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

Mark Kowlzan: Well, just on a macro level, we’re going to continue to do what we do run to demand. But the other thing is if I were an investor, which I am, but I would be looking at this on how we use our cash and where we’re deploying cash. And we talked about this a little bit at the July call for next year, and we would anticipate the capital spending discipline to continue in the trend that it’s been, we’ll be in that $400 million level this year and plans call for next year to continue that pace of capital deployment, which if you then think about the excess cash being generated, where that goes. There are other opportunities to take advantage of that and bring value to the shareholders. And so we’ll, again, continue to take advantage of the benefits of all the capital spending that we’ve been bringing to bear, get Jackson completed and then continue to look at more opportunities and execute and work with our customer base and taking care of our customers.

Unidentified Analyst: Perfect. Okay, I’ll turn it over. Thank you.

Mark Kowlzan: Alright. Next question?

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

Anthony Pettinari: Good morning.

Tom Hassfurther: Good morning.

Anthony Pettinari: We’ve seen a large amount of new recycled capacity being added to the market this year. I guess some integrated, some nonintegrated. And I just had two questions. I guess, first, could you talk about the impact on the market that you’ve seen or maybe haven’t seen? And then second, maybe for more a big picture perspective, how should we think about PCA’s mix? Historically, you’ve been a virgin board producer. Are there some opportunities to add recycled capacity? I guess, what we look and process OCC? Or do you still see Virgin playing this kind of unique role in the U.S. market? How do you think about that maybe over the next decade?

Mark Kowlzan: We’ve always been primarily a virgin linerboard medium producer, we have the capability of flexing a number of our mills. I think most people understand that we’ve invested heavily over the last decade. And in these conversion opportunities, DeRidder, Wallula, now the Jackson mill, Counce, the Northern Mills all have recycled capacity. But again, we’re not going to put all our eggs in one basket and go all into recycle. We take advantage of it. And it does give us some opportunity to flex the fiber cost and time of year and availability. But again, I think — if you look at us 10-years from now, we’ll still look the same that we do today in terms of our fiber balance. Tom?

Tom Hassfurther: Anthony, the impact in the marketplace of the — let’s say, the one-offs, even having some integration in some of these mills is bearing out exactly like I had told you it would, with the very limited open market, we have seen virtually no impact at all from these mills. They’re going to have to find a home somewhere else. Now the ones that are integrated and we’ll be running to demand, I’m sure, and they’re not even attempting to sell into the open market. Those that are the one-offs might attempt to sell into the open market. But again, it’s — we’re finding that our domestic customers want to stick with PCA for the fact that we’ve got a great quality linerboard and medium. And we take care of our customers.

Our service is very good. And they’ve shown absolutely zero interest in moving to any other supplier. And I think that’s probably true across the board. So that — hopefully, that answers that. And just to tag on with what Mark was saying, we value our fiber flexibility, and I can tell you that our mills if you go back — you can go back in history and find PCA was a heavyweight mill system, and we’ve completely adapted to whatever the market is today. And we’ve got this ability to basically tailor our liners to whatever the needs of our customers are, and that’s a huge competitive advantage we have.