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By the numbers
Packaging segment income: $256.8M
Down 28.5% year over year
Containerboard production: 1.12M tons
Total corrugated products shipments fell 1.3% year over year but per-day shipments were up 1.9% year over year
- Q3 readout: Although Packaging Corp. of America’s Q3 numbers generally were down year over year, executives on Tuesday’s earnings call struck a tone of optimism while describing an uptick in demand. “The first quarter of ‘23 is when we really hit what I call rock bottom in terms of demand,” said Tom Hassfurther, executive vice president of corrugated products. “We’re up, just in a couple of quarters, 8%, and we look at that number going up again in the fourth quarter.”
- Mill restart: Executives partially credited the company’s optimization plans, including temporarily idling a mill in Wallula, Washington, for the more favorable Q3 outcome. They plan to restart that mill on or around Nov. 1 to build up inventories, which declined more than the company had anticipated. “If we didn’t have the demand, we wouldn’t be talking about starting up Walulla,” Hassfurther said. “It’s really being driven on the box side of the business.”
- Destocking and demand: Executives reaffirmed their prediction during last quarter’s call that customer destocking woes that have plagued packaging companies for a year now are in the past. “I think the best news is it's becoming more predictable now, given the fact that we've gotten all of this inventory and destocking out of the way,” Hassfurther said.
- Managing the mix: While executives described good demand in the paper and packaging segment, other end markets fell short due to outside factors. For example, the United Auto Workers strike is affecting PCA’s automotive segment, and high interest rates are affecting the building products segment. An analyst also asked about PCA’s product mix and any effects the company has felt from competitors bringing more recycled linerboard capacity online this year — especially considering PCA traditionally has been a virgin board producer. CEO Mark Kowlzan said that although several PCA mills have recycled linerboard capacity, “We're not going to put all our eggs in one basket and go all in to recycled.” He said one reason is that virgin fiber prices have been relatively stable in recent decades, whereas prices for OCC — the key recycled board feedstock — have experienced wide swings.
- Outlook: E-commerce customers now account for a larger share of the corrugated business than in the past, and that sector’s direction is positive, Hassfurther said. PCA executives predict strong demand through the holidays, which will necessitate the Wallula production. “If demand just holds on the trajectory that it is right now, we’ll need Wallula running through the year,” Kowlzan said. “Because of the inventory situation, we'll have to run the entire mill system to capacity.”
