Packaging Corporation of America Q2 FY2026 earnings call

• Overall Q2 2026 Financial Results:

  • Reported net income of $192 million ($2.15 per share); adjusted net income (excluding special items) was $210 million ($2.35 per share), exceeding management's prior guidance of $2.33 per share
  • Total net sales were $2.5 billion, up from $2.2 billion in Q2 2025
  • Adjusted total company EBITDA was $486 million, up from $451 million in Q2 2025
  • Special items of 20 cents per share primarily included facility closure costs, Wallula Mill restructuring charges, and Greif acquisition integration costs

• Packaging/Corrugated Operational Highlights:

  • Total shipments were up 24% year-over-year, with legacy business shipments up 4.1% to an all-time quarterly record
  • Acquired Greif corrugated business delivered strong volumes across sheet feeder and bulk segments, with earnings exceeding internal expectations
  • System-wide container board inventories decreased 25,000 tons from end-Q1, and were replenished to target levels in early July
  • The new 550,000 square foot Ohio box plant started up ahead of schedule in early July, improving regional customer service capabilities and long-term operational efficiency
  • Legacy container board production was flat sequentially compared to Q1 2026, and 14,000 tons higher than Q2 2025; Greif acquired mill production hit a post-acquisition quarterly record
  • Integration of acquired Greif assets progressed significantly, with improved flow of container board between legacy and acquired mill/box plant systems

• Paper Segment Operational Highlights:

  • Delivered a solid quarter with expanding margins, driven by higher volumes and improved pricing
  • The segment's annual maintenance outage, which occurred in Q2 2025, is scheduled for Q3 2026

• Cash Flow and Capital Update:

  • Operating cash flow was $376 million; after $206 million in CapEx, free cash flow was $170 million
  • No share repurchases were completed during the quarter; dividend payments totaled $111 million

Packaging (Corrugated) Segment: Excluding special items, Q2 2026 EBITDA was $489 million on sales of $2.3 billion, representing an EBITDA margin of 21.3%. This compares to Q2 2025 EBITDA of $453 million on sales of $2 billion, with a 22.6% margin. The segment contributed 92% of total company net sales in Q2 2026. Total container board production for the quarter was 1,415,000 tons, with 1,209,000 tons from legacy mills and 206,000 tons from acquired Greif mills.

Paper Segment: Excluding special items, Q2 2026 EBITDA was $39 million on sales of $157 million, for an EBITDA margin of 24.9%. This compares to Q2 2025 EBITDA of $30 million on sales of $146 million, with a 20.5% margin. The segment contributed 6.3% of total company net sales in Q2 2026. Sales volume was 6% above Q2 2025 and 3% below Q1 2026, while prices and mix were up 2% from both prior periods.

• Full-year 2026 CapEx is maintained at a range of $840 million to $870 million, with depreciation and amortization forecast around $710 million excluding special items
• Full-year 2026 maintenance outage expense is projected to total $1.41 per share, with $0.30 per share expected in Q3 and $0.63 per share expected in Q4
• Q3 2026 effective tax rate is projected to be approximately 26%
• Q3 2026 outlook calls for continued strong packaging segment demand, with higher corrugated product volume from one additional shipping day and lower maintenance outage impacts
  • The vast majority of the first container board price increase will be realized in Q3, with initial realization of the second price increase beginning in August and split between Q3 and Q4
  • Operating performance across the container board mill system is expected to improve, with continued progress at the Jackson mill and acquired Greif mills
  • Paper segment volume will be lower due to the International Falls maintenance outage, but prices will increase as previously announced price increases are implemented
  • Elevated freight costs are expected to persist, while recycled fiber, chemical, and purchased electricity prices are projected to increase; wood fiber and natural gas prices are expected to remain relatively flat
• Greif acquisition synergies are on track or slightly ahead of plan, with management expecting to exceed the $30 million annual run rate target by the end of 2026
• The first gas turbine for grid reliability at Jackson Mill is targeted to come online in early 2027; the remaining two turbines at Riverville and Derrida are targeted to launch in the first half to mid-2028, delayed by environmental permitting

• Multiple unplanned utility power outages across the mill system during Q2 2026 caused production disruptions, highlighting reliability risks of the national power grid that the company's ongoing gas turbine projects are designed to mitigate
• Persistently elevated input costs, including freight, recycled fiber, chemicals, electricity, and employee benefit costs, create ongoing margin pressure
• Environmental permitting for critical gas turbine projects is taking longer than expected, delaying the resolution of grid reliability risks
• Industry-wide supply tightness for container board and corrugated capacity limits the company's ability to meet all customer demand without disciplined selectivity
• Higher cost of capital increases hurdle rates for new capital projects, slowing potential capacity expansion
• Proposed 50% tariffs on Canadian container board and box imports currently have no expected material impact on Packaging Corporation of America, though full details of the proposal remain unclear, creating uncertainty

Q: The analyst asks for an update on early Q3 2026 bookings/billings trends, the mix impact on Q2 2026 revenue per ton, and how the company's fiber mix balance (now more weighted to recycled fiber post-Greif acquisition) will evolve going forward. / A: Management confirms early Q3 legacy business billings are up 1.5% year-to-date, tracking to a 2% full-quarter increase that is in line with expectations, even against a tough comparison and timing shifts from Prime Day. Q2 2026 mix weakness was driven by a previously announced $20 per ton recycled fiber price reduction that trailed into the quarter, with price increases expected to fully reverse this in Q3/Q4. Management notes the current fiber mix is roughly 30-35% recycled and 65-70% virgin, and the business continues to flex this mix as market conditions change.

Q: The analyst asks to break down the Q2 2026 earnings beat between legacy business and acquired Greif assets, and asks for an update on progress of Greif integration and the transition services agreement (TSA). / A: Management confirms Greif's earnings contribution beat internal expectations by 9-10 cents, with 4 cents coming from a one-time depreciation accounting adjustment and 5 cents from higher-than-forecast volumes and stronger operational performance. The integration is now running Greif as a fully integrated part of the total PCA system, with cross-utilization of assets to maximize efficiency. The TSA will remain in place through the end of 2026, with the final facilities transitioning to PCA systems by year-end, and integration benefits are already flowing through to results.

Q: The analyst asks for clarification on how much of the announced container board price increases have been realized in Q2, how the remaining gains will be split between Q3/Q4, and if the company can achieve full or more than full pass-through of higher input costs in the current inflationary environment. / A: Management states that the vast majority (70-75%) of the first price increase will be realized in Q3, while the majority of the second price increase will be realized in Q4. Q2 2026 pricing was held down by the prior recycled fiber price cut and mix impacts that will reverse as the new increases roll through. Management confirms that full pass-through of higher costs is their core strategic priority, and notes that the current high-inflation environment supports this goal, without quantifying the exact expected level of pass-through.

Q: The analyst asks how management characterizes current supply and demand conditions in the corrugated market, and asks for more detail on the unplanned utility outages experienced in Q2. / A: Management summarizes the current market with one word: tight, reflecting limited domestic and global container board supply. The company experienced five distinct unplanned power outages in Q2 caused by external utility issues, including utility hardware failures, unannounced regional shutdowns due to wildfire risk, and grid voltage instability that disrupted production for multiple days, resulting in approximately 10,000 tons of lost total production. These events reinforce the critical need for the company's planned on-site gas turbine projects, which will reduce reliance on the external grid for three key mills.