Packaging Corporation of America (NYSE:PKG) Q3 2023 Earnings Call Transcript

Mark Kowlzan: Yes, no, you know, the work will be done next year, late first quarter into the second quarter. It’s a longer outage, but it will be the final phase of the completion work necessary to take care of the big machine. But you’re talking about ‘23 additional high-pressure dryer cans, modifying the press section, we’re removing the fourth press, installing the new shoe press, a number of modifications in that regard to enhance the speed, the drying capability. But it’s that final phase that gets the productivity up, but also some of the work in the back end of the mill is related to the cost position of the mill. So when this work is done, depending on the demand coming out of that mill, that mill will be, as far as cost competitive position, it will be right in there with the DeRidder and Counce in Valdosta.

Mark Weintraub: Great. And if you just remind, I think it was like a 265,000 ton per year, this part, or correct me what that number was and if there’s a way for it to calibrate the amount of cost per ton or whatever the best way to look at it, what you’re expecting to achieve with this last phase would be helpful too?

Mark Kowlzan: You know, I’m not going to answer that right now, because I don’t want to say the wrong thing. I’m going to let Bob, if he recalls, but at the end of the day, the machine, you know, if you think about where we’ve been running the machine on a daily basis, you know, the machine’s been flexing anywhere from 1,200 tons a day to 1,800 tons a day, depending on what we needed. But when we’re done with this project, the capability of that machine will be well over 2,000 tons a day. The target is 2,400 tons a day when we’re done with this. So if you use a 352 day a year, you’ll get your annual tons.

Bob Mundy: Yes, Mark, and the improvement from where we are today versus where we will be when we hit that run rate after the completion of the second phase, it’s close to $40 a ton. That benefit coming from most of your direct variable type costs and you’re getting all this additional volume with no increases in your, obviously indirect costs or any fixed costs. So you get a nice, huge benefit once this project is completed.

Mark Weintraub: Great. And so we can just take the 2,400 times 350 or whatever, or 360.

Mark Kowlzan: Just for simple math, you can, whether you use 2,000 or 2,200, but the ultimate goal between myself and some of the people around me is that machine will be a 2,400 ton a day machine someday when we’re done fine tuning it. But it would be — to my knowledge, it would be the most productive, low-cost, linerboard machine in the Western Hemisphere.

Mark Weintraub: Super. One last quick one. I’m curious, was mix much of a factor in terms of the 133, I guess, is 112 domestic. But was mix much of a factor in the corrugated? Or was that just mostly price?

Tom Hassfurther: No. Mix is a big factor in there, both in end uses and in basis weights. So it’s there’s a heck of a lot that goes into what the final pricing is. And as I mentioned last time, and I’ll just mention it again, building products, that’s still — that segment, which is a good segment for us, still remains underwater as housing starts have been affected by higher interest rates. The graphics mix and the effect of what’s going on and the changes that are taking place in brick-and-mortar stores, that’s been impacted. And of course, our automotive segment with the UAW strike is now really starting to get impacted. Now all of those segments tend to be on the higher price side. However, we’ve got a lot of other segments that are doing quite well. And we’re — and we’ve been — and we haven’t been impacted much at all other than what you’ve seen in the publications in terms of price.