Despite its recent acquisition of several mills from recycled board producer Greif, Packaging Corporation of America will continue to focus on the strength and flexibility from its virgin offerings, executives said during a first-quarter earnings call.
“You take advantage of the opportunity that comes along, whether it’s a recycled opportunity or a virgin kraft opportunity,” said CEO Mark Kowlzan, implying that the company was not actively seeking out capacity additions for recycled products.
PCA President Tom Hassfurther added that “directionally, we want to be able to optimize whatever properties fit our customers’ demands, but … we are still primarily virgin kraft, and we’re not going to change that.” The company can “better optimize performance” with virgin kraft than with recycled products, he said.
Last year the company announced its acquisition of Greif’s containerboard segment, which increased PCA’s mix of recycled products to 30% from the previous 20%, Kowlzan said in an investor call last summer.
Competitor International Paper also announced this month that it would acquire North Pacific Paper Company (Norpac), a Washington-based producer of lightweight recycled packaging papers. In a statement, International Paper cited growing customer demand for recycled containerboard.
PCA continues to work on upgrading the acquired Greif mills, with expected completion during the third quarter, executives said during the call.
Q2 demand expected to be strong
With demand already strong in April, Kowlzan said PCA expects demand strength in the packaging segment to extend from Q1, and corrugated volumes to increase amid a seasonal uptick.
Total Q1 shipments for corrugated products were up by 1.2% on the year, and by 19.9% on the year with the inclusion of the Greif facilities. Containerboard production was 1.398 million tons, while inventory was down by 39,000 tons on the quarter but up by 48,000 tons on the year, primarily due to the acquisition.
Sales volumes for the paper segment were up by 2.7% on the year.
Hassfurther said PCA expects prices for containerboard and corrugated products to rise during Q2 and Q3, as the company works to implement increases. He pointed out that containerboard prices are up by $50/ton since the beginning of the year, after a $70/ton increase in January and a $20/ton decrease in March.
“Due to the timing of how things played out, we did not get a meaningful benefit during the first quarter” from the increases, he said. “We expect to start to see the benefit during May with the normal implementation period beginning in June,” with the majority of increases coming during Q3.
As in most industries, costs for logistics and raw materials have surged amid the war in Iran.
Q1 EBITDA for the packaging business was $481.8 million, higher by 18% on the year, while the paper segment was at $37.7 million, lower by 6.3% on the year.
PCA is the third largest producer of containerboard products in North America, operating 10 mills and 91 corrugated products plants and facilities.
Plants running hard
PCA is running its facilities at very high rates, even as numerous mills have closed including the PCA plant in Richmond, Virginia, and several closures from Greif.
Weak demand for boxes due to subdued consumer spending, as well as aging plants, have contributed to the industry-wide closures, including shutdowns from International Paper, Cascades and Smurfit Westrock.
At the same time, huge new mills and capacity expansions are starting up, including Graphic Packaging‘s new recycled paperboard facility in Waco, Texas, and International Paper’s new sustainability packaging facility in Brandon, Mississippi, slated to open in late 2027.
