PACKAGING CORP OF AMERICA Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Overview: Q1 2025 net income was $204 million ($2.26 per share), excluding special items $208 million ($2.31 per share). Net sales were $2.1 billion vs $2 billion in 2024. EBITDA excluding special items was $421 million vs $333 million in 2024.
• Packaging Business: EBITDA was $409 million, sales $2 billion, margin 21%. Driven by price increases, box shipments, containerboard production, and operational performance. Ended the quarter at targeted inventory levels.
• Paper Business: EBITDA $40 million, sales $154 million, margin 26%. Volume was lower, but prices and mix were up. Price increases implemented during the quarter.
• Cash Flow: Cash provided by operations was $339 million, free cash flow $191 million. Adjusted maintenance outage schedule, pulling an outage into Q2, increasing outage expenses.

Segment Performance

• Packaging Segment: In Q1 2025, EBITDA excluding special items was $409 million with sales of $2 billion, resulting in a 21% margin. Compared to Q1 2024, EBITDA was $326 million with sales of $1.8 billion and an 18% margin. Driven by sound price increase implementation, solid box shipment volume, record containerboard production, and outstanding operational performance.
• Paper Segment: EBITDA excluding special items in Q1 2025 was $40 million with sales of $154 million, a 26% margin. Compared to Q1 2024, EBITDA was $41 million with sales of $164 million and a 25% margin. Volume was lower, but prices and mix were up, with price increases implemented during the quarter.

Guidance

• Second quarter earnings expected at $2.41 per share. Packaging segment expects domestic prices to improve, but operating costs impacted by lower containerboard volume. Paper segment expects higher prices but lower volume due to maintenance outage, higher freight, and depreciation expenses.

Risks

• Uncertainty in domestic and foreign tariff actions affecting global trade and demand trends. Inflation across cost structure despite lower fiber prices. Adjustments to maintenance outage schedule impacting costs.

Question and Answer

Q: George Staphos from Bank of America Securities asked about macro environment impact, bookings/billings, containerboard production, and mix.

A: Bookings/billings were up 4.1% at the start of Q2. Caution exists due to tariffs, price increases, and e-commerce mix. Containerboard production is adjusted based on demand and trade concerns. Mix is influenced by e-comm growth.

Q: Mike Roxland from Truist inquired about the $0.10 beat, operations, and e-commerce business wins.

A: The $0.10 beat was due to effective price increase implementation. E-commerce volume growth comes from existing and new customers, with margins consistent and PCA adapting to market mix.

Q: Gabe Hajde from Wells Fargo Securities asked about value over volume, rail increases, and CapEx.

A: PCA focuses on value and innovation. Rail increases occurred in Q2, and CapEx is tracking at around $800 million with ongoing projects.

Q: Mark Weintraub from Seaport Research Partners questioned sequential pricing, volumes, and lightweighting.

A: Non-contract box business is ~30%, with pricing success from non-contract and contractual rollout. Volumes are higher in the second half due to macro and customer wins. Lightweighting is customer-driven and technology-enabled.

Q: Anthony Pettinari from Citi asked about tariff impact on costs and Glendale box plant comparison.

A: Tariffs are monitored, with no major changes. The Glendale plant has 2x output and lower labor cost compared to the average plant.

Q: Philip Ng from Jefferies inquired about back half demand, inventory, and buybacks.

A: Back half demand is expected to match production, with inventory being lean due to caution. There is an appetite for buybacks as an opportunity.

Q: Charlie Sands from BNP Paribas asked about bookings slowdown, second quarter guidance, and basis weights.

A: Q1 bookings slowdown was due to weather, tariffs, and inventory drawdown. Second quarter guidance is based on beating tough comps. Basis weights are continuing to decline.

Q: George Staphos from Bank of America Securities followed up on paper supply and basis weights.

A: Paper supply is managed through productivity, mill reconfigurations, and acquisitions. Basis weights are declining, customer-driven, and technology-enabled.