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PC

PACKAGING CORP OF AMERICA (PKG)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 delivered non-GAAP EPS of $2.31, up 34% YoY, on revenue of $2.14B (+8% YoY); results were $0.10 above company guidance and above S&P Global consensus, driven by strong price realization and volume in Packaging. Reported EPS was $2.26 with $0.05 in special items tied to corrugated facility closures . Consensus EPS was $2.21* and revenue $2.12B*, implying a beat on both metrics.
  • Packaging segment EBITDA margin reached ~21% (ex special), supported by “excellent implementation” of announced price increases and record containerboard production; corrugated shipments per day increased 2.5% YoY .
  • Guidance: management expects Q2 EPS of $2.41 (ex special) but flagged higher maintenance outage costs (Q2 impact ~$0.39/share, FY now $1.22/share vs $1.18 prior), rail rate increases at six mills, and tariff-related uncertainty impacting demand and costs .
  • Operational and strategic catalysts: accelerated price realization (some initially expected in Q2 happening in Q1), Glendale, AZ plant startup ahead of schedule and below budget, and continued network modernization; CFO transition effective May 1, 2025 .

What Went Well and What Went Wrong

What Went Well

  • Price execution: “The disciplined implementation of the price increases for liner, medium and boxes… was a significant contributor to this year's first quarter results,” with domestic price/mix +$0.72/share YoY and +$0.41/share QoQ .
  • Operational performance: “Outstanding operational performance and scheduled outage execution at our mills delivered record first quarter containerboard production… and we ended the quarter at targeted inventory levels” .
  • Cash generation: Record Q1 cash from operations of $339M; free cash flow $191M; quarter-end cash and marketable securities $914M with >$1.2B liquidity .

What Went Wrong

  • Cost inflation and outages: Operating costs were ~$0.37/share above last year; management pulled a maintenance outage forward into Q2, raising outage costs and lowering containerboard volume to match demand assumptions .
  • Freight and logistics pressure: Rail contract rate increases at six mills in Q1/Q2 are driving higher freight/logistics expenses .
  • Macro/tariff ambiguity: Management highlighted “continued ambiguity relative to domestic and foreign tariff actions” impacting global trade and demand trends; export containerboard pricing was flattish, with some pullback in shipments to China .

Financial Results

Consolidated results vs prior year and prior quarter

MetricQ1 2024Q4 2024Q1 2025
Revenue ($USD Billions)$1.98B $2.15B $2.14B
Diluted EPS (GAAP) ($)$1.63 $2.45 $2.26
Diluted EPS ex special ($)$1.72 $2.47 $2.31
Operating Income ($USD Millions)$196.0 $302.2 $280.3
EBITDA ex special ($USD Millions)$333.2 $439.3 $421.1
Gross Profit ($USD Millions)$370.4 $469.7 $454.7
Gross Margin (%)18.7% 21.9% 21.2%
EBIT Margin (%)9.9% 14.1% 13.1%
Net Income Margin (%)7.4% 10.3% 9.5%

Actual vs Wall Street (S&P Global*) – Q1 2025

MetricConsensus*Actual
EPS (ex special) ($)2.21*2.31
Revenue ($USD Billions)2.12B*2.14B
EBITDA (ex special) ($USD Millions)415.3*421.1

Values retrieved from S&P Global.*

Segment sales and profitability

SegmentQ1 2024Q4 2024Q1 2025
Packaging Sales ($MM)$1,798.3 $1,975.6 $1,970.3
Paper Sales ($MM)$163.8 $151.5 $154.2
Corporate & Other Sales ($MM)$17.4 $19.0 $16.5
Packaging Op Income ($MM)$203.8 $297.2 $278.1
Paper Op Income ($MM)$29.7 $34.8 $35.6
Corporate & Other Op Income ($MM)-$37.5 -$29.8 -$33.4
Packaging Op Income ex special ($MM)$207.7 $298.9 $284.0
Paper Op Income ex special ($MM)$36.1 $34.8 $35.6
Packaging EBITDA ex special ($MM)$326.2 $425.7 $409.3
Paper EBITDA ex special ($MM)$40.6 $39.3 $40.2

KPIs

KPIQ3 2024Q4 2024Q1 2025
Corrugated Shipments per Day YoY (%)+11.1% +9.1% +2.5%
Containerboard Production (tons)1,293,000 1,310,000 1,250,000
Containerboard Inventory YoY (tons)+25,000 vs Q3’23 +54,000 vs Q4’23 +75,000 vs Q1’24; -3,000 vs Q4’24
Paper Sales Volume YoY (%)+4% +5% -7%
Paper Sales Volume QoQ (%)+5% vs Q2’24 -5% vs Q3’24 +2% vs Q4’24
Capital Spending ($MM)$146.7 $201.3 $148.1
Cash & Marketable Securities ($MM)$841.3 $852.2 $914.4

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
EPS (ex special)Q1 2025$2.21/share Actual $2.31/share Beat guidance by $0.10
EPS (ex special)Q2 2025—$2.41/share New guidance
Maintenance Outage Cost Impact (per share)FY 2025$1.18/share (prior) $1.22/share Raised
Maintenance Outage Cost Impact (per share)Q2 2025—$0.39/share New guidance detail
Maintenance Outage Cost Impact (per share)Q3 2025—$0.16/share New guidance detail
Maintenance Outage Cost Impact (per share)Q4 2025—$0.44/share New guidance detail
Freight/LogisticsQ2 2025—Higher rail rates at 6 mills driving cost increase Increased
DividendQ1 2025—$1.25/share; record 3/14/25, pay 4/15/25 Declared

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 2024, Q4 2024)Current Period (Q1 2025)Trend
Price Increases & Realization“Great implementation” of announced increases in Q3; expected continued realization in Q4 “Excellent implementation” across liner/medium/boxes; non-contract pricing moved quickly; contract flows continue through July Strong, earlier-than-expected realization
Demand & Mix (e-comm)Very strong demand; record shipments Q3/Q4 Box demand solid; e-comm growth changing mix; customers cautious amid tariffs Demand resilient, mix shifting to e-comm
Tariffs/Macro UncertaintyNot a major focus in Q3; Q4 commentary on costs/weather Explicit “ambiguity” from tariff actions; modest pullback in export to China; running to demand Rising uncertainty
Outage Scheduling/CostsQ4 signaled higher scheduled outage expenses into Q1 Pulled Filer City outage into Q2; Q2 outage cost +$0.16/share vs Q1 Front-loaded outages to align with demand
Capex & Network ModernizationOngoing projects; Q3/Q4 capital spend elevated Glendale, AZ startup ahead of schedule/below budget; Ohio plant underway; capex guide ~$800M Execution strength; capacity/productivity rising
Lightweighting & Jackson #3Not emphasized previouslyEmphasized as competitive advantage; Jackson #3 a “game changer” enabling high-performance grades Strategic differentiation

Management Commentary

  • “A new first quarter revenue record was achieved… excellent implementation of our previously announced price increases… box demand was solid… record first quarter containerboard production… ended the quarter at targeted inventory levels” — Mark W. Kowlzan (CEO) .
  • “We anticipate continued ambiguity relative to domestic and foreign tariff actions… we expect domestic prices to improve… box shipments improving, [but] operating costs will be negatively impacted due to lower containerboard volume… pulled up [a] planned maintenance outage” — Mark W. Kowlzan .
  • “Cash provided by operations set a first quarter record totaling $339 million… free cash flow… $191 million… revised total company estimated [outage] cost impact for the year is now $1.22 per share vs $1.18” — Robert P. Mundy (CFO) .
  • “Our new [Glendale, AZ] plant will increase box capacity by almost 2 billion square feet, significantly increase productivity… reduce costs… optimize service capabilities” — Thomas A. Hassfurther (President) .

Q&A Highlights

  • Demand outlook and caution: Customers are “being very prudent” amid tariff uncertainty; bookings/billings up ~4.1% early in Q2; internal price realization exceeded Q1 guidance by more than the reported $0.10 beat, pulling some expected Q2 benefit into Q1 .
  • Production alignment: Running mills to demand; small export pullback to China; two smaller machines likely down in May; Filer City outage pulled forward to Q2 .
  • Pricing mechanics: ~30% non-contract / ~70% contract box mix; non-contract increases moved quickly; contractual increases flow over 90 days, completing by July .
  • e-commerce mix and margins: Growth driven primarily by existing customers; PCA targets durable customer relationships and returns rather than volume for volume’s sake; adapting to marketplace mix with customized boards .
  • Cost trajectory and offsets: About half of prior cost increases expected to recoup in Q2, but outage timing and demand-matching overshadow some improvements .
  • Capital allocation: On buybacks after stock weakness, CEO: “You just termed it well as an opportunity. We’ll let you know what we do” .

Estimates Context

  • Q1 2025 actuals vs S&P Global consensus*: EPS $2.31 vs $2.21*; Revenue $2.14B vs $2.12B*; EBITDA ex special $421M vs $415M*. Beat driven by packaging price/mix and volume exceeding plan .
  • With some price realization originally expected in Q2 pulled forward into Q1, near-term estimate revisions may reflect mix/timing (higher realized prices sooner, but Q2 outage and tariff uncertainty temper upside) .

Values retrieved from S&P Global.*

Key Takeaways for Investors

  • Strong execution on price increases and record operational performance supported a clean beat; packaging margins remain robust near 21% ex special .
  • Q2 guide ($2.41 EPS ex special) balances continued price realization and improving box shipments with higher outage costs and tariff-related ambiguity; expect near-term narrative to focus on cost cadence and demand normalization .
  • Freight/logistics inflation (rail rates) is a watch-point; company-specific efficiency and network modernization (Glendale startup, Ohio build) provide offsets .
  • Strategic lightweighting and Jackson #3 capabilities underpin product performance and margin resilience as mix shifts toward e-commerce .
  • Cash generation and liquidity are strong; potential buybacks flagged as an “opportunity,” with dividend continuity demonstrated ($1.25 in Q1) .
  • Trading: Near-term reactions hinge on ongoing price realization vs outage costs; macro tariff news-flow could drive sentiment/estimate volatility; watch Q2 bookings/billings trajectory and July completion of contractual increases .
  • Medium-term thesis: PCA’s capital-backed operational moat and pricing discipline position it to compound through cycles; execution on modernization and selective growth should support sustained margins and FCF, even amid episodic cost inflation .