out from 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 synergy. So, I just want to be mindful just because it was extra noise in the back half of this year. Is there friction that we need to be thoughtful of that could be impactful next year?

I think, again, the work we just did at Massalon for approximately six 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, rolls, systems on paper machines that we want to upgrade to the PCA standards. So we've already, you know, got our plan in place. But these changes will take place on monthly outages. It's not the, you know, three-week outages required. It's the 24-hour outage and the annual outage for five or six days a week type thing. So, no, we'll be in good shape next year. You know, Riverville's in a similar situation. We've got to just, you know, continue to take care of the mills and we'll invest appropriately. But, no, I'm bullish on what we've got facing us for the next few years. No major – you know, 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 – 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.

Yeah, no, I mean, the inventory management, that will happen over the next couple of quarters as we work our way down. Like I say, that's just future upside for the business.

Okay, helpful. And a question for Tom. You called out, you know, building math and beef being more problematic. Tom, can you size up how much of that, of your box business is tied to those end markets or trends in those end markets getting worse? It's kind of bouncing along the bottom and the other categories. Are you seeing order patterns pick up a bit and how do you kind of envision your customers managing inventory to kind of close out the year?

Okay, Phillip, number one is I'm not going to, I'm not going to give you how much these segments are. I just told you they're relatively large segments for us, and those are the ones that are impacting us the most in beef and building products being down. But 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 two to three years to rebuild, and we're only a year into the process. So uh, you know, that's going to, that's going to take a little while, uh, building products, you know, very reliant on, you know, what happens with interest rates and they're coming down and, uh, and you know, what the cost of materials are and, uh, how quickly, you know, uh, things can be approved and those sorts of things, uh, in, in the nation. And, and, uh, the remodeling prop, the remodeling, uh, bottoming has begun to go the other way. So that's a good, that's a good thing. Um, The other segments that we're in have been pretty steady and steadily growing, and, you know, our customers are pretty bullish on things going forward. So I think overall, I mean, our portfolio is in really good shape.

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

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

Okay. Appreciate all the color guys. Thank you.

Thank you. Next question.

For any further questions, please press star and one on your telephone. This concludes our question and answer session. I would like to turn the conference back over to Mr. Mark Coulson. 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 having a good conversation with you in January. With that, have a good day and have a great holiday period. Take care.