Packaging Corp of America achieves $2.51 EPS in Q3 2025; Greif acquisition contributes positively, but operational challenges ahead

OPERATOR - (00:01:35)

Good day and welcome to the Packaging Corp 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 is being recorded. I would now like to turn the conference over to Mr. Mark Colzan. Please go ahead.

Mark Colzan - Chairman and CEO - (00:02:22)

Thank you, Alyssa Good morning everyone and thank you for all of you for participating in Packaging Corporation of America's Third Quarter 2025 Earnings Release Conference Call Again, I'm Mark Colvin, Chairman and CEO of PCA, and with me on the call today is Tom Hasfruther, President and Kent Flederer, 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'll 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 $0.22 per share. The $0.22 were costs related to the acquisition of the GREIF Containerboard business, including step up of the acquisition, 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 containerboard business on September 2nd. Our results included one month of the acquired operations from Greif, which impacted earnings per share by $0.11 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 $0.19 per share compared to the third quarter of 2024. This increase was driven primarily by higher prices in mix in the packaging segment for $0.73, lower fiber costs of $0.16, higher prices in mix in the paper segment $0.02 and a lower maintenance outage expense of $0.01. Partially offsetting the improvements were higher operating costs $0.33, lower production and sales volume in the packaging segment, $0.16, higher depreciation expense, $0.07, higher freight expense, $0.07, Higher fixed and other expenses of $0.07 and higher interest expense excluding the GREIF acquisition debt of $0.02 and lower production volume in the paper segment for $0.01. 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 containerboard than 3Q20 and 59,000 more tons of container board than the second quarter of 2025. Our containerboard inventory in the legacy system increased by 15,000 tons during the quarter in preparation for the fourth quarter DeRidder outage. From the operational standpoint we ran very well the entire quarter and with strong performance in terms of cost we 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 cost 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. Massillon 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 apiece 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. We'll 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 will provide more details on the containerboard sales and corrugated business.

Tom Hasfruther - President - (00:08:51)

Thank you Mark the performance of the packaging business was largely as we expected and it was another strong quarter. Domestic containerboard and corrugated products Prices and mix were $0.72 per share above the third quarter of 2024 and down $0.02 per share compared to the second quarter of 2025, which was all attributable to containerboard mix export. Containerboard 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 PCA's 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 will manage our operations to do so over the next couple of quarters. As expected, export sales volume of containerboard 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.

Mark Colzan - Chairman and CEO - (00:11:32)

Looking at the paper segment, EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) 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. In EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) of $43 million and sales of 159 million or 27.1% margin, sales volume was 1% below the third quarter of 2024 and 10% above the second quarter of 2025. Prices and mix were up 2.1% from the third quarter 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.

Kent Flederer - Chief Financial Officer - (00:12:22)

Thanks Mark. Cash provided by operations was an all time quarterly record of $469 million and after 192 million of capital expenditures (CapEx) during the quarter, free cash flow was a record $277 million. In addition to capital expenditures (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 approximately $1.4 billion. To update you on annual shutdown expenses, we now expect $0.45 in the fourth quarter for the legacy Packaging Corp of America (PCA) system and $0.02 for the acquired business. The legacy system expense is expected to be $0.29 higher than 3Q25 and $0.17 higher than the third than the than 4Q24. 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 containerboard 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 $0.03 in the third quarter which will not deter going forward. I will now turn it back over to Mark.

Mark Colzan - Chairman and CEO - (00:15:19)

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 containerboard sales will be higher than the third quarter but relatively low when compared to traditional fourth quarter volume. Containerboard production in the legacy system will be slightly lower than the third quarter with the maintenance outage at the Derider 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 $0.29 higher than the third quarter. We expect prices and 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 Riverville 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 and 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 10K 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.

OPERATOR - (00:17:28)

Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, 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 2. At this time, we will pause momentarily to assemble our roaster. First question is from George Staphos, bank of America.

George Staphos - Equity Analyst at Bank of America - (00:18:04)

Morning.

UNKNOWN - (00:18:05)

George, thank you for the details.

George Staphos - Equity Analyst at Bank of America - (00:18:06)

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.

Tom Hasfruther - President - (00:18:27)

Hey, George, this is Tom. Right now, you know, 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, I'll remind you, very tough comps.

George Staphos - Equity Analyst at Bank of America - (00:18:40)

Okay, got it. And you said the tough comps just factually will be difficult through one Q. That was part of your script, where.

UNKNOWN - (00:18:48)

We'Re done by the end of this.

George Staphos - Equity Analyst at Bank of America - (00:18:49)

Quarter in terms of what you think tough comps are and is any sort of strength in any of the end markets that you would point us to or anything that's particularly challenging right now?

Tom Hasfruther - President - (00:18:59)

Well, actually, George, you know, outside of a couple of end markets, our business has been very, very good. Those couple of markets that were that we've struggled, it's not we've struggled, they've struggled in the marketplace. I mean, you know, everybody's read about beef. That's a big segment for us. And you know, the cattle herds are down to a 70 year low. So, you know, there's a lot, 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, we've been very pleased with the results in all of our other sales segments.

George Staphos - Equity Analyst at Bank of America - (00:19:48)

Thanks, Tom. As regards 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 had one or two last follow ons. That'll be quick.

Kent Flederer - Chief Financial Officer - (00:20:22)

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 2, that day, we've had upwards of, on a given day, 100 of our PCA personnel in the mills at Nassalon and the same number of people in the mill at Riverville assisting in doing what we do. And that's operational expertise. Tom, you want to comment about Corrugated?

Tom Hasfruther - President - (00:20:57)

Yeah. Let me just say in total, you know what we've. I think the best way to summarize this George, is probably that, you know, that it is an organization that is very customer focused and you know, as I mentioned, the culture of the business fits very well with ours. That's a great bolt on operationally, you know, not nearly as strong as PCA and you know, because we've had many, many more resources and we've got this great team to address those issues. But you know, in typical PCA fashion, you know, 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, 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.

Mark Colzan - Chairman and CEO - (00:21:47)

One note, George, you know, we, 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. And 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 are talking this morning. Yeah.

Kent Flederer - Chief Financial Officer - (00:22:32)

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 6 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.

George Staphos - Equity Analyst at Bank of America - (00:22:59)

Thanks, Ken. Quickly, 20 cents maybe sequential increase in DNA as part of the 240s. Kind of rough math anyway. I know it's kind of tough on live, Mike, but anyway, to talk about what the inventory strategy, quantify what the tons coming down might mean in the grice system relative to where you'd been. Thank you and good luck in the quarter.

Tom Hasfruther - President - (00:23:21)

You know, the comment about inventory, again, it was mentioned we've got 10 mills now in the system. We've got 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. So. Yeah. 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.

OPERATOR - (00:23:53)

All right, with that. Next question, please. Next question is from Mike Rockland, tourist.

Mike Rockland - Equity Analyst at TOURIST - (00:24:03)

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

Mark Colzan - Chairman and CEO - (00:24:09)

Thanks, Mike. Morning. Morning.

Mike Rockland - Equity Analyst at TOURIST - (00:24:11)

I just wanted to follow up, Ken, with you one 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?

Kent Flederer - Chief Financial Officer - (00:24:31)

You know. Right. 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 Colzan - Chairman and CEO - (00:25:13)

Mark, any comments you can make in terms of the improvements, whether, you know, in terms of efficiency costs. One, with respect To Masalon. 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, we've got upwards of 200 people in our technology engineering organization. And again from September 2nd that morning at both mills, 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 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, you know, 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 Nasalon 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, that is DeRidder, Jackson, Wallula, per these conversions. But I told you before, we expected the work at Massillon, the work at Riverville, it'll be the tens of millions of dollars. So over the next couple of years, 10 million here, 10 million there for system improvements, upgrades and technology and capability. But the bones of the mills are good. We just need to update them and then, 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 up Maslon the week before last and we saw at least a 50% improvement just in the quality 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.

Mike Rockland - Equity Analyst at TOURIST - (00:28:14)

Gotcha. I appreciate the call there. One last question before turning it over. Excuse me. Growth EBITDA for the one month you own, the assets came in a little lower than we expected given recent performance prior to your ownership. Was that all due to the outages these took at Massillon and Riverville? Or was any economic downtime that you took due to your choppy backdrop or as you manage elevated inventories and then any initial thoughts in 2026? CapEx, thank you.

Kent Flederer - Chief Financial Officer - (00:28:44)

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 the grief results for certain 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 taking advantage of our opportunities. I would like to say that just remind everybody that the biggest pieces of capital spending this year right now are a couple of big projects on the converting side. We've got one big project going on in Ohio right now and that's a new facility. And in upstate New York we're totally upgrading one of our facilities as a big CAPEX project that will, both those projects will finish into next year but we're always taking advantage 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, some very interesting energy opportunities that we'll give you more detail with next year in the January call.

Mike Rockland - Equity Analyst at TOURIST - (00:30:07)

Thanks very much and Good luck in 4Q.

Kent Flederer - Chief Financial Officer - (00:30:09)

Thanks Mark.

OPERATOR - (00:30:10)

Thanks, appreciate it. Next question please. Next question is from Gabe heide, Wells Fargo.

Gabe heide - (00:30:20)

Mark 10. Good morning.

Mark 10 - (00:30:22)

Morning Gabe.

Gabe heide - (00:30:24)

I wanted to ask, I see this number and I think you kind of strip out input costs so it's, 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. Is that something that's particularly elevated this year or kind of post pandemic when we think about, you know, 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.

Mark 10 - (00:31:04)

You know, let me, let me 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.

Kent Flederer - Chief Financial Officer - (00:31:43)

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, you know, that have been going up at a fairly healthy clip in the last few years.

Gabe heide - (00:32:01)

Okay, but is it particularly elevated this. Year or is that something that sort of.

Mark 10 - (00:32:06)

Well, again, it's just. I think the biggest factor was electricity rate increases nationwide.

Gabe heide - (00:32:13)

Yep.

Mark 10 - (00:32:14)

If I take one element of cost, it would be electricity.

Gabe heide - (00:32:21)

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 gotta build all data centers.

Mark 10 - (00:32:33)

On the contrary, I don't see energy, electricity cost 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 take it upon ourselves that we've got plans to 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.

Gabe heide - (00:33:16)

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. Ton that you produce?

Mark 10 - (00:33:31)

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 executing.

Gabe heide - (00:33:45)

Understood.

Mark 10 - (00:33:46)

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, you know, efficiency on the, 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 the discussion on the January call will give you a lot more details. Yes, sir.

Tom Hasfruther - President - (00:34:31)

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 showing up, maybe, you know, in your own volumes, not necessarily specific to price increases, but more thinking about lightweighting on that front.

Gabe heide - (00:35:05)

Thank you, Gabe.

Tom Hasfruther - President - (00:35:07)

You know, obviously we don't, we don't talk about any forward pricing at all. So I'm going to, I'm going to pass on that one. But I will tell you that, you know, the, again you hear, you hear Mark talk about, as I indicated, that, you know, when 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 you know, 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's, it is an inflationary environment, but I think that's a real competitive advantage we have in terms of our, in terms of our offerings to the marketplace.

Gabe heide - (00:36:16)

Thank you. I'll hand it over.

OPERATOR - (00:36:19)

Thank you. Next question, please. Next question is from Mark. Adam Weintraub, Seaport Research Partners.

Adam Weintraub - Equity Analyst at Seaport Research Partners - (00:36:29)

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 million to $60 million. And with that type of spend, you can get them up to Packaging Corp. Efficiencies, et cetera. Is that still a reasonable number? Which obviously would be a lot lower than the 130 million DNA you had talked about.

Mark Colzan - Chairman and CEO - (00:37:02)

Yeah, I mean, after what we've seen with the efforts at Masalon 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. You know, we did not have to Spend massive amounts at ifalls. We just had to improve the capability on a lot of little systems and taking care of some of the technology. But you know, 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.

Tom Hasfruther - President - (00:37:41)

Mark, this time 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.

Adam Weintraub - Equity Analyst at Seaport Research Partners - (00:38:03)

Right.

Kent Flederer - Chief Financial Officer - (00:38:03)

So obviously cash earnings from Greife 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 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 I think you see that in our cash for the third quarter.

Adam Weintraub - Equity Analyst at Seaport Research Partners - (00:38:42)

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, et cetera. 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, et cetera, 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.

Tom Hasfruther - President - (00:39:18)

Mark this, Tom. We haven't changed anything that we typically would do absolutely nothing. We've been, you know, 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. And yeah, we continue to have wins, but you know, these aren't, these are wins that we earn. They're not, you know, these aren't wins that you, you know, you just go out and, you know, have, have something, have something to offer that nobody else is doing necessarily. But, you know, we have to earn these wins and you know, we're just continuing to do the things we're doing. We're just not getting we're 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, you know, certainly are impacting the business.

Adam Weintraub - Equity Analyst at Seaport Research Partners - (00:40:16)

Great. And then lastly, we've had this extraordinary year in terms of magnitude of capacity closures in the North American containerboard business. And box demand hasn't been good. But are you actually feeling any. More. Tightness because of the closures of containerboard capacity? Any color you could give would be appreciated there.

Tom Hasfruther - President - (00:40:43)

I think, you know, the containerboard capacity, you know, I think you're seeing a consistent trend in this industry that it.

Adam Weintraub - Equity Analyst at Seaport Research Partners - (00:40:50)

Right.

Tom Hasfruther - President - (00:40:50)

Sizes to demand and we run to demand. We do. That's what PCA does. And I think in addition, you know, even on the, even on the corrugated side, you know, we've closed some facilities, we've rationalized some poor assets, things like that, and we'll continue to do so. And again, we will run to the demand that we see out there.

Adam Weintraub - Equity Analyst at Seaport Research Partners - (00:41:20)

Okay, Tom, just since you mentioned it, 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?

Tom Hasfruther - President - (00:41:34)

Well, they just happen to be box plants that are not the. 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.

Mark Colzan - Chairman and CEO - (00:42:02)

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

OPERATOR - (00:42:43)

Next question is from Ensuri Pitinari Seti.

Ensuri Pitinari Seti - (00:42:48)

Good morning. Morning. With grief, your mix into recycled will increase. And I'm wondering if it's possible to say how many tons of occasions PCA Might buy kind of with the gripe assets. And as you look at your end markets and talk to your customers, as you think about the next three to five years, is there any reason to think recycled demand will grow faster or maybe slower than Kraftliner or do you not necessarily think about it that way?

Mark Colzan - Chairman and CEO - (00:43:26)

You know, I look at it as an opportunity, quite frankly. I look at Masselon 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.

Tom Hasfruther - President - (00:44:04)

Yeah, market, the key is that we do need the medium and the 100% recycled medium is a good runner in our facilities and stuff and so trade for some of that and those sorts of things. But as far as end markets go, we attack every end market with whatever the best solution is.

Ensuri Pitinari Seti - (00:44:25)

Okay. And any quantification of like OCC consumption tons or not sure if you disclosed, but.

Mark Colzan - Chairman and CEO - (00:44:35)

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 30ish going forward, if that helps.

Ensuri Pitinari Seti - (00:44:54)

Got it, got it. That's very helpful. And then just a couple 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 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?

Mark Colzan - Chairman and CEO - (00:45:38)

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, 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 evolve sunrotary die cutter type stuff, some corrugator opportunities. But as far as major plant projects that will 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 and the first part of next year. But these are projects that have a year and a half payback type projects, 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 regenerating, 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 as far as what you're modeling, just. I would just continue to model what our trend has been and we'll update you next year. There was one part. Oh your part of the question on electricity. No, we're not wheeling power into the grid at any of our facilities. We are, we do have one facility in particular that's essentially 100%, you know, independent, but we're not wheeling power into the grid.

Ensuri Pitinari Seti - (00:47:49)

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

OPERATOR - (00:47:52)

Next question please. Next question is from Philip Ng Jeffries.

Philip Ng - Equity Analyst at Jeffries - (00:48:00)

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 gryffice 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 meet some of the EBITDA contribution from Graph. I think Kent gave a number in that 240 range plus synergy. So 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.

Mark Colzan - Chairman and CEO - (00:48:42)

I think. Again, the work we just did at Nassalon for the approximately six weeks really gave us a comprehensive look at the mill because we literally touched everything in that mill clean from the ceilings down to the U, drain sewers. Everything was cleaned, 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, River Bill's in a similar, similar situation. We've got to just, you know, continue to take care of the mills and we'll invest appropriately and. But no, I'm bullish on the, 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, we don't see any of that type of, of situation. So we'll be in good shape.

Philip Ng - Equity Analyst at Jeffries - (00:50:04)

It sounds like you would largely be. Able to do the work that you. Want to do, whether it's energy projects.

Mark Colzan - Chairman and CEO - (00:50:09)

And then I guess even taking down the inventory at Greif within the scope of your normal managed outage. It shouldn't be in 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 said, that's just future upside for the business. Okay, helpful.

Philip Ng - Equity Analyst at Jeffries - (00:50:32)

And a question for Tom. You called out building mats and beef being more pragmatic. Tom, can you size up how much of that of your box business is tied to those end markets? Are 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 you're, how do you kind of. Envision your customers managing inventory to kind of close out the year?

Tom Hasfruther - President - (00:50:57)

Okay, Philip, number one is I'm not going to give you what, you know, how much these segments are. I'm just, you know, 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 you know, 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, you know, that's going to take a little while. Building products, you know, very reliant on, you know, what happens with interest rates and they're coming down and you know, what the cost of materials are and how quickly, you know, things can be approved and those sorts of things in the nation. And the remodeling prop, the remodeling, bottoming has begun to go the other way. So that's a good thing. The other segments that we're in have been pretty, 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.

Philip Ng - Equity Analyst at Jeffries - (00:52:15)

You're not hearing from any of your. Customers that they have desires to kind. Of work down inventory to close out the year?

Tom Hasfruther - President - (00:52:21)

Well, you know, yeah, yeah, Philip, I forgot that part 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 that inventory is about, you know, is peeled down about as far as they can, as they can do it. Because again, you know, it goes back to 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.

Philip Ng - Equity Analyst at Jeffries - (00:52:54)

Okay. Appreciate all the color, guys. Thank you. Thank you.

OPERATOR - (00:52:58)

Next question or any further question, 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 Kozan for any closing remarks.

Mark Colzan - Chairman and CEO - (00:53:19)

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.

OPERATOR - (00:53:45)

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect. Sa Sa.