By the numbers
Packaging segment income: $285.8M
Down 31.9% year over year
Containerboard production: 1.11M tons
Overall corrugated products shipments and shipments per day down 9.8% year over year
- Recovery lags: Packaging Corp. of America’s volumes and income were down in Q2, similar to Q1, despite a prediction during the Q1 earnings call that a volumes uptick in April could signal a turnaround for low demand. Sales of $1.95 billion missed many analysts’ Q2 estimates of $1.98 billion. CEO Mark Kowlzan said during Tuesday’s Q2 earnings call that demand was “about where we expected for the quarter” and that “we balanced our supply according to the demand. Or said another way: We are extremely effective at managing what is in our control.”
- Destocking continues: Packaging manufacturers across substrates have experienced multiple quarters of pressure due to customers’ inventory destocking, a pandemic-era hangover. While PCA Executive Vice President of Corrugated Products Tom Hassfurther said during the Q1 call that destocking appeared to be nearly finished, but on Tuesday he said that the trend is continuing to varying degrees across PCA’s customer base. Although destocking remains sticky, Hassfurther noted that it has improved, which resulted in a nearly 3% improvement in Q2 shipments compared with Q1.
- Optimization: PCA altered output at numerous plants to align supply with demand, such as idling its Wallula, Washington, pulp and paper mill in May and laying off about 300 employees. When watching economic conditions unfold in Q2, PCA “realized that it was far better to take the six mills that we currently have running and run them very, very efficiently” while idling Wallula, Kowlzan said. “It allowed us to take the six other containerboard mills and really optimize them... and that's another part of the benefit we saw in the second quarter earnings.” PCA also continued to incur costs in Q2 related to last year’s conversion of a paper mill in Jackson, Alabama, to also produce linerboard, in addition to closure costs related to idling that mill and conducting layoffs last fall.
- Outlook: Executives said during the earnings call that PCA experienced improved volumes in June and the early part of July, and they anticipate the positive momentum to continue in Q3. Kowlzan also said the company expects an improvement to corrugated packaging shipments per day as well as seasonally stronger paper segment volumes because of back-to-school purchases. “We're going to take the approximately 150 engineers and technology personnel in our corporate technology group and really let them focus now on unit operations optimization and really work with the box plants and mills on a lot of the new equipment,” he said.
