Release Date: April 23, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Packaging Corp of America (PKG, Financial) reported a significant increase in first-quarter net income, reaching $208 million or $2.31 per share, compared to $155 million or $1.72 per share in the first quarter of 2024.
• The company achieved a record EBITDA margin of 21% in the Packaging segment, driven by effective price increase implementation and strong operational performance.
• PKG successfully started up a new state-of-the-art box plant in Glendale, Arizona, ahead of schedule and below budget, which is expected to significantly increase productivity and capacity.
• Cash provided by operations set a first-quarter record at $339 million, with free cash flow also reaching a record $191 million.
• The company maintained a strong balance sheet with a quarter-end cash balance of $914 million and liquidity of over $1.2 billion.

Negative Points

• PKG continues to face inflationary pressures across most of its cost structure, despite lower fiber prices during the quarter.
• The Paper segment experienced a 7% decline in sales volume compared to a strong first quarter of 2024, reflecting current economic uncertainty.
• Higher interest expenses and a higher tax rate negatively impacted earnings by $0.03 and $0.04 per share, respectively.
• The company anticipates increased operating costs in the second quarter due to adjustments in the planned maintenance outage schedule, resulting in a $0.16 per share increase in outage costs.
• Economic uncertainty and trade tensions are expected to continue weighing on demand, potentially impacting volume and costs.

Q & A Highlights

Q: Can you elaborate on how you're adjusting your guidance and forecast for the year given the current macroeconomic environment? A: Mark Kowlzan, CEO, explained that the company is exercising caution due to the prudent approach of their customer base. Despite the robust business, there is a cautious sentiment in the market. Tom Hassfurther, President, added that bookings and billings are up 4.1% starting the quarter, reflecting expected growth despite uncertainties like tariffs and changing market dynamics.

Q: Why are you reducing containerboard production if inventories are in good shape and box volumes are increasing? A: Mark Kowlzan, CEO, stated that they are running operations to match demand assumptions, pulling back slightly on exports to China due to trade tensions. They plan to manage inventory by taking smaller machines offline temporarily and adjusting maintenance schedules to align with expected demand.

Q: How did you manage to exceed earnings expectations by $0.10 in the first quarter? A: Mark Kowlzan, CEO, attributed the beat to exceptional operational performance and effective implementation of price increases. Thomas Hassfurther, President, noted that the price increase was implemented as announced, with significant contributions from outside sales of liner and medium, and non-contract box price increases.

Q: Can you provide more insight into the impact of e-commerce growth on your business and margins? A: Thomas Hassfurther, President, explained that e-commerce is the fastest-growing segment in corrugated, contributing to volume growth primarily from existing customers. The margins in e-commerce are consistent with their overall business, and they focus on long-term customer relationships rather than targeting specific segments.

Q: How are you managing cost inflation and potential impacts from tariffs on your operations? A: Mark Kowlzan, CEO, mentioned that while there have been some minor impacts from steel tariffs, the company is actively managing these through their purchasing team. They are monitoring the situation closely to understand real-time implications on equipment and material costs.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.