- Recovery rolls in: Packaging Corp. of America reported Wednesday that containerboard production and shipments both increased in Q4, following decreases through much of the year. “Demand in the packaging segment was stronger than our expectations,” said CEO Mark Kowlzan during a Thursday earnings call, signaling a potential recovery from the industrywide low demand in 2023. The company also reported lower operating and converting costs.
- Demand, destocking and restarts: Like competitors, PCA idled some production in 2023 as demand lagged amid lingering customer destocking. With destocking in the past and demand showing signs of rebounding, the company began to restart operations at its pulp and paper mill in Wallula, Washington, which it idled last May. It restarted the No. 3 machine and it plans to restart the No. 2 machine this quarter to build inventory and meet the stronger demand. Downtime at a paper mill in Jackson, Alabama, due to converting it to produce linerboard — a process that began in 2022 — is in its final phase but continues to add costs.
- Price increase controversy: PCA is among the many fiber companies that announced price increases as of Jan. 1, and executives spent significant time on the call addressing skepticism about whether new prices will stick, which emerged Friday in light of a Fastmarket RISI Pulp and Paper Week report that there were no higher prices in the market in January compared with December. Executives expressed discontent with the report and reinforced that PCA did execute price hikes and are “getting paid accordingly,” said Tom Hassfurther, executive vice president of corrugated products. “No customer disputes on these price increases” have emerged, Kowlzan said, adding that “we're disappointed that it didn't show up in” PPW.
- Seeking pricing solutions: Kowlzan reiterated his belief — shared by others in the industry — that PPW’s relevance to the total industry is limited, as it reports pricing for the open market, which is shrinking and only “in the mid-single digits,” he said. Customers “are incredibly frustrated with the mechanism right now and feel that there's a disconnect between what they see going on in the market and what's being reported,” Kowlzan said. “We’ve got to figure out how to solve that disconnect.” PCA is “exploring all alternatives” but Kowlzan would not discuss specifics, as that’s “between us and our customers.”
- Growth areas: In 2024, PCA plans to invest in more than 30 "strategic projects" at 26 of its box plants, Kowlzan said. He flagged the company's capacity to grow its containerboard capabilities with the marketplace the coming years.
- Outlook: Although PCA restarted the Wallula facility, containerboard volume is anticipated to be lower this quarter because of the downtime in Jackson and scheduled maintenance at a mill in Counce, Tennessee. Overall, executives struck a positive tone about the coming months. They said demand has remained strong through January, a trajectory they expect will continue through the quarter. “Although demand continues to be challenged by persistent inflation, higher interest rates and other factors, we expect our shipments to continue this positive momentum as we enter the first half of 2024,” Hassfurther said.
Increasing demand buoys PCA’s earnings, but pricing questions distract from progress
Packaging Corp. of America experienced demand that was “stronger than our expectations” in the fourth quarter of 2023, according to CEO Mark Kowlzan, which could signal longer-term recovery.
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