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DATE
Thursday, April 23, 2026 at 9 a.m. ET
CALL PARTICIPANTS
- Chairman and Chief Executive Officer — Mark W. Kowlzan
- President — Thomas A. Hassfurther
- Chief Financial Officer — Kent A. Pflederer
TAKEAWAYS
- Net Sales -- $2.4 billion, up from $2.1 billion, indicating sustained revenue growth.
- Net Income (Ex-Special Items) -- $215 million, or $2.40 per share, versus $208 million, or $2.31 per share, reflecting $0.09 per share increase.
- EBITDA (Ex-Special Items) -- $486 million, up from $421 million, highlighting improved operational performance.
- Packaging Segment EBITDA (Ex-Special Items) -- $482 million on $2.2 billion sales, with a 22% margin, compared to $409 million and $2.0 billion sales at a 20.8% margin.
- Paper Segment EBITDA (Ex-Special Items) -- $38 million on $160 million sales for a 23.6% margin, down from $40 million and 26.1% margin on $154 million sales.
- Total Containerboard Production -- 1.398 million tons produced; legacy mills contributed 1.21 million tons, representing sequential volume reductions from the previous year.
- Corrugated Shipments (Legacy) -- Shipments per day increased 2.8%, total shipments up 1.2% due to one fewer workday.
- Corrugated Shipments (Including Greif Acquisition) -- Up 22% per day and 20% in total, demonstrating significant integration impact.
- Export Containerboard Prices -- Flat year over year and down $0.01 per share sequentially; export sales volume up 6.5 thousand tons but down 13 thousand tons sequentially.
- Implemented Price Increases -- Reported containerboard prices net up $50 per ton since the start of the year; majority of benefit expected to be realized in the third quarter.
- Free Cash Flow -- $164 million after $165 million CapEx and $329 million cash from operations; CapEx guidance for the year remains at $840 million to $870 million.
- Share Repurchases -- 266 thousand shares were repurchased at an average of $228.78 per share; $224 million of repurchase authority remains.
- Effective Tax Rate (Ex-Special Items) -- Just under 23%, below the 25% full-year forecast due to equity award vesting; Q2 tax rate expected at approximately 26%.
- Outage Expense -- $0.14 per share in the first quarter; $0.36 expected in Q2, $0.31 in Q3, and $0.64 in Q4, totaling $1.44 for the year.
- Greif Acquisition Impact (Q1) -- Generated a $0.06 per share loss mainly due to storm-related disruptions, elevated freight and recycled fiber costs, and unfavorable mix.
- Synergy Target (Greif) -- "$15 million to $20 million" annualized productivity improvements achieved; company reiterated goal to reach $30 million run-rate synergies by year-end.
- Containerboard System Inventories -- Reduced by 39 thousand tons from the preceding quarter; Greif plant inventories cut by approximately 10 thousand tons.
- Guidance for Q2 Earnings -- Company expects $2.33 per share (ex-special items) as increased prices and volumes partially offset higher costs and outage expenses.
- CapEx Project Updates -- Board approved gas turbine projects for Jackson and Riverville mills; scoping third at DeRidder mill with goal of achieving electricity independence at multiple sites.
- April Demand Trends -- Legacy business bookings and billings up 4.5%; no evidence of pre-buy activity, with customers operating lean inventories.
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RISKS
- Kent A. Pflederer stated freight, fiber, and chemical costs will be "maybe $0.15 higher" from Q1 to Q2, reversing typical seasonal benefits.
- Mill outage expense is projected to increase to $0.36 in Q2 from $0.14 in Q1, with further increases planned for Q3 and Q4.
- Share-based compensation expense will run "$17 million higher" for the year, with disproportionate impact beginning in Q2 and expected to continue through 2028.
- Ongoing diesel fuel price increases have lifted freight costs sharply and could persist if geopolitical tensions remain unresolved, as described by Mark W. Kowlzan.
SUMMARY
The call revealed that Packaging Corporation of America (PKG +6.56%) reported higher net sales, a modest gain in net income ex-specials, and Improved EBITDA margin in the core Packaging segment. with positive contributions from the Greif acquisition beginning to materialize in operational results, despite a first-quarter per-share loss from acquired operations caused by weather disruptions and cost pressures. Management signaled continued strong demand in April, backed by 4.5% growth in legacy bookings and billings, and highlighted efficient execution of major mill outages that maintained high operating rates and system optimization. Strategic initiatives include progressing on gas turbine projects to bolster energy independence and accelerating synergy capture in the Greif system, with management guiding to further volume, mix, and pricing improvements into the third quarter. The company communicated a $2.33 per share earnings target for the next quarter, excluding special items. Management explicitly warned that rising input and compensation expenses, as well as higher planned maintenance costs, will weigh on Q2 results.
- Mark W. Kowlzan confirmed that electricity independence initiatives will extend to four mills, providing risk mitigation for future energy disruptions.
- Thomas A. Hassfurther observed, "we see no pre-buy at all right now," attributing this to continued lean customer inventories and a "muddy" price-increase environment.
- Kent A. Pflederer gave quantitative detail on cost inflation drivers and said, "maybe $0.15 higher 1Q to 2Q." on combined freight, fiber, and chemicals expenses.
- Integration progress has enabled the company to shift business from legacy to Greif assets, supporting plant optimization and ongoing reduction in excess inventory levels.
- The Board's affirmation of current capital allocation includes ongoing share repurchases, with 266 thousand shares bought during the quarter as a hedge against equity award dilution.
- Seasonality in the Greif business was described by management as a "surprise," but Q2 performance is expected to be "quarter and going forward," based on observed March volume and mix improvements.
INDUSTRY GLOSSARY
- Linerboard: The flat layers of paperboard used as the outer facings of corrugated boxes, made from virgin or recycled fibers.
- Sheet feeder: A plant that manufactures corrugated sheets for sale to box plants or other converters rather than to end customers.
- DD&A: Depreciation, Depletion, and Amortization; a non-cash accounting expense reflecting asset value consumed over time.
- GLP: Refers to "general line products," encompassing a broad range of packaged consumer goods in the packaging industry context.
Full Conference Call Transcript
Mark W. Kowlzan: Thanks, Jamie, and good morning, everyone. Thank you all for participating in Packaging Corporation of America's first quarter 2026 earnings release conference call. Again, I am Mark W. Kowlzan, Chairman and Chief Executive Officer of Packaging Corporation of America. With me on the call today are Thomas A. Hassfurther, President, and Kent A. Pflederer, our Chief Financial Officer. As usual, I will begin the call with an overview of the first quarter results and then I will turn the call over to Thomas A. Hassfurther and Kent A. Pflederer, who will provide further details. I will then wrap things up, and we will be glad to take questions after.
Yesterday, we reported first quarter net income of $171 million, or $1.91 per share. Excluding special items, first quarter 2026 net income was $215 million, or $2.40 per share, compared to first quarter 2025 net income of $208 million, or $2.31 per share. First quarter net sales were $2.4 billion in 2026 and $2.1 billion in 2025. Total company EBITDA for the first quarter, excluding special items, was $486 million in 2026 and $421 million in 2025. First quarter net income included special items expense of $0.49 per share, primarily the Wallula Mill restructuring charges, as well as costs relating to the acquisition and integration of the Greif containerboard business and costs related to the closure of corrugated products facilities.
Details of the special items for 2026 and 2025 were included in the schedules that accompanied the earnings press release. Excluding the special items, our earnings increased by $0.09 per share compared to 2025. This increase was driven primarily by higher prices and mix in the legacy Packaging segment $0.17, lower fiber costs in the legacy Packaging business $0.11, lower maintenance outage expenses $0.09, lower labor and operating costs in the legacy Packaging business $0.08, higher prices and mix in the Paper segment $0.02, favorable volume in the Paper segment $0.01, a lower tax rate $0.01, and lower share count $0.01.
These items were partially offset by higher freight costs $0.13, lower production and sales volume in the legacy Packaging business $0.11, higher depreciation expense in the legacy Packaging business $0.05, higher labor and operating costs in the Paper segment $0.03, and higher corporate and other expenses $0.03. Also, the acquired Greif operations, including interest on acquisition indebtedness, generated a loss of $0.06 during the first quarter, primarily as a result of lower volume and higher costs due to the January storm that affected the Riverville mill and the corrugated operations, as well as higher-than-forecast freight and recycled fiber costs and unfavorable mix.
We exceeded our guidance of $2.20 on the strength of our operational and commercial performance during the quarter, including favorable volume and mix in the legacy Packaging business and better-than-expected operating cost performance and lower labor and benefits costs. These were partially offset by higher freight costs and lower-than-expected earnings from the Greif business. Looking at the Packaging business, EBITDA excluding special items in 2026 of $482 million with sales of $2.2 billion resulted in a margin of 22% versus last year's EBITDA of $409 million and sales of $2.0 billion, or a 20.8% margin.
We ran at full capacity during the quarter and completed the outage on the Counce Number 1 machine during the quarter and completed the outages on the Counce Number 2 machine and at the Jackson Mill earlier in April. We produced 1.398 million tons of containerboard during the quarter. The legacy mills produced 1.21 million tons of containerboard, which was 25 thousand tons less than 2025 and 40 thousand tons less than 2025. System-wide, our inventories were down 39 thousand tons from the end of the fourth quarter, and we meaningfully reduced the inventories carried by the acquired Greif plants. Operational performance during the quarter was exceptional.
With improvement in corrugated demand heading into a very busy outage schedule in the second quarter and an increasingly tight linerboard situation, we needed to run well, and our mills delivered. Jackson set new production and speed records. We safely completed the Counce outages over the last month, and we were able to bring both machines up earlier than scheduled and make up for some of the weather issues earlier in the quarter, helping us keep up with corrugated demand. In February, we saw Riverville produce at approximately a 10% higher rate than what it was capable of when we completed the acquisition.
Our Board of Directors approved the gas turbine projects for the Jackson, Alabama mill and Riverville, Virginia mill that we talked about on the last call, and we are scoping a third project for the DeRidder, Louisiana mill, which we will be submitting in May at the annual Board meeting. I will now turn it over to Thomas A. Hassfurther, who will provide further details on containerboard sales and our containerboard business in general.
Thomas A. Hassfurther: Thank you, Mark. Our corrugated operations turned in a very strong quarter in all areas. Domestic containerboard and corrugated products prices and mix were $0.17 per share above 2025, up $0.06 per share compared to 2025, and up approximately $0.12 excluding the Greif operations. This is mix-related, as mix improves in the legacy Packaging Corporation of America business from 4Q to 1Q, but declines in the Greif business during the first quarter. Export containerboard prices were flat with last year's first quarter and down $0.01 per share from 2025. Export sales volumes of containerboard were up 6.5 thousand tons from 2025 and down 13 thousand tons from 2025.
In the legacy business, corrugated shipments per day were up 2.8% versus last year's first quarter, a new record on a per-day basis. With one fewer workday, total shipments were up 1.2%. We saw good growth across our entire book of business with legacy shipments running consistently 2% to 3% ahead of last year from January through the rest of the quarter and very strong so far in April. Even with the situation playing out in the Middle East and higher fuel prices here in the States, we are seeing a resilient economy and continued strength in our customer ordering patterns across the board.
We expect the second quarter to shape up similarly to the first in terms of demand and year-over-year growth. As Mark alluded to earlier, we are tight on containerboard, and we will need continued exceptional performance that we have come to expect from our mill operations to support our customers. Including the acquisition, shipments were up 22% per day and 20% in total compared to last year's first quarter. We began to see the seasonal pickup in volume and improvement in mix from the acquired operations as the quarter progressed. We are off to a great start in April. We expect to see good sequential improvement in both volume and mix during Q2.
We intend to complete systems integration by the end of the third quarter with all operations running on Packaging Corporation of America's decentralized systems. As we progressed on our integration efforts, we focused on inventory at the Greif plants and made great progress, reducing carried inventory by around 10 thousand tons during the quarter. We have room for further improvement and will continue these efforts in the second and third quarters. We will be working to implement our price increases during the second quarter. Reported containerboard prices are up net $50 per ton from the beginning of the year. Due to the timing of how things played out, we did not get a meaningful benefit during the first quarter.
We have had a lot of individual negotiations with our customers on how to implement this increase; we are not going into any detail on that. In general, we expect to start to see the benefit during May with the normal implementation period beginning in June. So we expect some benefit during Q2 with the majority coming during Q3. I will now turn it back to Mark.
Mark W. Kowlzan: Thanks, Tom. Looking at the Paper segment, EBITDA excluding special items in the first quarter was $38 million with sales of $160 million for a 23.6% margin compared to the first quarter of 2025's EBITDA of $40 million and sales of $154 million, or a 26.1% margin. Sales volume was approximately 3% above 2025 and approximately 4% above 2025. Prices and mix were up 1% from 2025 and flat with 2025. We remain very pleased with the performance of the Paper business, which continues to generate high margins driven by strong commercial and operational performance. We are working to implement the previously announced price increases and expect to benefit in Q2. I will now turn it over to Kent.
Kent A. Pflederer: Thanks, Mark. Cash provided by operations was $329 million, and after $165 million of CapEx, free cash flow was $164 million. In addition to CapEx, the primary payments of cash during the quarter included dividend payments of $112 million, share repurchases of $59 million, cash tax payments of $18 million, and net interest payments of $11 million. We expect higher cash payments for taxes and interest in the second quarter. We repurchased 266 thousand shares during the first quarter at an average price of $228.78. We have approximately $224 million of remaining repurchase authority. Excluding special items, our effective tax rate during the first quarter was just under 23%.
This is lower than our forecasted 2026 full-year book effective rate of 25% due to favorability from the vesting of employee equity awards during the first quarter. We expect our second quarter to be approximately 26%. We continue to forecast $840 million to $870 million of CapEx and $700 million of DD&A for the year. I would now like to give you an update on the annual outage schedule and the earnings impact for the year. Our outage expense was $0.14 during the first quarter. We now expect $0.36 in the second quarter, $0.31 in the third, and $0.64 in the fourth, totaling $1.44 for the year.
In the Packaging segment, the Counce and Jackson outages were completed earlier this month, and outages are scheduled at Tomahawk, Filer City, and Wallula later in the second quarter. In the Paper segment, the International Falls Mill outage is scheduled for the third quarter. Finally, before Mark provides commentary on our second quarter forecast, I want to give you a little bit of detail on some of the sequential differences in costs from 1Q to 2Q. I just mentioned that we will incur approximately $0.22 of additional outage costs in Q2 with maintenance outages at five of our Packaging mills.
We are also expecting less sequential benefit from 1Q to 2Q in the reversal of cost increases for labor and benefits than we would normally expect. Our employee stock compensation expense will be approximately $17 million higher for 2026 than for 2025 due to a change in timing of the recognition of expenses beginning with the awards we made earlier in the year. This will be evenly split between the second, third, and fourth quarters, and this higher expense will time out over the next two to three years as old awards vest. In addition, we were favorable in the first quarter on benefits costs, which we believe was timing-related and do not expect to repeat in the second quarter.
As for operating costs, we normally benefit from lower fuel costs and better fiber and chemical yields as we move out of winter. This year, fiber and chemical usage benefits will be more than offset by higher input prices across the board on chemicals as well as recycled fiber, and to a lesser degree wood fiber. Our overall cost in these areas will be higher in the second quarter than in the first. Natural gas prices have remained fairly stable, and we expect to see normal seasonal energy cost improvement on fuel costs with slightly higher purchased electricity costs. Obviously, we will have higher freight costs with higher diesel fuel prices expected to continue into the second quarter.
And with that, I will turn it back over to Mark.
Mark W. Kowlzan: Thank you, Kent. As we move from the first quarter into the second quarter, we expect demand in the Packaging segment to remain strong and corrugated volume to increase with one more shipping day and some seasonal improvement, particularly in the acquired Greif operations. Prices for containerboard and corrugated products will move higher later in the quarter with the implementation of our previously announced price increases and improved corrugated mix. Packaging mill production will be slightly higher with one more operating day and improvements at some of the mills more than offsetting the production impact of maintenance outages across the system. Mill maintenance outage expense will be higher.
We expect flat volume and higher prices in the Paper segment as we continue to operate at full capacity and implement our previously announced paper price increases. Costs for freight, fiber, and chemicals will be up due to higher prices, and energy costs are expected to be seasonally lower. The sequential improvement in expenses for wages and benefits that we normally experience from the first quarter to the second quarter will be less than in past years due to the higher stock compensation expenses and benefits costs in the second quarter that Kent called out earlier. Finally, our tax rate will be higher due to the tax-related benefit of share-based compensation awards vesting in the first quarter.
Considering all these items, we expect second quarter earnings of $2.33 per share, excluding special items. With that, we would be happy to entertain any questions, but I must remind you that some of the statements we have made on the call constitute forward-looking statements. These statements are based on current estimates, expectations, and projections of the company, and do involve inherent risks and uncertainties, including the direction of the economy and those identified as risk factors in the annual report on Form 10-K on file with the SEC. Actual results could differ materially from those expressed in the forward-looking statements. And with that, Jamie, I would like to open up the call for questions, please.
Operator: We will now open the call for questions.
Operator: At this time, we will begin the question and answer period. 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 then two. If you are using a speakerphone, we 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 Leon Staphos from Bank of America. Please go ahead with your question.
George Leon Staphos: Thanks. Hi, everyone. Good morning. I appreciate the details. I guess the first question to start, as always, can you talk a bit about bookings and billings into April? Any granularity that you are seeing that you can lay out in terms of growth or declines in the quarter so far, and any sense of pre-buy that you are seeing, Mark, just because, you know, the price increases have been discussed since January?
Thomas A. Hassfurther: Hey, George, this is Tom. Good morning.
George Leon Staphos: Hey, Tom. Good morning.
Thomas A. Hassfurther: I will give you the legacy bookings numbers. Bookings and billings are up 4.5%. Now, I want you to keep in mind that with the Greif assets, we are moving some business around within the system, primarily more from the legacy to the Greif assets as opposed to the other way around. We view the business environment as being very good right now. Regarding pre-buy, we see no pre-buy at all right now. In fact, this has been muddy waters, as you might say, regarding the price increases at the moment. So we see no pre-buy at this point in time. Our customers continue to operate with very lean inventories, and I think they will continue to do so.
George Leon Staphos: Thanks for that, Tom. Next question. Can you talk a bit about why Greif was a loss of $0.06 in the quarter? I think that was a little bit worse than the fourth quarter figure, which I think was $0.05. How is the business performing as the company typically relays? You are doing better on production, the mills are looking better, yet we still had some losses there. What is happening there? How is performance? When does that improve? I had one last follow-on.
Mark W. Kowlzan: Hey, George. As we called out on the January call, the January storm impacts were very significant, and quite frankly, the Riverville mill was the most impacted mill in the system. For the better part of a week, we did not move any production out of there. We called out at your meeting down in Fort Lauderdale we were probably around a nickel of impact as a result of the storm. Kent, why do you not add a little more color?
Kent A. Pflederer: Yes, that is right, George. We had weather impacts that hit not just Riverville, but corrugated operations were disrupted as well, and they do not come back on the sheet feeder side as well as we are able to make up in the corrugated side. Greif is—and Tom can elaborate on this a little more—a seasonal business. Mix was a little lower than we had forecast in January and February, but returned nicely in March. All that in, then throw in higher recycled and freight costs, we came in with the number that we reported. On the positive side, Greif’s operations in February were about as good as we have seen them.
The productivity at the mills was, as Mark called out in the script, about 10% higher than we had seen prior to acquisition. It was so good we actually dialed it back a little bit in March in order to bring the inventory levels in where we brought them in. So, Tom, do you have any further on that?
Thomas A. Hassfurther: I will just add a little color. We did not expect, and we were not aware of, the seasonality, especially related to the box business side of Greif in terms of the first quarter. That first quarter is by far their weakest quarter in terms of volume, and then it accelerates after that all the way through the year. That was a bit of a surprise to us, but the good news is it has returned in the second quarter quite nicely and exactly as they had forecast. This also is allowing us flexibility in the system to really move some business around to be more efficient in terms of our operations.
Also, do not forget that there was a lot of work—and a lot of work still going on—in the mill system of Greif during that first quarter.
George Leon Staphos: Understood. Last one, and I will turn it over if possible. Is there a way to provide some further quantification or at least direction on the sequential changes? So we know what the outage hit will be 2Q versus 1Q. You talked about the stock comp expense being up, I think, $17 million. But what does that mean in terms of the 1Q to 2Q variance? And is there a way to, if not precisely, maybe ballpark a bit for us—freight, energy, other costs—what that inflation looks like 1Q to 2Q. Tax, I think, is like a, you know, call it $0.06 to $0.08 effect 1Q to 2Q. Thank you so much. Have a good quarter.
Kent A. Pflederer: Okay, George. I will tackle that one. On the stock comp expense, we called out we would be $17 million higher. So that means 2Q is going to look much more like January than it has historically in the past, where you were beneficial in January. So we will be running maybe $6 million higher in 2Q than we were in 2025. On some of the others—freight, fiber, chemicals—estimate maybe $0.15 higher 1Q to 2Q. Normally, we are flat to slightly beneficial in those areas. That is a little bit of a drag there.
George Leon Staphos: Yes. Tax, I think, we can do our own calculation, but that is probably the nickel to dime.
Kent A. Pflederer: Yep.
Operator: Thanks, George. Next question, please. Our next question comes from Michael Andrew Roxland from Truist Securities. Please go ahead with your question.
Analyst: Hi, guys. This is Nico Bucheny on for Mike. Thanks for taking my questions. First off, kind of to piggyback off the cost question, what do you have at your disposal outside of price to offset those costs, recognizing that in 2Q it seems like you might have some uncovered costs with the price impact really hitting later in the quarter?
Mark W. Kowlzan: As far as levers to deal with cost, obviously the only thing you can do is run incredibly well, very efficiently, and execute at the top of your game, which we generally do. That is what we are facing with the headwinds on some of the price escalation.
Thomas A. Hassfurther: I think the other thing that we are doing is optimizing the mill system now that we have Massillon and Riverville running much better and much more reliably. We are moving mix around to the mills that are best suited to run that mix and that are better off from a freight standpoint. We are also doing that in the box business within the Greif system. As I mentioned, we are moving quite a bit of business around to optimize that system and to optimize our freight opportunities. Outside of that, as Mark said, we have to operate incredibly well. That is the gist of what we have in our arsenal to offset some of these cost increases.
Analyst: Got it. Understood. I appreciate that. Just quickly on Greif. Having owned the business for eight months now and putting quite a bit of work into the mills, do you have any sense of upside to the original $60 million synergy target now that you have progressed through integration and getting the mills on the system?
Kent A. Pflederer: Without calling it upside, I should give you an update on what we are looking at right now. Based on what we saw and what Riverville and Massillon could do in February, we are going to be at a run rate of about $15 million to $20 million of just productivity improvements from those mills. We will then start layering in over the next few quarters freight optimization—that is ongoing right now—and integration opportunities from additional tonnage from Packaging Corporation of America into the Greif system as well as from Greif into the Packaging Corporation of America system.
That work is ongoing, but at least I wanted to give you an update on where we were at from a run-rate standpoint right now. We are well on target to be at that $30 million run rate by the end of the year.
Thomas A. Hassfurther: Work continues on a daily basis to take advantage of all these opportunities.
Analyst: Got it. Understood. Thank you very much. I will turn it over.
Mark W. Kowlzan: Okay. Next question, please.
Operator: Our next question comes from Mark Adam Weintraub from Seaport Research Partners. Please go ahead with your question.
Mark Adam Weintraub: Maybe starting a little bit more on Greif—trying to square the last six months based on the EPS number. It seems to me it is probably a little less than $100 million in EBITDA from the business. I believe coming in the base was close to $240 million, then we were going to get synergies on top. I realize maybe a synergy shows up in the legacy business as well, so maybe this is complicating the analysis.
I am really trying to gauge the magnitude of upside from things like seasonality, etc., how much additional firepower there is relative to what we have seen in Greif over the last six months when you think about the contribution the business can be providing on a full-year basis as the synergies, etc., are fully layered in, and the mix and seasonality issues come to bear more favorably.
Kent A. Pflederer: Okay, Mark. I will start, and then Tom will add some color. Going from 1Q into 2Q, we believe we are going to get the full performance out of this business, with the mills running consistently at higher productivity rates and entering a seasonally stronger business and starting to pull some more integration through. We are forecasting sequential improvement of, conservatively, about $0.10 from 1Q to 2Q. So we expect to be accretive in the second quarter and going forward. Most of that improvement is from mix improvement and productivity improvement, and then a little bit of price increase layered on top of that.
We expect then to continue to improve in 3Q as the business and the seasonality improve more.
Thomas A. Hassfurther: I would just remind you, Mark, when we finalized the acquisition and took a good hard look at the assets, primarily the mills, we knew there was some difficulty and some hard work to do, and it turned out that we were right. We had to shut some time down at the mills and get some work done, make a big investment, and do all those other sorts of things associated with it. Now we are coming out on the other side of that, and things are significantly better, and they are performing very, very well. This will accelerate as we go forward.
This is vital to our system because we need some extra capacity on the box side as well, and they are providing that. That is going to be some significant upside.
Mark Adam Weintraub: Great. I am not going to try to drag you through all the delta drivers, but as I think about what seems to be embedded on the upside—because you told us some of the downside going from 1Q to 2Q—it does not seem like there is a huge amount of upside being given for some variables, in particular pricing, in the 2Q numbers. Is it fair to say that you would, at this juncture, assuming things continue along the path they are, see the real big change 2Q to 3Q—that is where the earnings are going to really move? To the extent you are comfortable providing any color on that, that would be helpful.
Mark W. Kowlzan: Mark, you are exactly right. We will start seeing some benefit later in the second quarter with some price movement, but the big benefit comes into the third quarter. That is exactly correct.
Mark Adam Weintraub: Okay. Thank you.
Mark W. Kowlzan: Thank you. Next question, please.
Operator: Our next question comes from Anojja Aditi Shah from UBS. Please go ahead with your question.
Anojja Aditi Shah: Hi. Good morning, everyone.
Unknown Speaker: Good morning.
Anojja Aditi Shah: I had a question on DD&A. It was actually much higher than I expected in Q1, but you maintained $700 million guidance. So how come it is not straight-line for the quarters? And second, what is embedded in 2Q in that $2.33 guide?
Kent A. Pflederer: Hey, Anojja. Our depreciation reported for the first quarter includes a chunk that is attributable to completion of the Wallula restructuring. I think that explains the large reported number increase that you are referring to. On an excluding-special-items basis, we are looking at about a $0.03 increase 1Q to 2Q in DD&A.
Anojja Aditi Shah: Makes sense. Thank you for that. And then going back to demand in April, you talked about seeing very strong demand. Any particular end markets showing strength or weakness? I am really trying to get to if you are seeing any early signs yet on GLP impact. I realize you might not see it as much as some other types of packagers, but are you hearing anything on this from your customers?
Thomas A. Hassfurther: That is a very good question. I will take the second half first. Our food and beverage customers continue to perform quite well, and of course that is the largest segment in corrugated. There is a lot of sensitivity around that, especially GLPs. They adapt quickly. We are seeing a lot of products come out with protein in them and other things that did not have such in the past, and they are performing very well. There is a lot going on in that segment that I think is very positive, as our customers have adjusted quickly to varying demands, and it is still performing very well for us.
In addition, I have called out building products probably for the last few years as being down, but it is starting to show some resurgence as well, which is an important segment for us. Those are probably the biggest movers I can talk about.
Anojja Aditi Shah: Great. Thank you very much. I will turn it over.
Mark W. Kowlzan: Thanks, Anojja. Next question, please.
Operator: Our next question comes from Anthony James Pettinari from Citi. Please go ahead with your question.
Anthony James Pettinari: Good morning.
Unknown Speaker: Morning.
Anthony James Pettinari: Following up on the timing of the price hike, Pulp and Paper Week had prices down in February and then up in March and up in April again. As you implement the price hike, is this sort of a negotiation around the net price, or could you have some instances where prices actually go down before they go up? I know it is kind of a strange question, but I just cannot remember a time where Pulp and Paper Week had three consecutive months where it was down before it was up and then up again.
Thomas A. Hassfurther: It is hard for me to remember too, Anthony, and I have been in this business a long time. All I can tell you is that we are not really going to comment much at all about what we are doing relative to our customers and our negotiations. I will just call it muddy. That is about all I can tell you.
Anthony James Pettinari: Okay. Sounds good. And then, Kent, on the 1Q to 2Q bridge, you outlined some sequential headwinds that we typically do not see around the share-based comp and then the tax rate lower in 1Q. Should we think about these as onetime things just for 2026? Or if we think about seasonality going forward or next year, is that share-based comp going to have a similar kind of profile?
Kent A. Pflederer: Share-based comp is going to run at a higher level this year. It will run at a higher level next year but step down a little bit as one tranche of the old awards vests, and then it will do similarly in 2028. You are going to be a little bit higher, but it is going to time out through 2028, basically. On the other items—the costs—it is just going to depend on the market. We are expecting at least to be elevated during the second quarter, and we will continue to manage through it.
Anthony James Pettinari: That is helpful. Maybe just one last one. You obviously increased your exposure to recycled board with Greif. You had a large competitor that just bought a recycled mill out West. Thinking about Packaging Corporation of America over the next three to five years—you are going to need more board—do you think the incremental opportunity is in recycling? It is probably lower capital costs. From what your customers are asking of you, you historically have had a great virgin kraft liner offering, but is recycled kind of the direction going forward in terms of where you would put in incremental tons or capacity?
Mark W. Kowlzan: You take advantage of the opportunity that comes along, whether it is a recycled opportunity or a virgin kraft opportunity. The decision is made when you look at the various options you have. We can take advantage of recycled as we have done for decades, and we also know how to run integrated operations extremely well.
Thomas A. Hassfurther: Anthony, I will add that directionally we want to be able to optimize whatever properties fit our customers' demands. I want to remind you that we are still primarily virgin kraft, and we are not going to change that because one of the things it does for us, as I have mentioned in the past, is we can optimize performance a lot better with virgin kraft than we can with recycled.
Anthony James Pettinari: Got it. That is very helpful. I will turn it over.
Mark W. Kowlzan: Thank you. Next question.
Operator: Our next question comes from Philip Ng from Jefferies. Please go ahead with your question.
Philip Ng: Hey, guys. A question for Kent. Appreciate the color that you gave in terms of some of the step-up in cost, whether it is freight or chemicals sequentially. When we think about that for the back half, is the 2Q run rate on a year-over-year basis a good way to think about the rest of the year? Or does that potentially step up just based on timing of how these contracts were set on freight or chemical costs and the like?
Kent A. Pflederer: Hey, Phil. I think the best you can do right now is take 2Q and apply that to the rest of the year. We will do the best we can to manage through it via freight optimization activities and running our operations as efficiently as possible. But in terms of how the market is on what we are buying, I would look at 2Q right now—that is the best you can do.
Philip Ng: Okay. That is helpful—good run rate. A question for Tom. You used the word "muddy" a few times in terms of implementing this box price increase. That feels like it is more timing—there is some noise. When we think about the net $50, you have been in this business a long time. Is your expectation that implementation on the box side, all said and done—how does that feel? Does this feel more challenged just because the macro is tougher, or kind of business as usual?
Thomas A. Hassfurther: It is more business as usual. None of these are easy, but we were obviously very disappointed with the announced downturn at the beginning—we did not see it—but it is what it is, and we are dealing with it. Our expectation is to implement this in the same time frames that we typically always implement, both our non-contract and our contract business.
Philip Ng: That is helpful.
Mark W. Kowlzan: Phil, I will add one thing that I think is really important. The consumer has been very resilient in these times, and our customer base feels very good about their business going forward. There is a big factor coming in also that we have not even talked about—the tax refunds that are coming to consumers. That will show up in the economy as well. I think that is another positive for us that is going to help us in the second half.
Philip Ng: That is great color, guys. Bringing those two pieces together, I know there is a timing dynamic in 2Q. Should we expect price/cost to be neutral or positive? How should we think about it? There is definitely noise in 2Q, but as we look at the back half, can you help us think through that?
Thomas A. Hassfurther: Like we said, price will impact at the end of Q2 and then really roll in Q3. That is when you will see the big difference.
Philip Ng: Okay. One last one for me. You guys are running hard. Mills are running tight. I know you are bringing on capacity in time with Jackson and Counce. How is that ramping up? Anything we should be mindful of in terms of noise to the P&L—whether it is start-up cost, DD&A? And then Greif—you are working to get inventory down, which makes sense. You want to be more optimized. But if you are that tight, do you just use that inventory because it meets that demand?
Mark W. Kowlzan: We just executed the two big outages at Jackson and Counce and executed them very well. A lot of that work was to gear up Jackson, as an example, to hit the next productivity opportunities with the speed on the machine, and we are where we want to be. That was done well. At Counce, we executed the first phase of a rebuild on Number 2 paper machine. That machine had been rebuilt 35 years ago, and we finished that work four days ahead of schedule and started up running very well. We continue to bring on capability to deliver more quality product as we need it.
Also, in the Greif system, we have fully recognized the opportunities that we saw when we did the due diligence. Basically, the last couple of months we have been in that 97%+ performance as far as uptime efficiency on the machines out of the Massillon and Riverville system, and we continue to work through opportunities there. That will continue to yield benefits.
Thomas A. Hassfurther: One of the reasons that we reduced the inventory and we are working it down quickly is because we want those sheet feeders and box plants to be running the correct grades that run for the Packaging Corporation of America system so we can optimize fiber performance for the customer. They are not just stuck with running whatever one of their two mills might run. That is really important to us from a cost standpoint going forward, as I mentioned earlier, to optimize those assets. You make a good observation—it is tight, especially in linerboard.
We are aware of that, and that is why, as an example, we moved the Counce outage up into the first quarter to make sure we are in good shape going forward from a linerboard point of view.
Philip Ng: That makes a lot of sense. Thank you, Tom.
Mark W. Kowlzan: Next question, please.
Operator: Our next question comes from Analyst from Deutsche Bank Securities. Please go ahead with your question.
Analyst: Hi. Thanks for taking my questions. You mentioned a third gas turbine project in Louisiana. Could you provide more detail on that project in terms of additional CapEx and timeline? Any update on the gas turbine projects at the Jackson and Riverville facilities? Thank you.
Mark W. Kowlzan: We did get Board approval on the gas turbine projects at the Riverville mill and Jackson mill at the last Board meeting, and we are planning on seeking approval for a third, same duplicate unit that will be going in those two mills as a future project. The capital is in the same ballpark—I do not want to give you numbers right now until after we have reviewed this with the Board—but it is the same capital allocation and the same type of return metrics that we are looking at. These are very, very good opportunities that would give us Jackson, Riverville, and DeRidder electricity independent off the grid in the same manner that Valdosta is.
So we would have four of our 10 mills electricity independent, which would be a huge benefit to us. That is all I want to say about that.
Analyst: Got it. Great. Thank you. And then, at a high level, what needs to change to bring costs down? Hypothetically, if the war in the Middle East ends tomorrow, does that change anything for you in terms of cost outlook, or because it takes time for supply chains to adjust, that would not change anything right away?
Mark W. Kowlzan: The conflict in the Middle East impacts raw materials such as various chemicals that depend on petroleum. We have seen chemical costs increasing. The question is whether that ramps down over a period of time if the supply-demand balance for petroleum products comes into balance again. We will have to wait and see. Natural gas—we have been fortunate in the United States; we have plenty of supply, so we are not impacted by that. Transportation fuels have been the big increase, with diesel up over 50% in the last few months. For all intents and purposes, that should normalize over a period of time if the conflict winds down.
I would expect transportation costs, in terms of diesel impacts, to be where we would see relief first.
Analyst: Got it. Great. Thank you so much.
Mark W. Kowlzan: Thank you. Jamie, are there any other questions? I do not see anybody else in the queue. Anybody want to follow up?
Operator: If anyone would like to ask a question, please press star and then one. To withdraw your questions, you may press star and then two. We do have an additional question. This question comes from Analyst from Barclays. Please go ahead with your question.
Analyst: Hi. Thanks for taking my question. Just one for me. At the start of the year, you had said you expected total industry demand to be up in 2026. Four months are almost done—anything you can add on that or quantify in terms of industry demand for 2026?
Thomas A. Hassfurther: I think I understood your question regarding demand. We think demand is up. I gave you the number, at least for legacy—it is running at about 4.5% right now. That is a very good number, and I think that will continue through the quarter. We have some positive things going on in some of our key segments as well. So yes, we see demand improving.
Analyst: My question was more on overall industry demand for the year. Any comments on that? Clearly you are gaining share. In terms of industry demand for 2026, up 1%, 2% for the year?
Mark W. Kowlzan: We do not get into forward discussions about industry demand expectations—other than our own—for this quarter and what we are looking at for this quarter.
Analyst: Okay. Thank you.
Operator: We do have a follow-up from Mark Adam Weintraub from Seaport Research Partners.
Mark W. Kowlzan: Alright. We have time. Go ahead, Mark.
Mark Adam Weintraub: Thank you. My phone cut out, so I think you might have addressed this a little bit. Did you buy back stock? I think you were saying something—again, my phone cut out. I just wanted to confirm that you did buy back some stock during the quarter, and if so, what prompted that?
Kent A. Pflederer: We did. We bought back 266 thousand shares, roughly. The prompt was we had awarded earlier in the quarter, and we wanted to take out the dilution from the awards.
Mark Adam Weintraub: Fair enough. Thank you.
Mark W. Kowlzan: Thanks, Mark.
Operator: In showing no additional questions, Mr. Kowlzan, would you like to make any final closing comments?
Mark W. Kowlzan: Yes. I would like to thank everybody for taking the time to be with us today and look forward to speaking with you in July regarding the second quarter results. Have a good day, everybody. Thank you.
Operator: With that, we will conclude today's conference call and presentation. We thank you for joining. You may now disconnect your lines.
