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    PACKAGING CORP OF AMERICA (PKG)

    Q4 2024 Earnings Summary

    Reported on Feb 27, 2025 (After Market Close)
    Pre-Earnings Price$215.12Last close (Jan 29, 2025)
    Post-Earnings Price$214.04Open (Jan 30, 2025)
    Price Change
    $-1.08(-0.50%)
    • Bookings and billings are up 8% in January 2025, indicating strong demand and a robust start to the year.
    • The company is investing heavily in strategic capital projects, including 12 major equipment installations and major rebuilds or new installations at 12 locations in 2024, which are expected to drive continued volume growth throughout 2025.
    • PKG is gaining market share by positioning itself as the best supplier with incredible reliability, best quality, and best service, leading to increased volume and solid growth opportunities going forward.
    • Inflation pressures are squeezing margins, and unless prices increase appropriately, the company cannot keep up with all of the inflation. The CEO stated, "But nevertheless, with this comprehensive inflation across the board. It doesn't matter how much capital you spend. You will never — unless you see appropriate pricing, you can't keep up with all of the inflation."
    • Industry benchmark RISI did not recognize the company's announced price increases, which may impact revenue if contracted prices are linked to these benchmarks. They mentioned, "We were very surprised when... the RISI Pulp and Paper Week publication did not recognize any increase in the industry's benchmark prices for either linerboard or medium." This could delay or reduce the realization of higher prices, affecting earnings guidance.
    • Revenue per produced ton decreased year-over-year, even though containerboard index prices increased, indicating margin compression. An analyst noted, "If we look at revenue compared to the produced tonnage, over year-over-year, that number is down about $50 per ton, even while the index has gone up for containerboard." The CFO acknowledged the trend, saying it's "probably closer to $40, not $50..."
    MetricYoY ChangeReason

    Total Revenue

    +10.7% (Q4 2024: $2,146.1M vs Q4 2023: $1,937.9M)

    Revenue increased due to higher volume and pricing improvements, particularly driven by the Packaging segment which generated $1,975.6M in Q4 2024. Building on Q3 2024 trends of record-breaking containerboard production and improved corrugated product shipments, the company benefited from sustained volume gains and favorable mix shifts compared to the previous period.

    Operating Income (EBIT)

    +15.6% (from $261.5M to $302.2M)

    Operating income improved due to increased sales volumes and operational efficiencies. The gains reflect a continuation of the positive trends observed in Q3 2024—such as lower freight expenses and reduced outage costs—which outweighed the adverse impact of rising operating and converting costs relative to Q4 2023.

    Net Income

    +16.8% (from $189.2M to $221.1M)

    Net income growth was driven by enhanced revenue from the Packaging segment and improved cost management, including lower interest expense. This positive performance builds on the Q3 2024 improvements where higher volumes and better pricing helped offset previous underperformances like higher depreciation and tax rates seen in Q4 2023.

    Basic EPS

    +16.6% (from $2.11 to $2.46)

    EPS increased in line with net income improvements, benefiting from higher sales volumes, better pricing and mix, and targeted cost reductions. These factors, initiated and refined in earlier periods (notably Q3 2024), have continued to deliver margin expansion into Q4 2024.

    Capital Expenditures

    Data: $201,300K in Q4 2024

    Capital expenditures remained focused on both asset maintenance and strategic growth initiatives, echoing the increased internal capital investments seen in previous periods (e.g., Q3 2024’s higher spending to support new production capacity). This reflects the company’s ongoing commitment to support long-term operational improvements and high-return projects.

    MetricPeriodPrevious GuidanceCurrent GuidanceChange

    EPS

    Q4 2024

    $2.47

    no current guidance

    no current guidance

    Corrugated shipments

    Q4 2024

    remain strong

    no current guidance

    no current guidance

    Containerboard inventory

    Q4 2024

    plans to build inventory prior to year-end

    no current guidance

    no current guidance

    Packaging Segment Prices & Mix

    Q4 2024

    previously announced price increases; higher export prices; seasonally less rich mix

    no current guidance

    no current guidance

    Paper Segment Shipments

    Q4 2024

    expected to be lower vs Q3 2024; prices & mix remain flat

    no current guidance

    no current guidance

    Operating & Converting Costs

    Q4 2024

    expected to increase

    no current guidance

    no current guidance

    Scheduled Outage Costs

    Q4 2024

    $0.12 per share higher than Q3 2024

    no current guidance

    no current guidance

    Depreciation Expense

    Q4 2024

    slightly higher than Q3 2024

    no current guidance

    no current guidance

    EPS

    Q1 2025

    no prior guidance

    $2.21

    no prior guidance

    Scheduled Outage Costs

    Q1 2025

    no prior guidance

    $0.23 per share

    no prior guidance

    Scheduled Outage Costs

    Q2 2025

    no prior guidance

    $0.32 per share

    no prior guidance

    Scheduled Outage Costs

    Q3 2025

    no prior guidance

    $0.18 per share

    no prior guidance

    Scheduled Outage Costs

    Q4 2025

    no prior guidance

    $0.45 per share

    no prior guidance

    Dividend Payments

    FY 2025

    no prior guidance

    $450 million

    no prior guidance

    Capital Expenditures

    FY 2025

    no prior guidance

    $840 million to $870 million

    no prior guidance

    Depreciation & Amortization

    FY 2025

    no prior guidance

    $565 million

    no prior guidance

    Interest Expense

    FY 2025

    no prior guidance

    $56 million; net cash interest $65 million

    no prior guidance

    Book Effective Tax Rate

    FY 2025

    no prior guidance

    25%

    no prior guidance

    Planned Annual Outages

    FY 2025

    no prior guidance

    $1.18 per share

    no prior guidance

    MetricPeriodGuidanceActualPerformance
    EPS
    Q4 2024
    $2.47 per share
    $2.46
    Missed
    TopicPrevious MentionsCurrent PeriodTrend

    Strong bookings and volume growth focus

    Consistent: • Q3 2024: Bookings up just over 8%, record-breaking corrugated performance. • Q2 2024: Bookings up 12.5%, strong containerboard production. • Q1 2024: Bookings up 8%, corrugated shipments exceeded guidance.

    Bookings and billings up 8% so far in January, expecting continued volume growth into 2025.

    Consistent emphasis on strong bookings and volume growth across all periods

    Inflationary cost pressures affecting margins

    Ongoing: • Q3 2024: Stable but very high costs due to labor, OCC. • Q2 2024: Higher operating costs trimmed earnings. • Q1 2024: Persistent inflation across direct and indirect costs reduced margins.

    Inflation remains significant, but margins held up (Packaging at 22%).

    Ongoing recognition of inflation driving margin pressure

    Significant capital expenditures for capacity expansions

    Continued: • Q3 2024: Glendale, Arizona, and other box plant system upgrades; capital spending around $680 million. • Q2 2024: Adjusted capex from $470M to $670M, including Phoenix greenfield. • Q1 2024: Investing in box plants and completing major mill projects (Jackson conversion).

    Four major projects for 2025, including new box plant in Newark and Glendale, with about $250 million earmarked.

    Continued major expansions with high-return projects

    Pricing challenges and delayed recognition by benchmarks

    Partial: • Q3 2024: No specific mention. • Q2 2024: Delays in realizing full price hikes, partial index acknowledgment. • Q1 2024: Only $40 out of $70 recognized in benchmarks.

    Frustration with RISI not recognizing announced containerboard price increases; company billing at higher prices but index stayed flat.

    Recurrent challenge but absent in Q3

    Revenue per ton decrease despite containerboard index increases

    Absent: • Q3 2024: No mention. • Q2 2024: No mention. • Q1 2024: Lower recognized prices vs. announcements but not explicitly discussed as revenue-per-ton drop.

    Decrease of about $50 per ton despite $35 index rise; explained by lower exports, mix changes, measurement differences.

    New topic in Q4

    Market share gains through best supplier positioning

    Partial: • Q3 2024: Focus on existing customers and some new wins but not explicitly about market share. • Q2 2024: Aligning with “right customers” to drive growth. • Q1 2024: No mention.

    Emphasized reliability and “best supplier” approach, enabling further market share gains.

    Highlighted in Q4 with partial references earlier

    95% integration and conservative inventory strategies no longer discussed

    Previously: • Q3 2024: No mention. • Q2 2024: Cited 95% integration for extra profit potential; conservative customer inventories. • Q1 2024: No mention.

    No mention in Q4.

    Dropped after Q2

    Potential macroeconomic headwinds impacting sustainability of growth

    Limited: • Q3 2024: No mention. • Q2 2024: Acknowledged mixed environment but focused on strategy and consumer resilience. • Q1 2024: No mention.

    Not specifically highlighted apart from inflationary and weather impacts, tougher year-over-year comparisons noted.

    Mentioned mostly in Q2 and partially in Q4

    Future outlook tied to successful capital projects and pricing alignment

    Consistent: • Q3 2024: Strong capital spending and price increases rolling through. • Q2 2024: Ongoing expansions, 90-day price rollouts. • Q1 2024: Box plant buildouts, higher paper prices, mill conversions.

    Continued volume growth in 2025, relying on major capex projects and working to align prices with customers.

    Consistent in all calls as key strategy

    1. Capital Expenditure Plans
      Q: What's your CapEx plan, and are you adding capacity?
      A: We're planning capital expenditures between $840 million and $870 million for 2025, with about $250 million allocated to four major box plant projects, including new facilities in Glendale, Arizona and Newark, Ohio. These investments will enhance our capabilities and provide immediate benefits upon completion this year. While there are no one big projects on the containerboard side, we're optimizing our mills with a host of smaller projects to increase efficiency.

    2. Price Increases and Contracts
      Q: How are price increases impacting your business and contracts?
      A: We've implemented price increases in the Containerboard segment, and our customers are paying the higher invoices. Some contracts tied to the RISI index will adjust more slowly, but we're moving away from RISI due to frustrations with its relevance. There's upside potential once RISI reflects the increases, and we're engaging directly with customers to negotiate future pricing.

    3. Volume Growth Outlook
      Q: What's the expected volume growth through 2025?
      A: We anticipate continued volume growth throughout the year, although growth percentages may moderate due to tougher year-over-year comparisons. We're off to a strong start with bookings and billings up 8% in January. Our growth is driven by solid demand from our existing customer base and our ability to provide superior service.

    4. Cost Pressures and Inflation
      Q: Where are you seeing the most cost inflation?
      A: We're experiencing significant cost inflation in energy, labor, benefits, transportation, and services. Energy costs are a glaring factor this quarter, and we're facing rail cost increases as well. While our capital investments help us maintain efficiency, pricing adjustments are necessary to keep up with broad-based inflation.

    5. Operational Efficiency Initiatives
      Q: Are capacity expansions affecting efficiency?
      A: The volume increase from our growth initiatives has caused some short-term cost inefficiencies, as we manage numerous projects across our plants and shift business around. However, our teams have done a tremendous job maintaining customer service, and these investments are the "gift that keeps on giving," providing incredible capabilities long-term.

    6. Customer Contract Transitions
      Q: How are you moving customers off index-based contracts?
      A: We're in the process of transitioning customers away from contracts tied to the RISI index, a process that started about a year ago and will take time due to long-term agreements. Discussions with our customers have gone very well, as they also find the current indexing methods less useful.

    7. Operating Rates and Capacity Utilization
      Q: Are you running at full capacity?
      A: We're running hard but not necessarily full out, with room to optimize our system and grade mix. We have opportunities to add capacity through optimizing existing mills and potential projects at Counce and Valdosta in the coming years.

    8. Impact of Weather on Operations
      Q: How has recent weather affected your operations?
      A: Severe cold weather in January impacted our costs and volumes, especially with disruptions in the Gulf Coastal area where Interstate 10 was shut down. The colder winter increased energy usage and affected commercial activity, leading to some volume impacts.

    9. Mix and Product Demand
      Q: How is product mix affecting results?
      A: In the fourth quarter, we saw a mix impact due to increased e-commerce activity. We expect an improved, richer mix in the first quarter compared to the fourth quarter. Overall, our mix remains steady, and we're adapting to changes in customer demand patterns.

    10. CapEx Allocation Details
      Q: How is CapEx allocated between maintenance and growth?
      A: Typically, 60-65% of our CapEx is for maintenance, but this year the percentage is less due to significant growth projects. We're investing heavily in growth opportunities, not just maintaining existing assets, and have done a good job preserving our assets over the years.

    Research analysts covering PACKAGING CORP OF AMERICA.