PCA (PKG) Q3 2026 Earnings Call Transcript

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DATE

Thursday, Oct. 22, 2026

CALL PARTICIPANTS

• Chairman and Chief Executive Officer - Mark W. Kowlzan
• President - Thomas A. Hassfurther
• Chief Financial Officer - Kent A. Pflederer

TAKEAWAYS

• Net Sales -- $2.6 billion, representing a 12.5% increase compared to $2.3 billion in the third quarter of 2025.
• Non-GAAP EPS -- $3.04 per share, exceeding guidance of $2.91 per share due to strong price realization and higher earnings from the acquired Greif business.
• Packaging Segment EBITDA -- $578 million, with an operating margin of 23.9% driven by favorable price and mix.
• Paper Segment EBITDA -- $34 million, reflecting a 20.6% margin compared to 24.9% last year due to the timing of the annual maintenance outage.
• Legacy Packaging Price/Mix -- $0.79 per share favorable impact, resulting from the implementation of domestic price increases.
• Acquired Greif Contribution -- $0.13 per share in earnings, improving from a $0.11 per share loss in the first month of ownership during the prior year.
• Operating and Labor Costs -- $0.28 per share unfavorable impact, driven by inflationary pressures and lower corrugated products volume.
• Freight Costs -- $0.26 per share unfavorable impact, reflecting higher delivery expenses across the business.
• Containerboard Production -- 1.489 million tons, with legacy mills contributing 1.28 million tons and acquired mills producing 203,000 tons.
• Inventory Levels -- 34,000 tons increase from the end of the second quarter, providing supply for the fourth quarter when three mills are scheduled for maintenance.
• Total Corrugated Shipments -- 11% increase per day, though legacy business shipments declined 0.5% due to weakness in agricultural end markets.
• Synergy Run Rate -- $40 million to $50 million, exceeding the original target of $30 million for the Greif acquisition.
• Free Cash Flow -- $225 million, calculated from $472 million in cash provided by operations minus $247 million in capital expenditures.
• Capital Expenditures Guidance -- $865 million to $890 million for the full year, adjusted for the timing of equipment deliveries and installations.
• Maintenance Outage Expense -- $1.48 per share for the full year, including $0.28 in the third quarter and an estimated $0.72 in the fourth quarter.
• Q4 EPS Guidance -- $2.81 per share, accounting for seasonal volume trends and higher projected costs for fiber, energy, and maintenance.
• Integration Supply -- 45,000 additional tons of containerboard supplied by legacy PCA mills to the acquired Greif system compared to the prior year.
• Jackson Mill Target -- 1 million tons of annual capacity, supported by the startup of a new winder project at the end of September.
• System Capacity -- 5.7 million to 6 million tons, representing the anticipated run rate as the company completes major debottlenecking projects.
• Special Items -- $0.11 per share expense, primarily related to facility closures, fire damage at a sheet feeder, and Wallula mill restructuring charges.

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RISKS

• Mark W. Kowlzan stated, "we expect these input costs to continue to go up," referring to rising prices for recycled fiber, purchased power, and chemicals.
• Mark W. Kowlzan warned that "costs for wood fiber to increase due to winter yields and mill mix," which will negatively impact fourth quarter production costs.
• Thomas A. Hassfurther reported that "volumes took a hit from the fire at Palmyra that kept the plant down for most of September," affecting corrugated products profitability.

SUMMARY

Packaging Corporation of America (NYSE:PKG) reported results driven by domestic price realization and the operational integration of its acquired assets. Management reported that the company is currently implementing a third round of price increases to offset persistent inflationary pressures in labor, freight, and fiber. The integration of the Greif business is generating synergies ahead of initial projections, supported by improved reliability and production output at the acquired mills. The company is advancing multiyear capital projects, including gas turbine installations and machine upgrades, to expand total system capacity toward 6 million tons.

• Management stated that the realization of the latest $70 per ton price increase will be split between the fourth quarter and the first quarter of next year, with the majority falling in the first quarter.
• CEO Kowlzan noted the winder project at the Jackson mill started up at the end of September and is expected to help the facility reach a 1 million ton annual capacity over the next 18 months.
• President Hassfurther indicated that while September and October bookings were strong, the company remains cautious about December due to seasonal variability in shipping volumes.
• Management identified competition for labor and materials from data center construction as a factor driving up contractor availability and construction costs for new capital projects.
• President Hassfurther noted that e-commerce demand remains a growth area for the fourth quarter, although the mix will be seasonally weaker than the third quarter.
• The company completed its first annual maintenance outage at the Riverville mill under PCA ownership, identifying further opportunities for productivity improvements.

INDUSTRY GLOSSARY

• Containerboard: A type of paperboard specially manufactured for use in the production of corrugated board, consisting of linerboard and corrugating medium.
• Corrugated Products: Packaging materials made from layers of containerboard, commonly used for shipping containers and point-of-sale displays.
• Uncoated Freesheet: A grade of paper used for office printing and communication papers that contains little or no mechanical wood pulp.
• OCC (Old Corrugated Containers): Recycled corrugated cardboard used as a fiber source in the manufacturing of new containerboard.
• DLK (Double Lined Kraft): Industrial scrap or clippings from the manufacture of corrugated boxes used as a high-quality recycled fiber source.
• Sheet Feeder: A manufacturing facility that produces corrugated sheets for sale to other box-making plants.
• Winder: Equipment at the end of a paper machine that rolls the finished paper into large logs or smaller rolls for shipping.
• EVOLs and BOPs: Specialized high-speed machinery used in corrugated plants for converting sheets into finished boxes with printing.

Full Conference Call Transcript

Operator: Thank you for joining Packaging Corporation of Third Quarter 26 Earnings Conference Call. Your host today will be Mark W. Kowlzan, Chairman and Chief Executive Officer of PCA. Upon conclusion of his narrative, there will be a Q&A session. Now I would like to turn the conference call over to Mr. Kowlzan. Please go ahead when you are ready.

Mark W. Kowlzan: Thank you, Jamie. Appreciate it very much. Good morning, everyone, and thank you all for participating in Packaging Corporation of America's third quarter 2026 Earnings Release Conference Call. Again, I am Mark W. Kowlzan, Chairman and CEO of PCA. And with me on the call today is Tom Hassfurther, our president, and Kent A. Pflederer, our chief financial officer. I will begin the call as usual with an overview of the third quarter results and then I will be turning the call over to Tom and Kent, who will provide further details. And then after that, I will be wrapping things up, and then we would be glad to take questions.

Yesterday, we reported third quarter net income of $262 million or $2.93 per share. Excluding special items, third quarter 2026 net income was $272 million or $3.4 per share compared to the third quarter 2025 net income of $247 million or $2.73 per share. Third quarter net sales were $2.6 billion in 2026 and 2.3 billion in 2025. Total company EBITDA for the third quarter, excluding special items, was $577 million in 2026 and $503 million in 2025.

Third quarter net income included special items expense of $0.11 per share, primarily for cost and write offs related to facilities closures, acquisition and integration related costs, the impact of a fire at our Palmyra, Pennsylvania sheet feeder, and the Wallula restructuring charges. Details of the special items for the third quarter of 2026 and 2025 were included in the schedules that accompanied the earnings press release. Excluding the special items, our earnings increased by $0.31 per share compared to the third quarter of 2025. The contribution from the acquired Greif business was $0.24 favorable year over year, generating $0.13 of earnings this year versus a $0.11 loss last year in the first month of ownership.

Legacy earnings improved by $0.07 per share. Driven by favorable price and mix in the Packaging segment for $0.79 favorable production and sales volume in the Packaging segment which includes the impact of additional containerboard supply to the Greif operations of $0.12 favorable price and mix in the paper segment for $0.05 and the lower share count $0.02. These items were partially offset by higher labor and operating costs, $0.28, higher freight costs, $0.26.

Higher corporate and other expenses, $0.13, higher fiber costs, $0.12, higher depreciation and amortization expenses, $0.06, higher maintenance outage expenses in the paper segment, for $0.04, lower sales volume in the paper segment for $0.01, and higher interest expense excluding the Greif acquisition and debt for this $0.01. As comparable quarters going forward will include the ownership of the acquired Greif business for the entire periods, we will no longer separate and state the earnings contribution from the acquisition in the future. We exceeded our guidance of $2.91 on the strength of price realization and a higher than expected contribution from the acquired Greif business.

These items were partially offset by higher labor and operating costs, partially driven by lower than forecast corrugated products volume. Looking at our packaging business, EBITDA excluding special items in the third quarter of 2026 of $578 million with sales of $2.4 billion resulted in a margin of 23.9% versus last year's EBITDA of $492 million and sales $2.1 billion or 23.1% margin. The mills produced 1.489 million tons. During the quarter. The legacy mills produced 1.28 million tons of containerboard, about 77 thousand tons more than the second quarter of 2026 and 31 thousand tons more than the third quarter 2025. The acquired mills produced 203 thousand tons.

Quite frankly, an exceptional number for a quarter in which Riverville was down for an extensive annual maintenance outage. System wide, our inventories were up 34 thousand tons from the end of the second quarter. And in fact, most certainly, we need that inventory. as we move into the fourth quarter. We have been able to catch up with keeping our plants adequately supplied. Resume shipping via most efficient methods possible, and we are in a good position to supply our customers in the fourth quarter even with 3 of our containerboard mills down for their annual maintenance outages. Operational performance was excellent across the board.

Much improved from the second quarter, and we completed the first annual maintenance outage at the Riverville mill under our own ownership safely and successfully. From the cost side, in addition to increasing freight, we saw significant increases in recycled fiber, purchased power, and chemical costs during the quarter, and we expect these input costs to continue to go up. Our mill production reflects improved output at Jackson even ahead of the completion of the winder project coming online in the fourth quarter we continue to maximize the performance of the paper machines.

We also benefited from continued improvement in reliability out of the acquired Greif mill I would now be turning it over to Tom, who will provide more on containerboard sales and corrugated business in general.

Thomas A. Hassfurther: Thanks, Mark. Domestic containerboard and corrugated products prices and mix were $0.75 per share above the third quarter of 2025 and up $1.11 per share compared to the second quarter of 2026. We have realized substantially all of the first net $50 increase and about half of the second $50 increase. Price realization came in ahead of forecast for the third quarter. We expect to realize almost all of the remainder of the second increase in the fourth quarter. Realization of the $70 increase will be split between Q4 and Q1 and skewed more towards Q1 in terms of timing. Export containerboard prices were $0.04 above last year's third quarter and $0.03 above the second quarter of 26.

Export sales volume of containerboard was 5 thousand tons higher than the second quarter of 2026 and 10 thousand tons lower than the third quarter of 2025 and remains at a relatively low level. While various factors that we have previously discussed led to lower agriculture end market volume, demand was solid throughout the quarter across the remainder of our customer base. Shipments were up around 11% in total and per day versus last year, with the legacy business down 0.5%, which is about in line with our expectation taking into account the lower ag shipments.

A silver lining is that we got ourselves back on solid footing from an inventory standpoint in time for what looks like a pretty strong fourth quarter from a volume standpoint based upon our September and October bookings. We were also able to save a lot on freight during the quarter by being able to plan and optimize our routes. We remain in a very tight containerboard market, which based upon what we are seeing in our own system appears to be further tightening with fourth quarter seasonal pickup.

As Mark said earlier, we have 3 containerboard mills down for annual maintenance in the fourth quarter, including DeRidder, we will need the mills continuing to perform at the top of their game to keep us properly supplied. The acquired corrugated business meaningfully contributed to our profitability during the quarter, though volumes took a hit from the fire at Palmyra that kept the plant down for most of September. Integration levels continue to improve and legacy PCA mills supplied approximately 45 thousand more tons of containerboard into the Greif system during the quarter than it did a year ago.

The improved integration, together with better operational performance in the mills that Mark mentioned earlier has us well ahead of our synergy targets. All systems, work will be completed during the fourth quarter which will further improve our visibility and day to day management of the business. This acquisition is working out very well for us in large part due to the quality and performance of our people who have put in a tremendous effort integrating and running the business. I will now turn it back to Mark.

Mark W. Kowlzan: Thanks, Tom. Looking at the Paper segment, EBITDA excluding special items in the third quarter was $34 million with sales of $163 million or a 20.6% margin compared to the third quarter of 2025 EBITDA of $40 million and sales of $161 million or a 24.9% margin. The differences in EBITDA and margin results from the maintenance outage being in the second quarter last year and the third quarter this year. Sales volume was approximately 0.9% above the second quarter of 2026, approximately 2.5% below the third quarter of 2025. Prices and mix were up 2.8% from the second quarter of 2026 and up 3.8% from the third quarter of 2025.

Sales volume, price realization and cost performance contributed to performance above our expectations. I will now turn it over to Kent.

Kent A. Pflederer: Thank you, Mark. Cash provided by operations was $472 million and after $247 million of CapEx, free cash flow was $225 million In addition to CapEx, the primary payments of cash during the quarter included dividend payments $134 million cash tax payments $66 million and net cash interest payments, $29 million. We did not repurchase shares during the quarter. Excluding special items, our effective tax rate during the third quarter was 25%. We expect our fourth quarter rate to be nearly identical to the third quarter. We now forecast $865 million to $890 million of CapEx for the year and excluding special items just above $705 million of depreciation and amortization.

These primarily relate to timing of expenditures and assets placed in service and do not reflect changes in our overall plans. Our special items expense for the year to date just to remind you, through Q3 included just under $60 million of depreciation expense and write offs primarily associated with the overall restructuring. I would now like to give you an update on the annual outage schedule and earnings impact for the rest of the year. Our outage expense was $0.28 during the third quarter. Our fourth quarter estimate is $0.72 now totaling $1.48 for the year.

The increase of $0.08 from when we last update you is primarily due to some timing with a couple of cents in 3Q moving into 4Q, as well as our decision to substantially increase the scope of maintenance activities at the completed third quarter Riverville outage. With more costs now being amortized into the fourth quarter and, to a lesser degree, an increase in the scope of the DeRidder outage will take place in next month.

Mark W. Kowlzan: I will now turn it back over to Mark. Thanks, Kent. As we move from the third quarter into the fourth quarter, we expect solid corrugated products demand with some seasonal improvement. Shipments per day are expected to be at or around last year's fourth quarter level with 2 fewer shipping days than the third quarter and total corrugated shipments will be higher than the third quarter. Prices for containerboard and corrugated products are expected to improve as we continue to implement earlier price increases but corrugated products mix will be seasonally weaker with higher ecommerce volumes. Containerboard production will be lower with annual maintenance outages at 3 of our mills and no maintenance outage expenses.

Including the impact on production volume from the fourth quarter outages will be significantly higher in the fourth quarter. We expect seasonally lower volume and slightly higher prices in the paper segment. We expect freight costs to increase across our business, with diesel fuel prices above third quarter levels. We also expect costs for recycled fiber to continue to increase as well as higher wood fiber cost to increase due to winter yields and wood mix and mill mix rather. Cost for chemicals and energy will increase due to higher chemical prices and higher seasonal energy usage. Considering these items, we expect fourth quarter earnings of $2.81 per share, excluding special items.

With that, we would be happy to entertain any questions, but I must remind you that some of the statements we have made on the call today constituted forward looking statements. These statements are based on current estimates, expectations and projections of the company, and do involve inherent risks and uncertainties, including the direction of the economy and those identified as risk factors in our annual report on Form 10 k on file with the SEC. Actual results could differ materially from those expressed in the forward looking statements. And with that, Jamie, I would like to open the call for questions.

Operator: We will begin that Q&A session. If you would like to ask a question please press *1. To withdraw your questions, you may press *2. If you are using a speakerphone, we do ask that you please pick up your handset prior to pressing the keys to ensure the best sound quality. Once again, that is *1 to join the question queue. Our first question today comes from George Staphos from Bank of America. Please go ahead with your question.

George Staphos: Hillary, everyone. Good morning. Thank you for the details. I wanted to maybe kick off on volume. You mentioned Mark, that you expect volume to be I am paraphrasing, even or around the volume trend from last year. Can you talk a little bit about what you are seeing in terms of bookings and billings and how you characterize volume being at or around comparable with also a tight market as you are seeing it?

Mark W. Kowlzan: Yeah. We will let Tom get into that.

Thomas A. Hassfurther: Hey, George. it is Tom. Morning. Good morning. Good. Bookings were, you know, good in September. They are, they are they are doing very well here in October as well. Up a little over 5%. Billings have lagged a little bit, and we expect that will catch up during the fourth quarter. So, you know, we are we are forecasting right now for pretty flat for the fourth quarter. But keep in mind that is a tough comp we are talking about as well. So, you know, it is easy it is easy to kind of look at October, November and get and get some insight, but December is always a bit of a crap shoot.

So we are just, you know, we are just going to be a little cautious in terms of that in terms of that forecast. But we are we are pleased with we are pleased with the cadence of the volume. We have had some we have had some struggles, as we mentioned, with that. With the ag business especially related to the lettuce issues and some things like that from some of our customers, and we expect some pickup. But, again, that will be that will be determined seasonally. You know, sometimes it picks up in the fourth quarter. Sometimes it tracks into the first quarter. So that is kind of where we are right now.

And of course, our mix is going to be a little more concentrated towards e-comm in the fourth quarter as well. Right. Appreciate that. Related to mix and volume perhaps again in the third quarter, Given the numbers that you gave in terms of pricing effect, in 3Q is quite strong, you said pricing is ahead of your expectations. Do you think that perhaps maybe you have lost a little bit of volume momentum at all with your pricing? Or not really? And why you why you view that to be the case? Relatedly, when we do just revenue over tons, the mix was a little bit a couple of points lower than we are expecting. Is that Greif effect?

Or is that e commerce effect in third quarter from what you could see? And then I had 1 last follow on. Okay. George, I am going to remind you of something we have talked about for years. When we are when we are in price increase mode, we are 100% focused on price increase, because those opportunities do not come along that often, and that is incredibly important. to our business, in the long term. Relative to volume, you know, we may lose an item or something like that.

But, you know, for the most part, you know, these are the same customers we have been dealing with for a long, long time. and, you know, they understand the situation we are in, and they are in the same. They are in the exact same situation. When you are when you are using revenue over tons, yeah, there is some Greif effect there. No question about it. it is a different segment of the market that we were not that we were not in before. So, that is going to impact that a little bit. Hopefully, that gives you your answer. It does. And then lastly, just.

You mentioned that the CapEx increase and the maintenance spending tweaks were mostly timing. Was there anything in there that was actually required or maybe not anticipated that you had to pull forward in terms of maintenance or CapEx? Thanks and good luck in the quarter.

Mark W. Kowlzan: So, George, I will give it to Mark after this. But in terms of timing, We were a little favorable in 3Q to what we would put out there time, but that rolls into the 4Q. that is really kind of timing of amortization of expenses more than anything else. In terms of activities, you know, Mark can maybe comment a little bit more on what we are doing in the 2 mills. Yeah. I mean, the. You know, George, we always reserve the right for new discoveries, new opportunities. We, you know, we move the capital up and down as we see fit, and some of it is just timing, on engineering and deliveries of, equipment for installation.

But we are pretty encouraged. We just went through that annual shutdown at Riverville, and, you know, during that week of downtime, for most of that week, we had over 1.4 thousand-1.5 thousand contractors, and people in the mill site working on that mill. We found some good opportunities, and it will lay out some really nice upside for that mill over the next few years. You know, I am talking about things like some head box, some forming section work, some dryer section work, you know, press section work. You know, things in the back end of the mill.

So we are very encouraged by the continuing, you know, opportunity that Massillon and Riverville will provide in much in the same way that the Boise mills delivered over the years. So using that term, the gift that keeps on giving. So Understood. Thank you. I will turn it over.

Thomas A. Hassfurther: Next question, please.

Operator: Our next question comes from Mike Roxland from Truist. Please go ahead with your question.

Michael Roxland: Yeah. Thank you, Mark, Tom, and Kent, for taking my questions. First question, it seems like the Greif asset provided most of the upside to 3Q as price cost overall was neutral based on our estimate. First, you know, would you agree with that assessment And if so, you know, what drove the strong performance at Greif, and why was it better than expected?

Mark W. Kowlzan: Let me let me talk about, Greif, and then Tom and Kent can weigh in. You know, we took some criticism last year during the first phase of our ownership of Greif because we got heavily engaged in fixing the assets right away. We had all of our technology organization heavily involved in Massillon and Riverville right from the get go last September when we closed on September 2. So we took advantage of that and very quickly were able to get the mills in a very good position to start delivering results And we talked about that on the second quarter earnings call that we had accomplished a great deal, from a reliability and a performance point of view.

And so, you know, quite frankly, through the summer months, into the fall now, we have we have seen exceptional performance coming out of both of those mills, and the same thing on the core choice side of the business. They continue to make improvements And so, you know, again, that is that is what we do. that is that is know, what PCA does best. We have got incredible technology and, operational group. And across the board. And so the results speak to that. Tom, Kent, you wanna weigh in on that?

Thomas A. Hassfurther: I will just I will just add. You know, obviously, the integration has helped a lot, but I would not I would not put it all on Greif. You know, some of the other things that we do when we do incredibly well is we can utilize these Greif assets in some different ways than they were able to use it since we have such a large system. And we are positioned all across The United States. So, you know, there is some there is some end market restructuring that took place as well within our system, which contributed. But that is kind of a. there is some puts and takes to that. You know?

You may move it over to 1 as opposed to another. And, so, you know, that is why I say you cannot you cannot just hang it all on Greif, but it did but it did provide a lot of opportunities for us. And as Mark mentioned, that is what we do well. We get in there, we take advantage of it. And, we figure out how to maximize these assets in a way that, you know, perhaps the you know, was not previously available to the to the previous owner. So that is.

And I and I think, you know, when I talk about end market structure, that is that is not only how we are going to these end markets, but also perhaps how we are, you know, some of the of the opportunities that, that afford themselves in terms of profitability. As well. Kent, you got anything else?

Kent A. Pflederer: No. I am good. Thanks.

Michael Roxland: Anything else, Mike? No. I got it. it is very helpful. Just 1 quick 1. Just can you help me understand, I mean, Tom, what happened to Legacy volumes in 3Q? If you look back the last part a couple of quarters, were outperforming the industry by a few hundred basis points. In 3Q, legacy box volumes declined 0.5%. Obviously, you had the ag issue, but I think the 0.5% when all said and done when we get the industry numbers, you will probably be in line with the industry.

So wondering like what is happened with in terms of the outperformance And is it just a matter of you may be focusing more on price and maybe-- and then less and less so on volumes?

Thomas A. Hassfurther: Well, Mike, let's put it this way. Our objective is profitable revenue growth. Can come in a number of different ways. Prices are where, you know, is our supreme focus at the moment. So, you know, that is that is what is driving our results. At the moment. And as I mentioned before, we did we did have a couple of segments that were, that were pretty large that have been a little bit of a drag, but it has nothing to do with losing business. it is just that, you know, they have they had some issues of their own, which, you know, cut down some of their demand. Got it. Got it. Makes sense.

Michael Roxland: And if can squeeze 1 more in just quickly. Kent, you guys guided 4 q down to be down around $0.20 sequentially. How should we think about the progression from 4Q to 1Q this year, particularly given the fact that the third price increase is flowing through?

Kent A. Pflederer: All right, Mike. Without putting too fine of a point on this, because we really only guide 1 quarter in advance. But, I mean, these are the drivers. You will see continued price improvement from 4Q to 1Q as the as the, the $70 increase the remainder of that comes in. Okay? Mix also improves a little bit from 4Q to 1Q as well. Outage expense also significantly, the p and l hit moves in the right direction. Volume goes down. just seasonally. 1Q is, you know, 4Q q is sort of the peak. 1Q then, you know, it comes down a little bit. Mill production, up a little bit. Because we have less outage impact.

On the cost side, you are going to see mill operating costs primarily at 4Q, if not even a little unfavorable just because you are in winter. And then you have the normal inflation that hits the, you know, labor benefits, services, all that sort of thing, you know, starting at about 3%. We do the best on that, though, to whittle that down through operational efficiency. So, you know, that. I gave you a lot of factors there, but, you know, I. Hopefully, that gives you at least a start based upon our historical performance when you try to model all this. Very, very helpful. Thanks, guys, and good luck in 4Q.

Thomas A. Hassfurther: Thank you. Mike.

Operator: Next question, please. Next question comes from Mark Weintraub from Seaport Research Partners. Please go ahead with your question.

Mark Weintraub: Great. Thank you. First, maybe just following up then a little bit on the kind of sequential type analysis. since we have been going there. As we think about 4Q v 3Q, I think at a conference, you had sort of talked about something less than $0.45 having been experienced last year might be what you would see this year. Is the difference now the kind of more $0.20 reduction you are projecting from 3Q to 4Q, is that a function of the September pricing Would that be the kind of the main reason why that would have changed?

Kent A. Pflederer: Oversimplified, yes. But I will I will give you a little more color on this. Okay? We saw a fairly large sequential increase from 2Q to 3Q in price. Given the mix and given the timing of roll in, we will not be nearly as favorable 3Q to 4Q, but the price favorability should be enough to offset the additional cost that we are taking on in the outages. It should be. You know, that is about even. Okay? We then have higher operating costs. And, you know, if you look across the portfolio of costs in our in our in our mills and operations, gonna have higher recycled, higher freight, higher seasonal Okay?

Offset a little bit by favorable in the corrugated operations. Just due to better cost absorption. So you have, you know, all those factors into place yeah, we are about, you know, 20 to 25 cents down from 3Q to 4Q. But the big help there is realization of the, the 70 increase. The beginning of realizing that. Hope that helps, Mark. Yes. It does. Thank you.

Mark Weintraub: And then, you know, obviously, you have been doing a terrific job offsetting a very difficult cost environment. On the pricing side. I mean, your long term track record has been all about, you know, company specific value creation as well. And you have alluded to several things that should help 2027 versus 2026. On that score already. Maybe if you could sort of give us a, like a laundry list: Jackson, counts, the box plan in Ohio, you know, a further gain from the Greif improvements, etcetera. I mean, what are the things that big picture we should be thinking about?

And lastly, I think the energy projects are more in 2028, but maybe update us on your thoughts there.

Mark W. Kowlzan: Let me start. Yeah. The energy projects, you will see the benefit more until the 2028 period. Again, we are we are in construction mode right now at Jackson and breaking ground at DeRidder. We are waiting on permits, for the gas turbine installation at the Riverville mill. So that is you know, pending. But you just hit it on the head. You know, we continue with our capitalization program.

Thomas A. Hassfurther: You know, Tom, comment on the successful startup of the new box plant in Ohio. that is that is that is you know, we hit it out of the box. We had an incredibly good startup in our new Newark plant, which also allowed us to you know, announce the closure of Middletown a little bit earlier than what we probably would have otherwise. We have got further installations going in there as we speak. And we are and we are continuing the same cadence basically with putting in other equipment and upgrading other equipment in box plants all across The United States.

So, you know, we have to be incredibly well equipped to continue to deliver at a very, you know, at the at the levels that we do for our customers. And perform the quality that we have and those sorts of things. I might mention in addition, you know, the, the work we continue to do on our proprietary grades paper. Is allowing us a lot of opportunity and, we will continue to do that going forward. And that has a lot to do with our capital expenditures as well.

Mark W. Kowlzan: So, you know, we. Mark, we have-- we are in-- you know, we are-- We continue to do what we do incredibly well, and we have been doing on a regular basis for the last decade. Yeah. You know, another example, Mark, is the, the new winder at the Jackson mill. You know, that had been under construction for over a year, and we got that started up at the end of September, and-- really, last couple of weeks now, but it came up incredibly well, and, that winder's running, as planned. And so, you know, Jackson's got, you know, a duplicate winder now running 10 thousand feet a minute if we need it.

Which, you know, the plan would be to put more fiber over that machine and you know. But I fully see the Jackson mill over the course of the next, you know, year and a half or so will be you know, become a million ton a year mill. And we have been talking about that for the last 6-7 years that was the direction we were taking the mill, and that is where we are going. Counts is another example. We got the second phase of the work going on at the Number 2 machine at Counce. To, you know, upgrade that capability.

So we will be seeing further benefits, significant benefits out of the Counce number 2 machine, which will be product productivity, quality, cost, But, again, this is. You know, we. We have got approximately 200 people in the corporate technology organization, dealing with these matters 7 days a week. And, you know, those of us at the corporate level, this is what we do, and, you know, we are either we are doing and working on operational matters or the group's working on customer based marketing and sales matters. And that is what we focus on, and that is that is what we do well. Super. Anything else?

Mark Weintraub: Actually, 1 really quick 1 if I could then. Maintenance outage expense, it is high this year. Is that just because things are more expensive, or were you just taking more this year than normal? So if we think about next year, we just assume similar to this year or not necessarily?

Mark W. Kowlzan: You know, good question. it is it is both. We undertook, obviously, with the Massillon mill and the Riverville mill undertook more activity. But, also, we are just doing some things at the legacy mills. That, we want to get done and, you know, we always take care of these assets and, you know, in terms of. We may have older mills, but if I took you into these mills, you would think they were new mills and so, you know. But also, it is the cost of capital. The equipment cost today are significantly higher than they were just a few years ago.

And so whether you are buying a pump or a motor or a, you know, major, you know, a new head box, the costs, you know, have gone up dramatically just in the in the last year or so. And then, you know, again, the labor cost to install If you are having contractors come in, that labor cost is up significantly. And so that is really it is the amount of work we are doing and taking advantage of the time and the capability to do it and the pure capital cost of these components and the labor, cost to do it. So I would mention, you know, we are in really good position.

You know, for the last 10 years, we have gotten ahead of the, the curve, so to speak, on recapitalizing our, you know, box plant assets Our mills are in great shape. And so everything we are doing is more on autopilot opportunity, taking care of the customer base, growing with the customers, And, you know, Tom, why do not you add a little bit more Well, just to just to follow-up on that, I think that I think what is.

Thomas A. Hassfurther: What. You know, we have we have mentioned this numerous times, but you know, this cost of capital has gone up, you know, 2 to 3 times in a lot of cases, in both at the mills and at the box plants. And, you know, so it is imperative in order to be able to continue to grow with our customers be able to take care of our customers and all those other sorts of things to be able to, you know, earn your cost of capital. And, you know, that is that is part of.

You know, that is that is part of a struggle, you know, that we that we have every day to make sure that we are able to do that. And, you know, to Mark's point, also is, you know, as I mentioned, you know, we have been at this for a long time. So a lot of a lot of those improvements that we that we put in place were prior to some of these exorbitant increases that have that we are now encountering. But, you know, those are those are definitely considerations. Going forward.

And, you know, all these projects that we have got going on also god only knows we need all these we need all these tons too. They are they are sold already. Appreciate all the detail.

Mark Weintraub: Thank you.

Mark W. Kowlzan: Thanks, Mark.

Operator: Next question, please. Our next question comes from Anojja Shah from UBS. Please go ahead with your question.

Anojja Shah: Hillary. Good morning. Good morning, Anojja. I wanted to ask about synergies. I think you said they are running ahead of plan. Any way to put a finer point on that, like how much it contributed in 3Q? And, also, are you still expecting $30 million, $30 million for this year and next year? Or do you think you can end up doing a little better than that?

Kent A. Pflederer: We are doing a little better than that. We are on a run rate now. Between $40 million and $50 million. And, you know, we called out 45 thousand tons of increased integration from PCA into the acquired. that is that is a big piece of it. there is other integration benefits. And then there is just the reliability, cost performance, and whatnot at the acquired Greif Mills. You know, 70 run rate. You know, 70 thousand more tons now than what it was doing at the time of the acquisition. So, really, those buckets are the are the factors and the synergies at this point.

Anojja Shah: Right. Okay. And then switching over to end markets, have you seen any pickup? So I know the FDA declared this, like the Cyclospora outbreak done. Have you seen any improvement in your shipments recognizing that it is probably a bit of a seasonal market? And then also, can you talk about what you are seeing in your other end markets, industrial and consumer?

Thomas A. Hassfurther: Anojja, I will take a stab at this. You know, I have mentioned ag numerous times. You know, we do see some recovery in ag. The question will be is how much of that occurs in the fourth quarter and how much rolls over into the first quarter? And does weather cooperate? that is been that is been also a little bit of a drag Protein markets have been, especially on the beef side, have been down now for quite some time.

Everybody has heard about the, you know, the level of the herds and the, you know, and, how long it is gonna take to get those herds back up and get that and to get that volume back up. So that is gonna that is gonna still take some time. But, you know, the other markets, e-comm, is still, you know, is, you know, not growing at the same rate it had grown, you know, for a long time, but still is a growing market and still doing quite well. Outside of that, the other markets are kind of where they are. I mean, we would like building products to pick up some and things like that.

That has to do with government regulations and a whole bunch of other things and interest rates. So, you know, we will there is lots of puts and takes, and we are in so many different markets, and we have got, you know, thousands and thousands of customers in these various markets. So it is hard to predict any single 1. Ag has stuck out more than others just because of what is going on. Weather wise and, and the lettuce and all the other things that have that have occurred. Right. Okay. Thank you very much for that. I will turn it over.

Mark W. Kowlzan: Thanks, Anojja.

Operator: Next question, please. Our next question comes from Philip Ng from Jefferies. Please go ahead with your question.

Philip Ng: Hey, guys. Congrats on another strong quarter. I think if I heard you correctly, you guys are doing a little more extensive work in the fourth quarter with DeRidder and I think, Massillon as well. My question is, you know, does that, you know, unlock potentially more capacity, more debottlenecking? Think when you guys announced, idling Wallula and debottlenecking some of the other mills, I had a number in mind, roughly 6 million tons of capacity. when it is all said and done, but you guys always find new things to do. So can you kind of help us think through your capacity, to produce just because as you kinda pointed out, the market's very tight.

Mark W. Kowlzan: Yeah. I mean, if you if you think about our expected run rate for 2026 is probably going to be 5.757 million tons. So you know, I would think we are on track, and I have been talking about this for the last year that you know, we will get to be a 6 million-ton system with this work that we are doing. And so it is it is basically, you know, we get through these outages next year at Counce and some of the work we have got going on, at Jackson. We certainly have that capability that, you know, depending on the grade mix you are producing, you know, we are bumping up against that 6 million-ton capability.

But this is, you know, this is ongoing. This is what we do. We know. We continue to, you know, stretch the capability. We see the opportunities. that is why I mentioned earlier on the call, the annual shutdown that just occurred at Riverville Mill. You know, it unlocked these opportunities before our eyes in terms of you know, some capital input will greatly improve the productivity and performance of the Riverville Mill. And so that is going to be another, you know, piece of the, you know, containerboard supply over the next couple of years. As we get that equipment installed and that mill stretched out. Massillon mill is a good example.

You know, Massillon's Mills are performing incredibly efficiently compared to a year ago. And so, you know, these. The little things that we do that, you know, make Massillon such an important meal to us. You have got the new box plant down in Newark, it is. I believe it is, like, 80 miles from the Massillon Yep. Mhmm. So it was-- it is basically shuttle truck you know, distance away. The Ashland box plant's probably 40 miles away from Massillon. So Massillon being a very efficient mill just, you know, within the first year of ownership, presents an incredible opportunity, but we will continue to stretch out. We.

You know, long answer to your question, you know, we are we are definitely at that at that 6 million-ton, you know, bumping that capacity and with the projects we have got coming on over the next 6 months to a year. Gotcha.

Philip Ng: And any early rate on CapEx next year or. And big projects in the horizon?

Mark W. Kowlzan: I mean, you spent-- not either. Most people would be happy with, but any that you have up your sleeve that we will give you a better target in the January call as we always do. But I mentioned some of the bigger projects we know, but, really, the big spend over the next 24 months will come from the gas turbine installations. We got 3 gas turbines going in, and we gotta finish up the counts number 2 machine improvement work. That was, you know, fairly sizable amount of work. And then the rest of it is just the whole host of opportunities that, you know, present themselves across the board in the box plans. Know, we are always.

You know, it is gonna be the 1 off equipment. it is it is the e. EVOLs, the BOPs, the, you know, the various rotary die cutters. You know, new corrugators, to continue to grow with our with our customer base. that is all customer driven. Yeah.

Thomas A. Hassfurther: And that is that is the beauty of that we invest with the customer. And so, yeah, I think without giving you a number, if you think about the cadence of our capital for the last couple of years, we are gonna take advantage of those type of opportunities. We are generating significant cash flows, you know? And so I think the question will come as it has always been, what are we doing with all the excess cash? I will I will leave it at that. Okay. Super.

Philip Ng: Perhaps a question for Kent. Kent, you were kind enough to give, some color sequentially from Q4 to Q1. You know, outside of the labor and benefits piece, which steps up every year around 1Q, are you starting to see your major input costs level off here, just your operations, freight, and stuff like that? And then any color on the September increase, how much of that, is flowing through in Q4 versus 1Q? Is it, a 2080 split? Oh, okay.

Kent A. Pflederer: So I will take your last 1. I think it is probably a little more into Q4 than what you said, but that. You know, I do not wanna throw a number, but it is it is better than 2080 in terms of Q4 versus Q1. Alright. So on input cost, freight recycled. You know, right now, at least looking past 4Q, we gotta assume it stays at elevated levels. Okay? Okay. Until we see some sort of breakthrough in the in the drivers on those-- you know, right now, I am assuming, you know, at fairly high levels similar to what we are forecasting for Q4. Okay.

Philip Ng: that is helpful. I mean, margin should improve nicely with cost leveling off. Thank you so much.

Mark W. Kowlzan: Thanks, Philip. Thanks, Philip.

Operator: Next question, please. Our next question comes from Anthony Pettinari from Citi. Please go ahead with your question.

Anthony Pettinari: Good morning. Good morning. Just following up on-- hey, just following up on the energy projects. I think at the beginning of the year, you talked about the gas turbine projects. Taking maybe 2.5 years, and I was wondering if I got that right. And if in the current operating environment, which is pretty tight, is that-- are you sort of on track for that? Are there possibilities to pull that forward or just you know, because there are 3 installations at 3 different mills, they are moving in 3 different paces.

Mark W. Kowlzan: We are currently. You know, we are we are actually in installation mode at the Jackson mill. that is moving along very quickly. And part of that was we-- you know, we were able to get the permits very quickly and move on that through your, you know, summertime period. And so DeRidder is, you know, is somewhat behind that. And then Virginia with, the Riverville mill, we are going through a permitting process, and that is that is taking a little extra time. Part of it is we are just comprehensively looking at the entire mill footprint with the mill opportunities in terms of productivity.

On the paper machine side, the pulp mill side, and comprehensively looking at what that mill will become over the next few years. So there is a little bit of extra time, in the permitting process. So that would be kind of like a late 2028 into, you know, the truly just the, you know, the 2.5 years out to see that 1 come on at best. that is that is why it is really a multiyear phase project. Got it. Got it. that is that is very helpful.

Anthony Pettinari: And then I apologize apologies if this was asked earlier, but in terms of the most recent box price hike, when we think about the implementation and the timeline for that hike, should we think about that as being basically the same as the first and the second hikes this year? Or is there anything about it towards the end of the year or the competitive environment? Just how would you compare the implementation timeline for the third 1 versus the first 2? Just based on where we are close to the end of the year?

Thomas A. Hassfurther: Anthony, this is Tom. Our time line is pretty much the same on each of these. And I gave you the, you know, I gave you the in the commentary, you know, we got the. The first is the end. We still we still are realizing some of the some of the second 50 in the fourth. We are realizing a little bit of the 70 in the fourth, and the majority will come in the. In Q1. Of next year. So the cadence on these are pretty much the same. Now, you know, you may be asking the question because not every, you know, it is not every day that we get, you know, 3 back-to-back-to-back.

So you know, it is, but, that is-- that is how this-- that is how this. that is how the cadence is working for us right now. And it is all based on the normal the normal procedures that we go through with our customers.

Anthony Pettinari: Okay. that is that is helpful. I will turn it over. Thank you.

Operator: Next question, please. Our next question comes from Hillary Cacanando from Deutsche Bank Securities. Please go ahead with your question.

Hillary Cacanando: Hillary. Thank you for taking my question. Just a quick, clarification question on the $70 increase. You said you expect, obviously, more in the first quarter than the fourth quarter. But are you expecting the full $70 increase to be realized by the first quarter? Or do you see do you think that, that could extend beyond the first quarter? Into the second and that way even then? Hillary, this is Tom.

Thomas A. Hassfurther: In the in the normal cadence that I just talked about, most of the. The great majority of the realization will all be in the first quarter next year.

Hillary Cacanando: Okay. Got it. Thank you. that is helpful. And then, you know, just with, you know, recycled fiber cost continuing to increase, you know, has anything changed in how you are optimizing the mix between recycled and virgin fiber?

Mark W. Kowlzan: No. Again, you know, again, we take advantage that it is a mill-specific opportunity, mill by mill, location by location. You get transportation, you know, considerations on OCC. And then, again, just what the pulp mill itself is designed to do and so you balance out your, fiber needs with, with OCC in general, DLK. But in the conditions we are under in terms of, you know, with the tight market, need for containerboard You know, we. We have got everything pretty well maxed out. Virgin Craft, know, productivity, OCC plant productivity. So it. it is basically you know, utilizing everything we can take advantage of right now. Got it.

Hillary Cacanando: Thank you. that is helpful. Thank you.

Mark W. Kowlzan: Thank you. Any more questions?

Operator: Yes, sir. We have a follow-up question from George Staphos from Bank of America. Please go ahead with your follow-up.

George Staphos: Hillary. Thanks, guys. I will I will make it quick. Mark, can you talk a little bit about what kind of lead times you are seeing on equipment You talked a little bit about turbines, and, obviously, you already had purchased those. But. And opportunistically so. But if we think about you know, converting equipment versus equipment you might need you know, at the mill are your lead times right now? What do and how do. Would those compare versus what you are hearing about you know, elsewhere perhaps?

And then you know, when we think about Greif, the synergies which have now moved up, the turbine project, and then the mill realignment, optimization program we announced last year into this year. Or maybe it is beginning of this year. I know it depends on where you start the clock, but I think we have talked in the past. Do you think you have added from all of that $500 million to your EBITDA when you think about those 3 or 4 larger buckets? Thanks, and good luck in the in the quarter.

Kent A. Pflederer: Hey, George. I will knock off your last 1. The answer is we are pretty darn close to that. You know? And there are some inflation effects to that. But, yeah, we have we have we have talked about that before publicly and, you know, in response to your prior questions. But, that is still a pretty good number there. Just marking to market there. Go ahead. Go ahead.

Mark W. Kowlzan: Then on some of the lead times, it depends on what you are ordering. If you are ordering some very complex, you know, pieces of unit operations, you know, the lead times can be longer. In some ways, you know, there is some opportunities that have taken place You know, some of the equipment suppliers actually do not have as big a back as they had a few years ago, so the lead times have shortened up. But more than the lead times, it is the cost. Mhmm. Whether, you know, whether 2 years ago, it took 14 months to get something delivered and now you can get it delivered in 10 months.

It does not matter if the cost is up 60% from what it was a year and a half ago. And so it is the absolute cost to acquire the piece of equipment and then the installation labor that goes into it and the associated you know, installation factors that have increased in many cases, doubled the cost of capital projects just in the last, you know, 2 years.

Thomas A. Hassfurther: And I would add that if we are building it all, I mean, you know, you are you are now competing with data centers for land and for steel and all these other things that are going on. So those construction costs are just going through the roof as well.

Mark W. Kowlzan: Yeah. We are we are definitely seeing, if you think about contractor availability is a good example. And what Tom just said about data centers. With any specific region, if you are in the building and trades, you have an opportunity to go work at a at a data center, quite frankly, you know, if you look at the pay scales, and locations, and the. And quite frankly, just the magnitude of the buildout, it is put an incredible demand nationwide on a lot of the building and trades. Mhmm. So again, that is another factor that we deal with. We are fortunate. We have a good group of contractors that we have aligned ourselves with. We.

Again, we have our own incredibly talented maintenance organization that we use across the board. We call that the traveling team. And in conjunction with the technology group. So we are able to overcome a lot of that, but still, again, I would not. The delivery times, is 1 factor, but it is it is the absolute cost of the equipment that is really the factor. Mark, I understand. But if I was ordering a new paper machine, I was converting something, I am not getting to business. But let's say I was. am I looking at 2 years on that?

If I was if I was buying a new Flexa folder, let's say I was buying an EVOL, not you, but me, Is it a year before I get that equipment, that is just what I am getting at. Thank you, and good luck in the quarter. Thanks again. Yeah. I mean, it just depends on the equipment you are buying, the vendor you are buying it from. What country it is coming from. Again, you know, the permitting issues, the contractors' availability to install it, But I can tell you, you know, it is investing in this business is not for the faint of heart anymore. Yeah. You know? So it is the game has changed significantly. Got it.

Thank you so much. Alright, George. Thank you.

Operator: Jamie, any more questions? Mister Kowlzan, I see that there are no more questions at this time. Do you have any closing comments?

Mark W. Kowlzan: Yeah. I would like to thank everybody for joining us today. And as usual, we appreciate the back and forth question and answer period. And look forward to talking to everybody in January. With that, have a great rest of the year and a great holiday period. Thank you.

Operator: And with that, we will wrap up today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.

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