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PC

PACKAGING CORP OF AMERICA (PKG)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 net sales were $2.15B and diluted EPS was $2.45; EPS excluding special items was $2.47, exactly matching the company’s Q4 guidance of $2.47, with strong Packaging demand driving record fourth‑quarter shipments and improved price/mix .
  • Segment performance was robust: Packaging operating income rose to $297.2M (ex‑SI $298.9M) and Paper operating income was $34.8M, with total company EBITDA excluding special items at $439.3M; shipments per day in Packaging rose 9.1% YoY and 3.2% QoQ, while containerboard production reached 1,310,000 tons .
  • Management guided Q1 2025 EPS to $2.21 and outlined higher 2025 cost headwinds (energy, chemicals, rail) and outage impacts by quarter ($0.23, $0.32, $0.18, $0.45), with FY2025 capex targeted at $840–$870M and a 25% tax rate .
  • Street consensus comparisons were unavailable due to S&P Global data access limits; focus turns to continuing volume momentum, price implementation (including movement away from indexing to RISI), and execution of box plant investments (Glendale, AZ and Newark, OH) as potential stock catalysts .

What Went Well and What Went Wrong

What Went Well

  • Record Q4 shipments and all‑time shipments‑per‑day in Packaging; “excellent operations” and new quarterly/annual production records enabled timely service and inventory, with price/mix higher YoY across both segments. “Demand in our Packaging segment during the quarter remained very strong” (Mark Kowlzan) .
  • Packaging EBITDA excluding special items rose to $425.7M and Paper EBITDA excluding special items reached $39.3M; total company EBITDA ex‑SI was $439.3M, reflecting margin resilience despite inflation .
  • Q4 results equaled guidance, with drivers including higher price/mix (+$0.52 Packaging; +$0.02 Paper), volume (+$0.40 Packaging; +$0.02 Paper), and lower freight/logistics (+$0.06) .

What Went Wrong

  • Inflationary cost pressure across direct, indirect, and fixed costs led to higher operating costs (–$0.48), higher outage expense (–$0.08), depreciation (–$0.06), and other expenses (–$0.06) vs Q4 2023; Q1 2025 expected to see added cost headwinds from energy, chemicals, rail, and labor/benefit timing .
  • Friction around industry price indices: management highlighted frustration with RISI not recognizing announced January containerboard price increases, moving customers off index pricing over time to reduce volatility and improve predictability (Hassfurther) .
  • Seasonality and weather: paper volume down 5% QoQ and cold weather disrupted operations/logistics (e.g., Gulf Coast I‑10 shutdown), impacting costs and some volume in January .

Financial Results

MetricQ4 2023Q3 2024Q4 2024
Net Sales ($USD Billions)$1.938 $2.182 $2.146
Gross Profit ($USD Millions)$410.1 $505.2 $469.7
Income from Operations ($USD Millions)$261.5 $327.1 $302.2
Diluted EPS ($USD)$2.10 $2.64 $2.45
Diluted EPS ex‑Special Items ($USD)$2.13 $2.65 $2.47
EBITDA ex‑Special Items ($USD Millions)$393.5 $460.6 $439.3
EBITDA ex‑SI Margin (%)20.3% (393.5 / 1,937.9 )21.1% (460.6 / 2,182.4 )20.5% (439.3 / 2,146.1 )

Segment breakdown

Segment Metric ($USD Millions)Q4 2023Q3 2024Q4 2024
Packaging Sales$1,776.9 $2,008.7 $1,975.6
Paper Sales$143.8 $159.3 $151.5
Corporate & Other Sales$17.2 $14.4 $19.0
Packaging Operating Income (GAAP)$263.8 $320.7 $297.2
Paper Operating Income (GAAP)$28.1 $38.5 $34.8
Corporate & Other Operating Loss$(30.4) $(32.1) $(29.8)
Packaging Operating Income ex‑SI$265.0 $321.6 $298.9
Paper Operating Income ex‑SI$30.7 $38.5 $34.8
Packaging EBITDA ex‑SI$384.7 $445.6 $425.7
Paper EBITDA ex‑SI$35.2 $43.1 $39.3

KPIs

KPIQ4 2023Q3 2024Q4 2024
Corrugated Shipments per Day (YoY)—+11.1% +9.1%
Corrugated Shipments per Day (QoQ)—+5.8% vs Q2 +3.2% vs Q3
Containerboard Production (Tons)—1,293,000 1,310,000
Containerboard Inventory Δ (YoY)—+25,000 vs Q3’23 +54,000 vs Q4’23
Containerboard Inventory Δ (QoQ)—−3,000 vs Q2’24 +61,000 vs Q3’24
Paper Sales Volume (YoY)—+4% +5%
Paper Sales Volume (QoQ)—+5% vs Q2 −5% vs Q3
Cash from Operations ($USD Millions)—$327 $325
Free Cash Flow ($USD Millions)—$180 $124
Capital Spending ($USD Millions)—$146.7 $201.3

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
EPS ex‑SIQ4 2024$2.47 (guided on 10/22/24) $2.47 (delivered ex‑SI) Met
EPS (ex‑SI)Q1 2025N/A$2.21 New
Planned Outage Impact (per share)FY 2025N/AQ1: $0.23; Q2: $0.32; Q3: $0.18; Q4: $0.45 New
Capital ExpendituresFY 2025N/A$840–$870M New
DD&AFY 2025N/A~$565M New
Interest Expense (book)FY 2025N/A~$56M; net cash interest ~$65M New
Effective Tax RateFY 2025N/A~25% New
Dividend PaymentsFY 2025N/A~$450M (company estimate) New
Quarterly DividendQ1 2025$1.25/share (prior routine)$1.25/share declared; record 3/14, pay 4/15 Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 & Q3 2024)Current Period (Q4 2024)Trend
Demand & ShipmentsQ2: shipments/day +9.2% YoY; Q3: shipments/day +11.1% YoY and record production Q4: shipments/day +9.1% YoY; +3.2% QoQ; bookings up ~8% in January Strong and broad‑based growth sustained
Pricing & Indexing (RISI)Price increases implemented in Packaging; timing affected by late 2023 index change Moving off RISI in box contracts; containerboard increases invoiced, RISI non‑recognition criticized Transitioning pricing mechanisms; potential upside as index catches up
Costs & InflationHigher OCC, energy; Wallula mill mix impact; costs moderating sequentially Expect Q1 increases in energy, chemicals, rail, labor/benefit timing; inflation remains broad‑based Cost pressure elevated near‑term
Inventory & OutagesInventory below target; plan to build ahead of DeRidder outage; 2024 outage ~$0.87/share Year‑end inventories achieved; 2025 outages heavier at large mills; quarterly EPS impact quantified Heavier 2025 outage cadence
Capex & Capacity2024 capex raised to $670–$690M; Glendale plant targeted for spring startup; multiple line upgrades 2025 capex $840–$870M; new Glendale and Newark plants; major plant rebuilds; exploration of Counce/Valdosta projects Elevated growth capex; system optimization
Mix & End MarketsE‑commerce strength; specialty graphics flat; consumer resilient; durable goods softer Improved Q1 mix vs Q4; more e‑commerce likely in 2H; continued brown corrugated growth Mix richer near‑term; seasonal e‑com later
Macro/Weather LogisticsPlanning to build inventory; hurricanes had limited facility impact Unusually cold weather increased costs and disrupted logistics (I‑10 shutdown) Transient Q1 headwind

Management Commentary

  • “Demand in our Packaging segment during the quarter remained very strong. Our corrugated products plants delivered record fourth quarter total shipments and an all‑time record shipments per day.” – Mark W. Kowlzan, Chairman & CEO .
  • “Beginning January 1, 2025, we began invoicing a $70 per ton increase for linerboard and a $90 per ton increase for medium… We were very surprised… RISI Pulp and Paper Week… did not recognize any increase.” – Thomas Hassfurther, EVP .
  • “Cash provided by operations during the quarter totaled $325M and free cash flow was $124M… 2025 capex range $840–$870M… book tax rate ~25%… outage impact by quarter $0.23, $0.32, $0.18, $0.45.” – Robert Mundy, CFO .
  • “Considering these items, we expect first quarter earnings of $2.21 per share.” – Mark W. Kowlzan .
  • “We successfully completed the #3 machine conversion to containerboard at the Jackson mill… and many other key initiatives… allowing us to better optimize our entire packaging business for the future.” – Mark W. Kowlzan .

Q&A Highlights

  • Volume momentum and start to Q1: Bookings and billings up ~8% in January; short‑term project disruptions outweighed by long‑term growth benefits (“growth engine”) .
  • Pricing mechanics: Company invoicing containerboard price increases; gradual move away from RISI‑indexed box contracts; potential upside if RISI recognizes increases (conservative Q1 embed) .
  • Capex projects: Glendale, AZ box plant starting in spring; breaking ground in Newark, OH; multiple major plant rebuilds; estimate ~$250M for four big packaging projects in 2025 .
  • Cost bridge Q4→Q1: Higher mill mix, seasonal weather, wage/benefit resets and rail rate increases add $0.50–$0.60 per share; ~70% expected to reverse in Q2–Q3 .
  • Capacity/optimization: Running “hard” with room to optimize system; studying debottlenecking at Counce and Valdosta; options to buy open market tons selectively .

Estimates Context

  • Wall Street consensus EPS and revenue for Q4 2024 were unavailable due to S&P Global daily request limit constraints; as a result, comparisons to Street estimates could not be completed at this time [SPGI access error].
  • Company‑provided Q4 guidance was $2.47 EPS (ex‑SI) and actual ex‑SI EPS delivered was $2.47, indicating an in‑line quarter vs internal expectations .

Key Takeaways for Investors

  • PCA delivered an in‑line quarter vs guidance with record Q4 shipments and continued demand strength; near‑term stock reaction hinges on confirmation of price realization momentum versus industry indices and January/February index publications .
  • Expect Q1 cost headwinds (energy, chemicals, rail, labor timing) and heavier outage cadence across 2025; monitor quarterly EPS impact and any updates to outage scheduling .
  • Strategic capex remains a core growth lever: Glendale and Newark box plants plus major rebuilds drive efficiency, capacity, and mix upgrades—potentially supporting share gains and richer customer mix .
  • Pricing architecture shift away from RISI‑indexed contracts should reduce volatility and improve pricing predictability over time; near‑term conservatism in guidance leaves room for upside if indices reflect realized increases .
  • Packaging segment margins remain resilient; watch for richer mix and e‑commerce demand benefiting 1H, with seasonal e‑commerce tailwinds returning in Q4 .
  • Balance sheet and cash generation support elevated investment and dividends ($1.25/share declared for April 15); company estimates ~$450M dividends in 2025 .
  • Without Street estimates, focus on internal guideposts (volume cadence, price realization, cost bridges) and ongoing commentary on inventory, export/domestic pricing, and contract transitions as narrative drivers .

Non‑GAAP Notes

  • Q4 special items included closure costs related to corrugated facilities; full‑year 2024 special items included Jackson mill conversion‑related charges. EPS excluding special items (non‑GAAP) was $2.47 in Q4 and $9.04 for FY2024; reconciliations are provided in the press release schedules .