Packaging Corporation of America outlines $2.40 Q4 EPS guidance as Greif acquisition integration advances

Earnings Call Insights: Packaging Corporation of America (PKG) Q3 2025

MANAGEMENT VIEW

* Mark Kowlzan, Chairman and CEO, opened the call by highlighting the completion of the Greif Containerboard business acquisition on September 2, noting, "Yesterday, we reported third quarter net income of $227 million or $2.51 per share. Excluding the special items, third quarter 2025 net income was $247 million or $2.73 per share compared to the third quarter of 2024 net income of $239 million or $2.65 per share." He emphasized that the acquisition results included one month of Greif operations, impacting earnings per share by $0.11 after special items.
* Kowlzan stated that, excluding special items and acquisition impact, "our earnings increased by $0.19 per share compared to the third quarter of 2024... driven primarily by higher prices and mix in the Packaging segment for $0.73, lower fiber costs of $0.16..."
* Kowlzan reported Packaging segment EBITDA, excluding special items, of $492 million on $2.1 billion in sales, resulting in a 23.1% margin. He added that the acquired mills produced 47,000 tons during the month and noted, "We’re already seeing the benefits of improved performance and quality with both mills running at higher performance."
* President Thomas Hassfurther described corrugated demand as improving through the quarter and detailed that acquired plants saw "volume growth and good price realization." He underscored ongoing integration efforts, stating, "We have the opportunity to bring inventory down to lower levels, and we'll manage our operations to do so over the next couple of quarters."
* CFO Kent Pflederer shared, "Cash provided by operations was an all-time quarterly record of $469 million. And after $192 million of CapEx during the quarter, free cash flow was a record $277 million." He also announced a revised capital forecast for the year to approximately $800 million, down from prior estimates, citing timing of expenditures but confirming no change to the overall capital plan.

OUTLOOK

* Kowlzan stated, "For the fourth quarter, we expect per day corrugated shipments to be higher than the third quarter with 3 less shipping days. Export containerboard sales will be higher than the third quarter, but relatively low when compared to traditional fourth quarter volume."
* He projected, "We expect prices and mix in the Packaging segment to be lower as a result of seasonally less rich mix. In the Paper segment, we expect seasonally lower production and sales volume and flat pricing."
* Kowlzan concluded, "Considering these items, we expect fourth quarter earnings of $2.40 per share, excluding special items."

FINANCIAL RESULTS

* Third quarter net sales were $2.3 billion, with total company EBITDA, excluding special items, at $503 million. Special items expense of $0.22 per share related primarily to the Greif acquisition.
* Packaging business EBITDA, excluding special items, reached $492 million on $2.1 billion in sales, with a margin of 23.1%. Corrugated volume reflected cautious ordering patterns but improved as the quarter progressed. Containerboard inventory increased by 15,000 tons in the legacy system in preparation for the fourth quarter DeRidder outage.
* The Paper segment reported EBITDA, excluding special items, of $40 million, with sales of $161 million and a margin of 24.9%. Sales volume was 1% below Q3 2024 but 10% above Q2 2025.
* Cash provided by operations was $469 million, and free cash flow reached $277 million. Quarter-end cash balance stood at $806 million, with liquidity around $1.4 billion.

Q&A

* George Staphos, BofA Securities: Asked about bookings and billings starting Q4 and end market strength. Hassfurther responded, "Right now, kind of the blend of bookings and billings that we see so far is a little over 1% up...very tough comps." He cited beef and building materials as challenging end markets but noted, "Other than that, we've been very pleased with the results in all of our other sales segments."
* Staphos followed up on the Greif integration, synergies, and inventory strategy. Kowlzan and Pflederer described immediate operational improvements and synergy targets, with Pflederer stating, "Historical Greif performance, $240 million was about a good annual run rate for the EBITDA -- our projection for synergies on a run rate basis after the second year was about $60 million. We're well on target for that."
* Michael Roxland, Truist: Inquired about potential upside to Greif asset performance and maintenance improvements. Kowlzan said, "Every day, we're seeing positive results from the work we're doing...the bones of the mills are good. We just need to update them and then...run these mills the way PCA looks at the business." Roxland also asked about CapEx; Kowlzan indicated more details would come in January.
* Gabe Hajde, Wells Fargo: Asked about inflationary pressures and energy costs. Kowlzan emphasized, "Just in the last year or 2, we've seen some of our facilities, electricity rates are up 50% to 75%." Kowlzan detailed planned investments for energy independence at several mills.
* Mark Weintraub, Seaport Research Partners: Sought clarification on Greif-related CapEx and tax benefits. Kowlzan confirmed, "It's that type of capital that we're going to spend...tens of millions of dollars, and it will happen over the next year or 2."
* Anthony Pettinari, Citi: Asked about the impact of Greif on recycled content and OCC consumption. Pflederer responded, "We typically ran around 20 -- low 20 percentage furnish OCC. That's going to move up about 10% on the whole to 30-ish going forward."
* Philip Ng, Jefferies: Inquired about downtime and EBITDA contribution from Greif. Kowlzan assured, "These changes will take place on monthly outages...we'll be in good shape next year."

SENTIMENT ANALYSIS

* Analyst questions were focused on integration of the Greif acquisition, operational improvements, inflationary pressures, CapEx plans, and end market conditions, with a neutral to slightly positive tone as they sought clarity and upside potential.
* Management maintained a confident and constructive tone, emphasizing operational improvements, synergy realization, and strong cash generation. Kowlzan frequently noted, "feeling very bullish on what we've seen just in 1.5 months," and "we're very, very pleased with where we are today with the acquisition."
* Compared to the previous quarter, management’s tone was more assertive on integration progress and operational improvements, while analysts continued to probe for risks and upside, but with less concern about macro headwinds than before.

QUARTER-OVER-QUARTER COMPARISON

* Guidance for Q4 2025 is $2.40 per share, compared to the previous quarter’s Q3 guidance of $2.80 per share, reflecting anticipated seasonal mix and higher outage expenses.
* The Greif acquisition moved from pending in Q2 to completed in Q3, with immediate integration actions and operational improvements cited.
* Analysts in both quarters focused on demand trends, end market exposure, and acquisition integration, but Q3 saw increased attention to realized synergies, CapEx discipline, and inventory management.
* Management's confidence increased regarding integration and operational efficiency, citing specific early wins and clear plans for energy independence projects.
* Key metrics such as record operating cash flow and free cash flow improved quarter-over-quarter, while EBITDA and sales rose with the inclusion of Greif.

RISKS AND CONCERNS

* Management highlighted elevated electricity rates and inflationary pressures on labor, chemicals, and supplies as ongoing challenges.
* Outage expenses are expected to rise in Q4 due to planned maintenance, particularly at the DeRidder mill.
* End market weakness persists in beef and building materials, with Kowlzan noting cattle herds at "a 70-year low" and building materials affected by housing starts.
* Analysts questioned potential friction from inventory reductions and downtime related to Greif integration, but management expressed confidence in mitigation via normal managed outages.

FINAL TAKEAWAY

Packaging Corporation of America closed its Greif acquisition, achieving notable operational improvements and setting new records in operating and free cash flow. Management projects fourth quarter earnings of $2.40 per share, with focus on further synergy realization, energy cost mitigation, and disciplined capital allocation, while navigating ongoing challenges in select end markets and inflationary pressures. The company expressed high confidence in its integration progress and the future upside from both operational efficiencies and enhanced production capabilities.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/pkg/earnings/transcripts]

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