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Packaging Corporation of America produces containerboard, uncoated freesheet (paper that doesn't contain pulp), and other packaging materials.

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One of the country’s largest producers of packaging products, PCA also owns Boise Paper.

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The Packaging Corporation of America (PCA) is one of the largest manufacturers in North America of paper and paper products that are corrugated, or strengthened through ridges and folds. Through a series of mergers, PCA emerged in its modern incarnation in 1959 and went public in 2000. The company manages both paper mills and cardboard factories, among other facilities. PCA’s customers are distributors and retailers, including Office Depot and OfficeMax.

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Packaging Corp. of America (PKG): Company Profile, Stock Price, News, Rankings

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Packaging Corp. of America

packaging corp. of america

Good day, everyone. Thank you for joining Packaging Corporation of America's first quarter 2026 earnings results conference call. Your host for today will be Mark Kowlzan, Chairman and Chief Executive Officer of PCA. Upon conclusion of his narrative, there will be a Q&A session. Please also note today's event is being recorded. I would now like to turn the floor over to Mr. Kowlzan. Please proceed when you are ready.

Thanks, Jamie, and good morning, everyone. Thank you all for participating in Packaging Corporation of America's first quarter 2026 earnings release conference call. Again, I'm Mark Kowlzan, Chairman and CEO of PCA, and with me on the call today is Tom Hassfurther, President, and Kent Pflederer, our Chief Financial Officer. As usual, I'll begin the call with an overview of the first quarter results, and then I'll be turning the call over to Tom and Kent, who'll provide further details. I'll be wrapping things up, and then we'll be glad to take questions after. Yesterday, we reported first quarter net income of $171 million, or $1.91 per share. Excluding special items, first quarter 2026 net income was $215 million, or $2.40 per share, compared to the first quarter 2025 net income of $208 million, or $2.31 per share.

First quarter net sales were $2.4 billion in 2026 and $2.1 billion in 2025. Total company EBITDA for the first quarter, excluding special items, was $486 million in 2026 and $421 million in 2025. First quarter net income included special items expense of $0.49 per share, primarily for the Wallula mill restructuring charges, as well as for costs relating to the acquisition and integration of the Greif containerboard business, and also costs related to the closure of corrugated products facilities. Details of the special items for the first quarter of 2026 and 2025 were included in the schedules that accompanied the earnings press release. Excluding the special items, our earnings increased by $0.09 per share compared to the first quarter of 2025.

This increase was driven primarily by higher prices and mix in the legacy Packaging segment for $0.17, lower fiber costs in the legacy packaging business $0.11, lower maintenance outage expenses of $0.09, lower labor and operating costs in the legacy packaging business for $0.08, higher prices and mix in the Paper segment $0.02, favorable volume in the Paper segment for $0.01, lower tax rate $0.01, and lower share count $0.01. These items were partially offset by higher freight costs of $0.13, lower production and sales volume in the legacy packaging business $0.11, higher depreciation expense in the legacy packaging business $0.05, higher labor and operating costs in the Paper segment for $0.03, higher corporate and other expenses $0.03.

Also the acquired Greif operations, including interest on acquisition indebtedness, generated a loss of $0.06 during the first quarter, primarily as a result of lower volume and higher costs due to the January storm that affected the Riverville Mill and the corrugated operations, as well as higher than forecast freight and recycled fiber costs and unfavorable mix. We exceeded our guidance of $2.20 on the strength of our operational and commercial performance during the quarter, including favorable volume and mix in the legacy packaging business and better-than-expected operating cost performance and lower labor and benefits costs. These were partially offset by higher freight costs and lower than expected earnings from the Greif business.

Looking at the packaging business, EBITDA, excluding special items in the first quarter of 2026 of $482 million, with sales of $2.2 billion resulted in a margin of 22% versus last year's EBITDA of $409 million and sales of $2 billion, or a 20.8% margin. We ran at full capacity during the quarter and completed the outage on the Counce number one machine during the quarter and completed the outages on the Counce number two machine and at the Jackson Mill earlier in April. The Wallula mill reconfiguration was successfully completed, which immediately helped us reduce our costs of fiber, power, and labor. For the quarter, we produced 1,398,000 tons of containerboard during the quarter. The legacy mills produced 1,210,000 tons of containerboard, which was 25,000 tons less than the fourth quarter of 2025 and 40,000 tons less than the first quarter of 2025.

System-wide, our inventories were down 39,000 tons from the end of the fourth quarter, and we meaningfully reduced the inventories carried by the acquired Greif plants. Operational performance during the quarter was exceptional, with improvement in corrugated demand heading into a very busy outage schedule in the second quarter and an increasingly tight linerboard situation. We needed to run well, and our mills delivered. Jackson set new production and speed records. We safely completed the Counce outages over the last month and were able to bring both machines up earlier than scheduled and make up for some of the weather issues earlier in the quarter, while helping us keep up with corrugated demand.

In February, we saw Riverville produce at approximately 10% higher rate than what it was capable of doing when we completed the acquisition. Our Board of Directors approved the gas turbine projects for the Jackson, Alabama mill and Riverville, Virginia mills that we talked about on the last call, and we're scoping a third project for the DeRidder, Louisiana mill, which we will be submitting in the period of May at the annual board meeting. I'll now turn it over to Tom, who'll provide further details on the containerboard sales and our containerboard business in general.

Thank you, Mark. Our corrugated operations turned in a very strong quarter in all areas. Domestic containerboard and corrugated products prices and mix were $0.17 per share above the first quarter of 2025, and up $0.06 per share compared to the fourth quarter of 2025, and up approximately $0.12 excluding the Greif operations. This is mix-related, as mix improves in the legacy PCA business 4Q to 1Q, but declines in the Greif business during the first quarter. Export containerboard prices were flat with last year's first quarter and down $0.01 per share from the fourth quarter of 2025. Export sales volumes of containerboard was up 6,500 tons from the fourth quarter of 2025, and down 13,000 tons from the first quarter of 2025. In the legacy business, corrugated shipments per day were up 2.8% versus last year's first quarter, a new record on a per-day basis.

With one fewer workday, total shipments were up 1.2%. We saw good growth across our entire book of business, with legacy shipments running consistently 2%-3% ahead of last year from the middle of January through the rest of the quarter, and very strong so far in April. Even with the situation playing out in the Middle East and higher fuel prices here in the States, we are seeing a resilient economy and continued strength in our customer ordering patterns across the board. We expect the second quarter to shape up similarly to the first in terms of demand and year-over-year growth. As Mark alluded to earlier, we are tight on containerboard, and we will need continued exceptional performance that we have come to expect from our mill operations to support our customers.

Including the acquisition, shipments were up 22% per day and 20% in total compared to last year's first quarter. We began to see the seasonal pickup in the volume and improvement in mix from the acquired operations as the quarter progressed. We're off to a great start in April. We expect to see good sequential improvement in both volume and mix during Q2. We intend to complete systems integration by the end of the third quarter, with all operations running on PCA's decentralized systems. As we progressed on our integration efforts, we focused on inventory reduction at the Greif plants and made great progress reducing carried inventories by around 10,000 tons during the quarter. We have room for further improvement and will continue these efforts in the second and third quarters. We will be working to implement our price increases during the second quarter.

Reported containerboard prices are up net $50 per ton from the beginning of the year. Due to the timing of how things played out, we did not get a meaningful benefit during the first quarter. We have had a lot of individual negotiations with our customers on how to implement this increase, and we are not going into any detail on that. What I can say is that in general, we expect to start to see the benefit during May, with the normal implementation period beginning in June. We expect some benefit during Q2, with the majority coming during Q3. I'll now turn it back to Mark.

Thanks, Tom. Looking at the Paper segment, EBITDA excluding special items in the first quarter was $38 million, with sales of $160 million for a 23.6% margin, compared to the first quarter of 2025's EBITDA of $40 million and sales of $154 million, or a 26.1% margin. Sales volume was approximately 3% above the first quarter of 2025 and approximately 4% above the fourth quarter of 2025. Prices and mix were up 1% from the first quarter of 2025 and flat with the fourth quarter of 2025. We remain very pleased with the performance of the paper business, which continues to generate high margins driven by strong commercial and operational performance. We are working to implement the previously announced price increases and expect to benefit in Q2. I'll now turn it over to Kent.

Thanks, Mark. Cash provided by operations was $329 million, and after $165 million of CapEx, free cash flow was $164 million. In addition to CapEx, the primary payments of cash during the quarter included dividend payments of $112 million, share repurchases of $59 million, cash tax payments of $18 million, and net interest payments of $11 million. We expect higher cash payments for taxes and interest in the second quarter. We repurchased 266,000 shares during the first quarter at an average price of $228.78. We have approximately $224 million of remaining repurchase authority. Excluding special items, our effective tax rate during the first quarter was just under 23%. This is lower than our forecasted 2026 full-year book effective rate of 25% due to favorability from the vesting of employee equity awards during the first quarter. We expect our second quarter to be approximately 26%.

We continue to forecast $840 million-$870 million of CapEx and $700 million of DD&A for the year. I'd now like to give you an update on the annual outage schedule and the earnings impact for the year. Our outage expense was $0.14 during the first quarter.

We now expect $0.36 in the second, $0.31 in the third, and $0.64 in the fourth, totaling $1.44 for the year. In the Packaging segment, the Counce and Jackson outages were completed earlier this month, and outages are scheduled at Tomahawk, Filer City, and Wallula later in the second quarter. In the Paper segment, the International Falls mill outage is scheduled for the third quarter. Finally, before Mark provides commentary on our second quarter forecast, I want to give you a little bit of detail on some of the sequential differences in costs from 1Q to 2Q. I just mentioned that we will incur approximately $0.22 of additional outage costs in Q2, with maintenance outages at five of the packaging mills.

We are also expecting less sequential benefit from 1Q to 2Q in the reversal of cost increase for labor and benefits than we would normally expect. Our employee stock compensation expense will be approximately $17 million higher for 2026 than for 2025 due to a change in timing of the recognition of expenses beginning with the awards we made earlier in the year. This will be evenly split between the second, third, and fourth quarters, and this higher expense will time out over the next two to three years as old awards vest. In addition, we were favorable in the first quarter on benefits costs, which we believe was timing related and do not expect to repeat in the second quarter. As for operating costs, we normally benefit from lower fuel costs and better fiber and chemical yields as we move out of winter.

This year, fiber and chemical usage benefits will be more than offset by higher input prices across the board on chemicals, as well as recycled fiber, and to a lesser degree, wood fiber. Our overall costs in these areas will be higher in the second quarter than in the first. Natural gas prices have remained fairly stable, and we expect to see normal seasonal energy cost improvement on fuel costs and slightly higher purchased electricity costs. Obviously, we will have higher freight costs with higher diesel fuel prices expected to continue into the second quarter. With that, I'll turn it back over to Mark.

Thank you, Kent. As we move from the first quarter into the second quarter, we expect demand in the Packaging segment to remain strong and corrugated volume to increase with one more shipping day and some seasonal improvement, particularly in the acquired Greif operations. Prices for containerboard and corrugated products will move higher later in the quarter with the implementation of our previously announced price increases and improved corrugated mix. Packaging mill production will be slightly higher with one more operating day and improvements at some of the mills more than offsetting the production impact of maintenance outages across the system. Mill maintenance outage expense will be higher. We expect flat volume and higher prices in the Paper segment as we continue to operate at full capacity and implement our previously announced paper price increases.

Costs for freight, fiber, and chemicals will be up due to higher prices, and energy costs are expected to be seasonally lower. The sequential improvement in expenses for wages and benefits that we normally experience from the first quarter to the second quarter will be less than in the past years due to the higher stock compensation expenses and benefits costs in the second quarter that Kent called out earlier. Finally, our tax rate will be higher due to the tax-related benefit of share-based compensation awards that vested in the first quarter. Considering all these items, we expect second quarter earnings of $2.33 per share, excluding special items. With that, we'd be happy to entertain any questions, but I must remind you that some of the statements we've made on the call constitute forward-looking statements.

The statements were 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 the annual report on Form 10-K on file with the SEC. Actual results could differ materially from those expressed in the forward-looking statements. With that, Jamie, I'd like to open up the call for questions, please.

At this time, we will begin that question-and-answer period. If you would like to ask a question, please press star and then one using a touch-tone telephone. To withdraw your questions, you may press star and two. If you are using a speakerphone, we do ask that you please pick up the handset prior to pressing the keys to ensure the best sound quality. Once again, that is star and then one to join the question queue. Our first question today comes from George Staphos from Bank of America. Please go ahead with your question.

Thanks. Hi, everyone. Good morning. Appreciate the details. I guess the first question maybe to start, as always, can you talk a bit about bookings and billings into April? Any granularity that you're seeing that you can lay in terms of growth or declines in the quarter so far? And any sense of pre-buy that you're seeing, Mark, just because the price increases have been discussed since January.

Now I'll give you the legacy bookings numbers are up at 4.5%. Bookings and billings are up 4.5%. I want you to keep in mind that with the Greif assets, we are moving some business back around within the system, and primarily more from the legacy to the Greif assets as opposed to the other way around. We view the business environment as being very good right now.

Regarding pre-buy, we see no pre-buy at all right now. In fact, this has been muddy waters, as you might say, regarding the price increases and that sort of stuff at the moment. We see no pre-buy at this point in time. Our customers continue to operate with very lean inventories, and I think they'll continue to do so.

Okay. Thanks for that, Tom. Next question. Can you talk a bit about why Greif was a loss of $0.06 in the quarter? I think that was a little bit worse than the fourth quarter figure, which I think was $0.05. How is the business performing? As the company typically relays, you're doing better on production, the mills are looking better, yet we still had some losses there. What's happening there? How's performance, and when does that improve? I had one last follow-on.

Hey, George, as we called out on the January call, the January storm impacts were very significant, and quite frankly, the Riverville Mill was the most impacted mill in the system. For the better part of a week, we didn't move any production out of there, and we called out at your meeting down in Fort Lauderdale. We were probably around a nickel of impact as a result of the storm. Kent, you want to add a little more color to that?

Yeah. That's right, George. We had weather impacts that hit not just Riverville, but corrugated operations were disrupted as well, and they don't come back on the sheet feeder side as well as able to make up in the corrugated side. Greif is, and Tom can elaborate on this a little more. Greif is a seasonal business. Mix was a little lower than we'd forecast in January and February, but returned nicely in March. All that in, throw in higher recycled and freight costs, and we came in with the number that we reported. Now, on the positive side, Greif's operations in February were about as good as we've seen them. The productivity at the mills was, as Mark called out in the script, about 10% higher than we'd seen prior to acquisition.

It was so good, we actually dialed it back a little bit in March in order to bring the inventory levels in where we brought them in. Tom, do you have any further on that?

I'll just add a little color to it. We did not expect, A, and we're not aware of the seasonality, especially related to the box business side of Greif, in terms of the first quarter. That first quarter is by far their weakest quarter in terms of volume, and then it accelerates after that all the way through the year. That was a bit of a surprise to us, but the good news is it's returned in the second quarter quite nicely, and exactly as they had forecast. That's the good news. This also is allowing us some flexibility in the system to really move some business around to be more efficient in terms of our operations.

Also don't forget that there was a lot of activity and a lot of work still going on in the mill system of Greif during that first quarter.

Last one, and I'll turn it over if possible. Is there a way to provide some further quantification or at least direction on the sequential changes? We know what the outage hit will be 2Q versus 1Q. You talked about the stock comp expense being up, I think, $17 million, but what does that mean in terms of the 1Q to 2Q variance? Is there a way to, if not precisely, maybe ballpark a bit for us, freight, energy, other costs, what that inflation looks like 1Q to 2Q? Tax, I think, is like, call it $0.06, $0.07, $0.08 effect, 1Q to 2Q. Thank you so much. Have a good quarter.

Okay, George, I'll tackle that one. On the stock comp expense, we called out we'd be $17 million higher. That means 2Q is going to look much more like 1Q than it has historically in the past where you were beneficial 1Q to 2Q. Okay? We'll be running maybe $6 million higher in 2Q than we were in 2025. On some of the others. Freight, fiber chemicals, estimate maybe $0.15 higher 1Q to 2Q. Normally, we're flat to slightly beneficial in those areas. Okay? That's a little bit of a drag there. George, I'm sorry. I think I'm missing one of the other subparts of your question.

Yeah. Tax, I think, is we can do our own calculation.

Our next question comes from Michael Roxland from Truist Securities. Please go ahead with your question.

Hi, guys. This is [Nico Buccino] on for Mike. Thanks for taking my questions. Just first off, kind of to piggyback off the cost question, what do you have at your disposal outside of price to offset those costs, recognizing that in 2Q, it seems like you might have some uncovered costs with the price impact really hitting later in the quarter?

As far as levers to deal with cost, obviously the only thing you can do is run incredibly well, very efficiently, and just execute at the top of your game, which we generally do that, but that's what we're facing with the headwinds on some of the price escalation. Tom, you got something?

I think the other thing that we're doing is we are optimizing the mill system now that we have Massillon and Riverville running much better and much more reliably. We're moving that mix around to the mills that are best suited to run that mix, and from a freight standpoint, are better off. We also are doing that in the box business as well within the Greif system. As I mentioned, we are moving quite a bit of business around to optimize that system and to optimize our freight opportunities. Outside of that, as Mark said, we have to operate incredibly well, and that's the gist of what we've got in our arsenal to offset some of these cost increases.

Got it. Understood. I appreciate that. Just quickly on Greif. Having owned, I guess, the business for eight months now maybe, putting quite a bit of work into the mills, do you have any sense of upside to the original $60 million synergy target now that you've kind of progressed through integration and getting the mills on the system?

Without upside, but I think I should give you at least an update of what we're looking at right now. Based on what we saw and what Riverville and Massillon could do in February, we're going to be at a run rate of about $15 million-$20 million of just productivity improvements from those mills. We will then start layering in over the next few quarters, freight optimization, and actually, I mean, that's ongoing right now. That's not a future thing. That's ongoing right now.

Freight optimization and then integration opportunities from additional tonnage from PCA into the Greif system, as well as from Greif into the PCA system. That work is ongoing, but at least I wanted to give you an update of kind of where we were at from a run rate standpoint right now. We're well on target to be at that $30 million run rate by the end of the year. Mark and Tom, anything further to add there?

No. Just work continues on a daily basis to take advantage of all these opportunities.

Got it. Understood. Thank you very much. I'll turn it over.

Our next question comes from Mark Adam Weintraub from Seaport Research Partners. Please go ahead with your question.

Okay. Maybe just first starting a little bit more on Greif, trying to square. If we look at the last six months based on kind of the EPS number, I mean, it seems to me it's probably a little less than $100 million in EBITDA from the business. I believe kind of coming in, the base was close to $240 million, and then we were gonna get synergies on top. I realize maybe synergies show up in the legacy business as well, so maybe this is kind of complicating the analysis. I'm really sort of just trying to gauge the magnitude of upside from things like seasonality, et cetera.

How much additional firepower is there relative to what we've seen in Greif over the last six months when you think about the contribution the business can be providing on a kind of full year basis as the synergies, et cetera, are fully layered in and the mix and seasonality issues come to bear more favorably?

Okay, Mark, it's Kent. I will start, and then Tom will add some color on this, okay? Going from 1Q into 2Q, we believe now we're gonna get the full performance out of this business. With the mills running consistently at higher productivity rates and entering a seasonally stronger business and starting to pull some more integration through, we're forecasting sequentially improvement of, conservatively, about $0.10, 1Q to 2Q. We expect to be accretive in the second quarter and going forward. Most of that improvement is from mix improvement and productivity improvement, and then a little bit of price increase layered on top of that. We expect to continue to improve 3Q just as the business and the seasonality even improves more. Tom?

Well, I would just remind you, Mark, that when we finalized the acquisition and we got involved in taking a good hard look at the assets, primarily the mills, we knew there was some difficulty and some hard work to do. It turned out that we were right, okay? We get off to a start that says we're gonna have to shut some time down at the mills and get some work done and make a big investment, do all those other sorts of things associated with it. Now we're coming on the other side of that, and things are significantly better, and they're performing very, very well. This will accelerate as we go forward.

And as I mentioned earlier, and I think this is really vital to our system because we need some extra capacity on the box side as well, and they're providing that, and that's gonna be some significant upside.

Okay, great. I'm not gonna try and drag you through kind of all the delta drivers, but I guess as I think about what seems to be embedded on the upside, because you told us some of the downsides going from 1Q to 2Q, it doesn't seem like there's a huge amount of upside being given for some variables, which, in particular, pricing, in the two quarter numbers. Is it fair to say that you would at this juncture, assuming things continue along the path they are. That you're going to see the real big change is going to be 2Q to 3Q. That's where the earnings are going to really. To the extent that you're comfortable providing any color on that would be helpful.

I realize you don't give guidance on more than one quarter ahead, but it does seem in this particular instance that the good stuff's really showing up in 3Q in a big way.

Yeah. Mark, you're exactly right. We'll start seeing some benefit later in the second quarter with some price movement, but the big benefit comes into the third quarter.

Our next question comes from Anojja Shah from UBS. Please go ahead with your question.

Morning. I had a question on DD&A. It was actually much higher than we expected in Q1, but you maintained the $700 million guidance. How come it's not straight lined, first of all, through the quarters? Second, what's embedded in 2Q in that $2.33 guide?

Hey, Anojja. Our depreciation reported for the first quarter includes a chunk that's attributable to basically completion of the Wallula restructuring. Okay? I think that explains the large reported number increase that you're referring to. On the excluding special items basis, we're looking at about a $0.03 increase 1Q to 2Q in DD&A.

$0.03. Okay. Thank you for that. Going back to demand in April, you talked about you're seeing very strong demand. Any particular end markets showing strength or weakness? What I'm really trying to get to is if you're seeing any early signs yet on GLP impact. I realize you might not see it as much as some other types of packagers, but just are you hearing anything on this from your customers?

Yeah, this is Tom. That's a very good question. I'll take the second half first. Our food and beverage customers continue to perform quite well, and of course, that's the largest segment in corrugated. I think there's a lot of sensitivity around that, especially GLPs. They adapt quickly. We're seeing a lot of products come out with protein in them and all these other sorts of things that didn't have such in the past, and they're performing very well. There's a lot of things going on in that segment that I think are very positive as our customers have adjusted quickly to varying demands. It's still performing very well for us.

In addition, I think that I've called out building products probably for the last few years that has been down, but it's starting to show some resurgence as well, which is an important segment for us. Those are probably the biggest movers I can talk about.

Great. Thank you very much. I'll turn it over.

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

Hey. Just following up on the timing of the price hike. I guess Pulp & Paper Week had prices down in February and then up in March and up in April again. As you implement the price hike, is this sort of a, I don't know, like a negotiation around the net price, or could you have some instances where prices actually go down before they go up? I know it's kind of a strange question, but I just can't remember a time where Pulp & Paper Week had three consecutive months where it was down before it was up and then up again.

Well, it's hard for me to remember too, Anthony, and I've been in this business a long time, but all I can tell you is that we're not really going to comment much on at all about what we're doing relative to our customers and our negotiations. I'll just call it muddy. How about that? That's about all I can tell you.

Okay. Sounds good. Just, Kent, on the 1Q to 2Q bridge, you outlined some, I guess, sequential headwinds that we typically don't see around the share-based comp and then the tax rate lower in 1Q. Should we think about these as sort of like one-time things just for 2026? If we think about seasonality going forward or seasonality next year, is that share-based comp going to have a similar kind of profile or?

Okay. Share-based comp is going to run at a higher level this year. It'll run at a higher level next year, but step down a little bit as one tranche of the old awards vests, and then it'll do similarly in 2028. You're going to be a little bit higher, but it's going to time out through 2028, basically. On the other items, the costs, it's just going to kind of depend on the market, basically. We're expecting at least to be elevated during the second quarter and we'll continue to manage through it.

Okay. That's helpful. Maybe just one last one, if I could. You obviously increased your exposure to recycled board with Greif. You had a large competitor that just bought a recycled mill out West. I'm just wondering if you think about PCA's path for the next three to five years, and you obviously are going to need more board. Do you think the incremental opportunity is in recycled? I mean, it's obviously probably lower capital costs. Just from, like, what your customers are asking of you. You have historically had a great virgin kraft liner offering, but is recycled kind of the direction going forward in terms of if you were to put in an incremental ton or from a capacity perspective?

You take advantage of the opportunity that comes along, whether it's a recycled opportunity or a virgin kraft opportunity. Really, the decision will be made when you look at the various options you have. We can take advantage of recycled as we've done for decades, and also we know how to run integrated operations extremely well also. Tom?

Yeah. Anthony, I'll just add that directionally, we want to be able to optimize whatever properties fit our customers' demands. I want to remind you that, I mean, we are still primarily-

Virgin kraft, and we're not going to change that because one of the things that it does for us, as I've mentioned in the past, is we can optimize performance a lot better with virgin kraft than we can with recycled.

Got it. That's very helpful. I'll turn it over.

Our next question comes from Philip Ng from Jefferies. Please go ahead with your question.

Hey, guys. A question for Kent. Appreciate the color that you gave in terms of some of the step-up in cost, whether it's freight or chemicals sequentially. When we think about that for the back half, is the 2Q run rate, like, on the year-over-year basis, like, a good way to think about the rest of the year, or does that potentially step up just based on timing of how these contracts were potentially on freight or chemical costs and stuff of that nature?

No. Hey, Phil, I think the best you can do right now is take 2Q and apply that to the rest of the year. We'll do the best we can to manage through it through freight optimization activities and running our operations as efficiently as possible. In terms of how the market is on what we're buying, again, I would look at 2Q right now. That's the best you can do.

Okay. All right. That's helpful. That's a good run rate. Then I guess a question for Tom. I know you used the word muddy a few times in terms of implementing this box price increase, and that feels like it's just more timing and some noise, but when we think about the net $50, you've been in this business for a long time. Is your expectation the implementation of the box side, all said and done, how does that feel? Does it feel more challenged just because the macro's tougher or kind of business as usual?

No, it's more business as usual. I mean, none of these are easy, but we were obviously very disappointed with the announced downturn at the beginning. We didn't see it, but hey, it is what it is, and we're dealing with it. Our expectation is to implement this in the same time frames that we typically always implement, both our non-contract and our contract business.

Packaging Corp. of America Q1 2026 Earnings Call Transcript | Fortune

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Packaging Corp. of America (PKG) Q1 2026 Earnings Call Transcript

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