Packaging Corporation of America (PKG) Earnings & Analysis

Latest quarter

Packaging Corporation of America reported third-quarter adjusted earnings of $3.04 per share, above the consensus of $2.95. Revenue exceeded the consensus by 1.46%, although both reported revenue and the estimate round to $2.6 billion.

PCA reported revenue up 12.5% from a year earlier and diluted earnings per share of $2.93, compared with $2.51. Gross margin rose to 23.2% from 21.8%, while operating margin rose to 14.8% from 14.0%.

The filing attributed higher Packaging sales to the acquired Greif operations and improved prices and mix, partly offset by lower legacy volume. Total corrugated product shipments rose 10.6% from a year earlier, while legacy shipments fell 0.5%. Paper segment sales increased to $163 million from $161 million as higher prices and mix offset lower volume. Paper operating income fell to $29 million from $36 million, with maintenance outage expense among the costs the filing identified.

CFO Kent Pflederer said PCA generated $225 million of free cash flow after $247 million of capital expenditures during the quarter.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

CEO Mark Kowlzan said PCA exceeded its third-quarter earnings guidance because of price realization and a higher-than-expected contribution from the acquired Greif business. He said higher labor and operating costs partly offset those benefits, including costs associated with corrugated product volumes coming in below forecast.

President Tom Hassfurther said October bookings were up a little over 5%, although billings had lagged. He expected billings to catch up during the fourth quarter but described the volume forecast as roughly flat. Hassfurther said agricultural customers had faced difficulties, including issues affecting lettuce, and that the timing of any recovery could fall in either the fourth or first quarter.

Asked whether price increases had cost PCA volume momentum, Hassfurther said the company focuses on price when opportunities arise and may lose individual items, but generally deals with longstanding customers. He added that some customer segments had reduced demand because of their own issues rather than lost business: “Our objective is profitable revenue growth.”

Kowlzan said recycled fiber, purchased power and chemical costs rose during the quarter alongside freight costs. In the Paper segment, he attributed the year-over-year change in EBITDA and margin to the maintenance outage falling in the third quarter this year rather than the second quarter last year.

On investment, Kowlzan said a new winder at the Jackson mill had started up at the end of September and was running as planned. Hassfurther said the startup of the new Newark box plant allowed PCA to announce the Middletown closure earlier than it otherwise might have. Asked about capital spending and maintenance, Kowlzan pointed to work at acquired and legacy mills as well as higher equipment and installation costs.

For the quarter ahead, Kowlzan expected higher packaging prices but a seasonal shift toward e-commerce to affect product mix. He said PCA would no longer separately state the acquired Greif business’s earnings contribution as future comparisons include a full period of ownership.

Guidance

Pflederer forecast 2026 capital expenditures of $865 million to $890 million, compared with the $840 million to $870 million forecast given on the first-quarter call. He estimated fourth-quarter annual outage expense at $0.72 per share and the full-year amount at $1.48; the first-quarter forecast was $0.64 for the fourth quarter and $1.44 for the year.