Thank you, Jamie. Good morning, and thank you all for joining Packaging Corporation of America's Fourth Quarter and Full Year 2022 Earnings Release Conference Call. I'm Mark Kowlzan, Chairman and CEO of PCA. Joining me today are Tom Hassfurther, Executive Vice President overseeing our packaging business, and Bob Mundy, our Chief Financial Officer. I will start with a summary of our fourth quarter and full year results, after which I will hand over to Tom and Bob for more details. I'll conclude with closing remarks, followed by a Q&A session. Yesterday, we announced our fourth quarter 2022 net income of $212 million, or $2.31 per share. After excluding special items, our fourth quarter net income stood at $215 million, or $2.35 per share, compared to $262 million, or $2.76 per share in the fourth quarter of 2021. Our fourth quarter net sales were $1.98 billion in 2022, down from $2.04 billion in 2021. The total company EBITDA for the fourth quarter, excluding special items, was $409 million in 2022 compared to $463 million in 2021. For the full year 2022, excluding special items, our earnings were $1.04 billion, or $11.14 per share, compared to $894 million, or $9.39 per share in 2021. Our net sales reached $8.5 billion in 2022, compared to $7.7 billion in 2021, with total company EBITDA, excluding special items, at $1.9 billion in 2022 versus $1.7 billion in 2021. The fourth quarter net income included special items mainly related to certain costs associated with converting paper to containerboard at our Jackson, Alabama mill. Additional details regarding these special items for 2022 and 2021 are outlined in the documents accompanying our earnings press release. The $0.41 per share decline in fourth quarter 2022 earnings compared to the same quarter in 2021 was largely due to decreased volumes in our Packaging segment, contributing $1.14, and in the Paper segment, contributing $0.02. We also faced increased operating costs of $0.48, mainly driven by inflation affecting energy, chemicals, labor, benefits, supplies, repair materials, services, and other fixed costs. Freight and logistics expenses were unfavorable by $0.13, accompanied by higher depreciation expense of $0.09, increased converting costs of $0.06, and higher scheduled maintenance outage costs of $0.01. These negative impacts were somewhat mitigated by higher prices and a better product mix in the Packaging segment, which contributed $1.18, and in the Paper segment, which added $0.21. Additionally, reductions in share count due to repurchases accounted for $0.08, lower interest expenses provided $0.04, and a reduced tax rate contributed $0.01. Our results exceeded the fourth quarter guidance of $2.22 per share by $0.13, primarily thanks to increased prices and mix in the Packaging segment, lower freight and logistics costs, reduced share counts from buybacks, and a decreased tax rate. In our Packaging business, the fourth quarter EBITDA, excluding special items, was $392 million with sales of $1.8 billion, yielding a margin of 21.7%. This contrasts with last year’s EBITDA of $461 million and $1.9 billion in sales, which equated to a margin of 24.5%. For the full year 2022, the Packaging segment's EBITDA, excluding special items, reached $1.8 billion on $7.8 billion in sales, resulting in a margin of 23.8%, up from $1.7 billion in EBITDA and $7.1 billion in sales for the full year 2021, where the margin was 23.9%. Demand in our Packaging segment fell short of expectations for the quarter, prompting us to adjust our containerboard system to align with these lower demand levels. Our team effectively managed costs and optimized processes despite the reduced production rates to mitigate the impact of lower volumes. Economic-related downtime in the fourth quarter was approximately 231,000 tons. We successfully completed scheduled maintenance and the conversion work at our Jackson, Alabama mill during the fourth quarter and restarted operations earlier this month after a temporary shutdown due to decreased demand. The number three machine has reached its initial design capacity and is producing high-quality virgin linerboard. However, given the current demand for containerboard, we have chosen to delay the second phase of the conversion work from this spring to next year, 2024. Now, I will hand it over to Tom for more insights into containerboard sales and the corrugated business.

Thank you, Mark. Domestic containerboard and corrugated products prices and mix together were $1.19 per share above the fourth quarter of 2021 and flat compared to the third quarter of 2022. Export containerboard prices and mix were down $0.01 per share compared to the fourth quarter of 2021 and down $0.02 per share compared to the third quarter of 2022. Corrugated product shipments were down 8.7% per work day and down 10.2% in total with one less workday compared to last year's fourth quarter. Outside sales volume of containerboard was 131,000 tons below last year's fourth quarter and 38,000 tons below the third quarter of 2022. The lower demand in our Packaging segment was driven by several items. The inventory correction in both boxes and our customers' product has been more prolonged than what we originally anticipated at the start. Inflationary pressures on the consumers have also added to the problem by reducing the consumers' discretionary spending capabilities. In addition, consumer behavior changed very quickly as we exited the extreme COVID period, resulting in more of a preference towards travel, entertainment and experience versus that of tangible goods. Containerboard and box demand continues to be negatively impacted from the deterioration in U.S. and global economic conditions, rising interest rates and a cooler housing market. As we move from the fourth quarter into the first quarter, we estimate the rate of shipments per day to be fairly similar as we expect many of these conditions to continue. However, there are four additional shipping days in the first quarter, so total actual shipments will be higher when compared to the fourth quarter of 2022. In spite of the numerous issues currently impacting demand, we continue to perform at levels above pre-COVID and anticipate our first quarter shipments to exceed first quarter 2019 shipments by approximately 6% on a per day basis. Now I'll turn it back to Mark.

Thank you, Tom. In our Paper segment, EBITDA, excluding special items, was $39 million in the fourth quarter with sales of $154 million, resulting in a 25.7% margin. This compares to the fourth quarter of 2021, where EBITDA was $26 million on sales of $143 million, yielding an 18.4% margin. For the full year 2022, Paper segment EBITDA, excluding special items, reached $132 million with sales of $622 million, or a 21.3% margin, compared to $72 million in EBITDA on sales of $600 million in 2021, which was a 12% margin. Prices and mix increased by 21% from last year's fourth quarter and were up 3% from the third quarter of 2022, as we continued to implement our price increases. Sales volume was about 11% lower than last year's fourth quarter, mainly due to paper sales from the Jackson Mill's number one machine, which was included in the previous year’s results. Additionally, we have optimized our product and customer mix since then as we transitioned away from paper volume at the Jackson mill. As expected, volume decreased approximately 11% compared to the seasonally stronger third quarter of 2022, which included remaining inventory from the Jackson mill. The management team and all employees of the Paper business have excelled over the past several quarters by optimizing our inventory, product mix, and cost structure to deliver remarkable results for 2022. I am confident we can sustain this momentum going into 2023. I'll now hand it over to Bob.

Thanks, Mark. Cash provided by operations during the quarter totaled $420 million with capital expenditures of $247 million and free cash flow of $173 million. Other cash payments during the fourth quarter included dividend payments of $116 million, cash tax payments of $56 million and net interest payments of $31 million. We also spent $380 million during the quarter to repurchase just over 3 million shares of our common stock at an average price of $126.70 per share. That brings our total repurchases, over the last 5 quarters, to almost 5.5 million shares at an average price of $130.62 per share. Repurchases of our outstanding stock and dividend payments made during the past year represent 63% of cash from operations or 91% of net income that was returned to shareholders in 2022. For the full year 2022, cash from operations was $1.5 billion. Capital spending was $824 million, with free cash flow of $671 million. Our final recurring effective tax rate in 2022 was 24.5%, and our final reported cash tax rate was 20%. Regarding full year estimates of certain key items for the upcoming year, we expect total capital expenditures to be approximately $475 million, and DD&A is expected to be approximately $485 million. We estimate dividend payments of $450 million and cash pension and post-retirement benefit plan contributions of $53 million. Our full year interest expense in 2023 is expected to be approximately $72 million and net cash interest payments should be about $74 million. The estimate for our 2023 book effective tax rate is 25%. Currently, planned annual maintenance outages at our mills in 2023, including lost volume, direct costs and amortized repair costs, is expected to be in total $0.67 per share versus $0.99 per share in 2022. The current estimated impact by quarter in 2023 is $0.11 per share in the first quarter, $0.14 in the second, $0.22 in the third and $0.20 per share in the fourth quarter. I'll now turn it back over to Mark.

Thank you, Bob. The hard work of our employees, along with strong relationships between us and our customers and suppliers delivered outstanding results for PCA in 2022. New annual company records were achieved for revenue, cash from operations, net income and earnings per share. And as Bob just mentioned, 91% of our net income was returned to our shareholders from dividend payments and stock repurchases. We successfully completed or substantially completed significant cost reduction and process improvement projects at our mills including a 30-megawatt steam turbine and first phase of the number three machine conversion to containerboard at the Jackson mill. This effort included fiber flexibility projects at the Wallula and Jackson Mills and many other key initiatives. We also completed numerous high return and high efficiency improvement projects in our corrugated products plants that will allow us to better optimize our entire packaging business for the future and deliver profitable growth and mix enhancement opportunities for our customers and shareholders. The significant capital investments we've made during the year had complete involvement of PCA personnel from project conception, preliminary and detailed engineering, all the way through to project implementation and start-up. These projects and initiatives achieved numerous tactical and strategic benefits while improving our industry-leading return on invested capital to just under 20%. As we've discussed on these calls many times before, by the end of 2022, we would be winding down several years of significant strategic capital investments that position us very well to meet the future needs of our many customers in a very cost-effective manner. We also finalized the optimization of our paper business while delivering excellent financial results that we expect to sustain us well into the future. As economies around the world continue to deal with numerous issues and uncertainties, virtually every individual industry is being negatively impacted in some manner. At PCA, we will continue to maintain a strong balance sheet which provides the financial flexibility to react quickly to most situations or opportunities in the future. We will also continue our commitment of a balanced approach towards capital allocation in order to maximize our profitability and returns to our shareholders. Looking ahead, as we move from the fourth and into the first quarter in our Packaging segment, as Tom mentioned, we expect box demand on a per day basis to be similar to the fourth quarter levels, although we expect higher total volume with corrugated products plants having four additional shipping days. Prices will move lower as a result of recent decreases in the published domestic containerboard prices and we're assuming lower export prices as well. Paper prices should move slightly higher with sales volume fairly flat. Labor costs and certain indirect costs will increase as some containerboard mill operations were temporarily idled during the fourth quarter. In addition, we anticipate higher labor and benefits costs and other timing-related expenses that occurred at the beginning of a new year as well as higher prices for many chemicals, particularly starch and caustic soda. However, we expect lower wood and recycled fiber prices, lower energy prices and lower scheduled maintenance outage expenses. Lastly, we expect higher interest and nonoperating pension expenses and a higher tax rate, but we will see some benefit from our recent share repurchases. Considering these items, we expect first quarter earnings of $2.23 per share. 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 constituted forward-looking statements. The statements were based on current estimates, expectations and projections of the company and 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 and in subsequent quarterly reports on Form 10-Q filed with the SEC. Actual results could differ materially from those expressed in the forward-looking statements. And with that, Jamie, I'd like to open the call for questions, please.

Ladies and gentlemen, we will now start the question-and-answer session. Our first question comes from George Staphos at Bank of America Securities. Please go ahead with your question. One moment while we connect George's line. Mr. Staphos, you may proceed with your question.

Hi. Good morning, everybody. Thanks for the details. Congratulations on very good performance in a very challenging quarter, at least from our estimation. Mark, my first question, to the extent that you can comment, you took a significant amount of downtime. Production was down sharply, from our own rough calculations it would seem like your inventories now are fairly well balanced relative to your needs, but if you had to qualitatively talk to them, would you say your inventories are normal, below normal, above average? How would you have us think about that?

Well, again, it depends on what time period you're looking at. We're living in a dynamic world right now. And if you went back to 2020, let's go back and take a look at what happened there, as the pandemic settled in, and we got into the fall of 2020, and demand picked up dramatically in that period of time, we found ourselves at, quite frankly, an unsustainably low level of inventory per our demand. And it took us the better part of 2021 to drive that inventory to a much more comfortable level. Obviously, part of that was the transportation dilemma that was taking place throughout North America between truck drivers availability and rolling stock availability with the pandemic going on. And then just the demand pressures that were in place. But through the end of 2021 into the early part of 2022, we did achieve what we felt were comfortable levels of inventory to supply our system. As the year 2022 rolled on, we also anticipated certain end-of-year activities with annual outages through the year and then different marketplace conditions into the third and fourth quarter. What we saw happen, obviously, in the fourth quarter was the falloff in demand and so we were able to readjust what we didn't believe should be our new inventory targets understanding that demand was falling off faster than we had anticipated. But also, we had the capacity now with our system improvements and with the Jackson mill being completed that we had a much higher comfort level that we could supply outside sales and our own box plant needs by running to a lower level, which again was a prudent financial decision for us. Anything else, George?

A couple more, I'll make them quick. The mix given our calculations was quite strong. Is there one thing you would point out or a couple of things you'd point out in terms of what allowed you to put up some fairly strong realizations per ton realizing quarter-to-quarter things can move around. And the same thing on operations and cost if there was one or two things, you had to point out that allows you to put up the quarter that you did. What were the two highlights be? Then I'll turn it over there. Thank you.

I'll let Tom talk about the mix question then I can talk about operations.

Our customer mix was solid once again, George. With over 18,000 customers across various industries, we experienced a relatively strong mix, and we were pleased with that. Please go ahead.

So is that more execution than, Tom, as opposed to any one driver? Is that what you're kind of getting at there?

Yes, yes, I think so. And Mark will talk a little bit more about the cost side. But I think we're also seeing some big benefits from all the investments that we've made, especially in our box plants over the past number of years. And so from a cost basis, we were incredibly good and performed very well.

To that point, George, in 2021, with the new organization that we put in place in 2019, and we've been doing all of these capital projects in the mills and box plants. But 2021, we worked on probably 53 of our box plants with various sized capital projects going on from big projects and to small projects for retooling, recapitalizing converting lines, corrugating operations, significantly improving the unit labor productivity in these facilities. Same thing in the mills we've worked for decades, and we continue to do that every day on improving the efficiencies throughout the operations. And so that was another thing. I think if you look at the cumulative benefit of what Tom just said with the projects that we put in place in the box plants, the ongoing efforts that we continue to perform in our mills, we were able to pivot during the latter part of the year. And even though we took machines down and idled the Jackson mill, we're able to really wring out some efficiencies because of how we operate day-to-day and how we understand where these opportunities are. Again, it reflects on the organization and how we look at our business 24 hours a day, seven days a week.

Thanks very much. I'll turn it over.

Okay. Thanks, George. Next question please.

And our next question comes from Mike Roxland from Truist Securities. Mr. Roxland please go ahead with your question.

Thanks, Mark, Bob, Tom, Ted for taking my questions. Just on Jackson, how do you plan to operate that mill going forward? Obviously, the first phase is behind you. You've postponed now the second phase to 2024. Given that demand remains challenging, as you've noted, you operate that convert line? And do you have the flexibility if the manner remains challenging to operate white paper on it given still strong line paper markets?

No, the Jackson mill now is a containerboard operation. That mill, for all intents and purposes, will not make any white paper ever again. It's truly the work we just completed in terms of the scope of work that we set out has achieved everything that the first phase was supposed to. We are now running very efficiently, very effectively. We started up just the week before last, and we ran last week, and we've been producing Grade A paper converting it in our box plants, but we'll be able to take advantage now of the project's cost benefit opportunities. There's the work that was done, and we talked about this last year would help us on the input cost side of the equation with energy usage, labor-type impacts, fiber yield, and so we will see those benefits. Now it depends also on how much production we see on the big machine. We're also ramping up the machine as we speak. The machine for the last 1.5 years from when we converted it in 2021 and ran through 2022, we were producing probably 1,275 tons a day average in that range. And right now, currently, we're somewhere in that 1,300-ton a day range and just getting comfortable with all of the new equipment. Essentially, we have a new paper machine on our hands here and then the pulp mill has been significantly rebuilt and new OCC plant. So there's a lot of new infrastructure in the mill that we're getting used to running, but we're also going to look at what the opportunity is. The second phase of work that we can choose to do when the timing is right, involves 23 new additional high-pressure dryer cans, a new forset reel at the dry end of the paper machine and then a new shoe press in the press section to enhance pricing and improve the drawing. That will take place when we need the tons. So that's to be determined, but we have the luxury of deciding that when we need to decide that. But the first phase of the work has been done extremely well. We're very pleased with what we see. So now we'll take advantage of what we have in place. And as we've done for many years, we'll wring out these benefits and these efficiencies from day to day here. So I'm pretty optimistic on what we have at Jackson. The number one machine, the smaller machine is down. It's idle temporarily. It will be available if demand determines that we should run that. And so again, I think current times, we will continue to run to demand. The entire system, we also have the annual outages coming up starting next month with our DeRidder and Counce mill. So we have to think about where we need to be with inventory levels and what we have to do to supply our box plant needs. So in that regard, I think Jackson is in a good place, but a lot of opportunity there.

Just quickly, as Jackson started and running obviously it seems to be meeting or exceeding expectations, have you adjusted your operating posture elsewhere just to account for the demand environment? And then just my last question is with inputs coming off, as you noted, have you seen any change in behavior from any of your competitors with respect to downtime or production discipline?

I'm not going to discuss our competitors. We are focused on meeting the demand. The Jackson plant presents us with an opportunity to supply low-cost, high-quality containerboard to the Southeastern region. However, this means that the rest of our operations will also adjust as necessary. It's important to note that we have significant annual maintenance outages planned at our two largest mills in DeRidder and Counce, Tennessee. Therefore, our strategy is to build a bit of extra inventory over the next few months to ensure we can adequately meet our needs during these major outages.

Got it. I'll turn it over. Good luck in the balance of the year.

Thanks, Mike. Next question please.

And our next question comes from Mark Weintraub from Seaport Research Partners. Please go ahead with your question.

Thank you. To some extent, following up on George's question, you mentioned how the capital projects significantly benefited your capital, especially in the converting operations. You also highlighted that your price mix has been very strong in the fourth quarter and has performed well for the past two years. Your price/mix has been outstanding. Can you explain how the capital projects have improved the mix by offering more higher value-added packaging to your customers? Or has your impressive performance been primarily due to your execution and focus on smaller, more local accounts?

Mark, this is Tom. I'll handle that. I mean, keep in mind that we've always said that our customers drive what we do and especially in the box plants, they drive our capital investments. So we grow with them, and we adapt to whatever they need and what they're looking at, and we try to align ourselves with customers that are going to grow going forward, whether they're small or large. So I think that all of that kind of comes together. And our objectives are not only from a cost standpoint, but to satisfy those customers and puts us in a good position, I think, to take advantage of whatever the market opportunities present.

Would you say that the product you are producing and selling to the customer has changed significantly, or has the mix improved over the last couple of years? Or have you simply been very successful in achieving higher pricing?

Well, I'll give you an example. Our customers are continually having to change to be successful in the marketplace. And if you look at the retail market, as an example, it's very different today than what it was even five years ago. And during COVID, a lot of things occurred, especially inside the big box stores as an example. How do we get the customer back in there? What are they buying? What are they looking for? How do I promote my products and things like that? So there's been a lot of changes, and we assist a lot of our customers in helping make those changes and keeping track of what those trends are.

Okay. Great. And then lastly, demand has been surprisingly weak over the past couple of quarters. You've mentioned the various factors at play. Do you have any insight into how significant the inventory correction has been in terms of the extent of the declines? Are you getting any feedback from customers regarding where we might stand in that process? It seems like we can expect continued weakness at least in the first quarter. Additionally, are you receiving any signals from your customers about their expectations for the full year, or is there still too much uncertainty?

Let me address a few points. First, we need to calibrate our understanding. We're emerging from COVID, which led to a significant amount of government stimulus that created a bubble in demand. Historically, box demand has been stable at about 1% to 2% growth per year, but during COVID, we saw it jump into double-digit growth. This is why I make the comparison to our current levels compared to 2019, where we're seeing around a 6% increase. While some of that growth resulted from the bubble, there is still healthy demand relative to the pre-COVID period. Regarding the inventory correction, it has indeed been substantial and is still ongoing. This is due in part to supply chain issues affecting our customers, compounded by China's recent reopening, which has left a significant backlog of products awaiting shipment and parts, particularly in the auto and consumer goods sectors. I initially thought this would be resolved sooner, which is why our first-quarter forecast is conservative; we can't predict when the situation will improve. However, our customers generally feel positive about their positions for the year. Even if we experience a mild recession, we hope for a soft landing and that the Fed will ease up on interest rate hikes. All of these factors are crucial for our success in 2023, and we will need to wait and see how things unfold. Overall, compared to the pre-COVID situation, we are still in a relatively strong position.

Okay. Thank you.

Next question please.

And our next question comes from Adam Josephson from KeyBanc Capital Markets. Please go ahead with your question.

Thanks. Good morning, everyone. Hope you're well. Mark, could you provide more details about the conversion delay? When did you make that decision, and why are you postponing the second phase by a year? Why choose a year instead of six months, nine months, 15 months, or indefinitely, planning to proceed based on demand improvements?

Adam, if demand picked up next month and all of a sudden, we needed the tons, we could pull the plug on that project, and we could do it in the springtime if we wanted to. That's the luxury that we have. We have all the equipment in our hands sitting in the warehouse at the mill. We have all the engineering done. So when we need the tons, we will do that project, and that's the benefit that we have there. So there's no secret formula. There's no magic in terms of what's driving this decision except the marketplace and our customers. And as Tom mentioned a few minutes ago, we grow with our customers' demands, and we're in a good place to do that, but also being mindful of our uses of cash and our capital spending, there's no need to spend the remaining portion of that capital on a project that's not earning any return currently as opposed to perhaps another use of that cash this year.

Adam, this is Tom. Let me just add something here real quick because I think this is really important, and we've been very, very consistent about this. We're not a company that builds it and hope they will come. Hope is not our strategy, has never been our strategy. Our strategies are built around our customers and what they see and what they need. So that's never going to change and we see the reality of the marketplace out there. And as we've said many times, there's not a huge open market, the export markets are under some duress right now around the world. There's not an immediate place to go to with these tons. And so we're going to be flexible and adapt to whatever the market conditions are. And our customers appreciate the fact that we will always be there for them, and we'll be prepared, and we're ahead of the curve.

Adam, what Tom just said and this plays into what we've always done, our competitors typically would have done one big project, got the entire project done at one time and had all of this capacity and had all of this complexity to deal with. We determined two years ago; we would do this project in phases. And if you go back decades, go back 20 years, we've always done our projects in multi phases. Now there's reasons for that. Besides capital effectiveness and uses of cash and prudent management of our cash, there's also risk mitigation and then growing with our customers' needs. And so it all plays into our historical behavior on how we go about projects and how we grow our business.

Yes, that makes perfect sense, Mark. Tom, regarding the box demand issue, you mentioned that you're operating about 6% above the first quarter of 2019 on a daily basis. It appears that your demand is not significantly depressed. When you talk about daily shipments and the expectation that they will remain flat sequentially, is there substantial destocking involved? Or do you believe that this reflects a reasonably ‘normalized’ level of demand?

That's the million-dollar question right there. Let me tell you. I'd like to be able to predict that perfectly. Obviously, I can't. As I said, I said that's we're taking a pretty conservative approach in the first quarter to our projections because we really don't know when this destocking is going to end. I think we're clearly past the midpoint in that. I know that for a fact, and I can feel that. But to what extent it goes further, I really can't tell you, but I think even with this conservative approach, my point about comparing to 2019 was, it's still pretty solid compared to 2019, just to get us all calibrated as to where we are.

Right. And just to be clear, when you talk to your customers, you don't have a firm sense of whether they've done 90% of whatever destocking they're going to do or 70%, it's just not clear.

Well, when we talk to specific customers, we receive a variety of responses. Some are completely destocked, while others still have substantial inventories and ongoing issues. Additionally, they have a lot of product sitting in warehouses that was prepared for the COVID environment, and now that we are post-COVID, the situation has changed. They're making their adjustments as well, and I mentioned that many are still dealing with supply chain issues.

Yes, I appreciate that. I have one last question regarding the wood cost issue. Can you provide some insight into the extent of the declines you are experiencing in wood costs sequentially? I understand it varies by region and mill, but overall, what are you observing? How much of this is related to transport and how much to weather? Any additional details would be helpful, as this is not the most clear-cut issue for us.

Bob here. We mentioned in our release and during our prepared remarks that we were discussing wood prices, not specifically wood costs. Sequentially, wood costs have remained fairly stable because typically, as the colder months approach, wood yields decrease. Consequently, there's some downward movement in usage. The pricing improvement we've observed can be attributed to drier weather than usual, which has positively impacted wood supply recently. We are currently well-stocked and the wood prices are favorable. Additionally, the industry's downtime has influenced demand, which in turn supports pricing. Wood prices don't fluctuate greatly, but we anticipate a slight decrease in prices overall for the year while costs are expected to remain relatively stable.

Got it. Thanks so much, Bob.

Next question please.

Our next question comes from Gab Hajde from Wells Fargo. Please go ahead with your question.

Tom, Bob, good morning. I have a question regarding capital allocation. I understand that you assess spending based on expected returns. You mentioned that you've been through a couple of years with higher spending levels. Considering this year’s capital expenditure is $475 million, should we view a range of $450 million to $500 million in capital expenditures as a normalized expectation? Also, Mark, you mentioned wanting to maintain a balanced approach to capital allocation, but I can't help but recall that in the past, when you were aggressive in repurchasing shares, it seemed to yield good returns. Could you share your thoughts on how you evaluate returns on capital for projects compared to share repurchases?

First of all, over the past five or six years, we have experienced historically high capital spending primarily to upgrade our box plant system and address significant mill conversion projects along with other efficiency opportunities. In my prepared statements, I noted that we have communicated to the investment community that this year, in particular, would mark a reset to more normalized capital levels after those highs. This year, we anticipate a decrease of about $350 million from last year's capital spending of $824 million, bringing us closer to the $400 million range for the next couple of years. We still have some work to complete in the box plants, and we have significant projects wrapping up this year. For example, once we finish up at Jackson, that will be one component, although it won't require a large capital outlay. However, we feel confident about maintaining our assets in excellent condition moving forward and meeting customer growth demands through capital investments for equipment upgrades. Our mill system has the capacity to support this growth in a very cost-effective way. Overall, the new capital trend going forward will be significantly lower than it has been, which is beneficial for how we manage cash and return value to our shareholders. Regarding our return on investment strategy, we have consistently maintained one of the highest hurdle rates in the industry for our internal targets on acceptable project returns. While some projects are geared toward growing with clients, they also involve adding valuable, high-profit box business. While I won't disclose specific return targets, you can assume that we hold a very high threshold for expected returns on every dollar spent, which is reflected in our return on invested capital metrics. This figure is not only the highest in the industry but also ranks among the best in the manufacturing sector. Does that clarify things for you?

It does. It absolutely does. And then maybe the low-hanging fruit just to make sure we kind of have math calibrated right. If I extrapolate out the comment that you guys made it seems to imply maybe 16 million square feet for the first quarter or down 4% to 5% or so on a year-over-year basis. I'm assuming that whatever your experience has been thus far in January, went into that calculation, and it's the best estimate in terms of backlogs and what you have line of fight to.

Yes. That's a fair assumption, Gabe.

Thank you. Good luck.

Okay. Thank you. Next question please.

And our next question comes from Cleve Rueckert from UBS. Please go ahead with your question.

Hey, good morning. Thanks for taking my question. Just a couple of follow-ups for me. I wanted to just ask more specifically on the work that you're doing at Jackson. I'm wondering, does that change PCA's capability and product offering at all? In other words, are there new market opportunities from that project? Or is it more just about optimizing your existing book of business?

Yes, I'll let Tom take care of that.

Cleve, what it does is it enhances some of our proprietary capabilities. That's how I would put it. And we need that, quite frankly. So that's the big short-term objective. And then obviously, we talked about the longer-term objective in Phase 2 being that ability to grow with our customers.

Okay. That makes sense. And then just a couple of quick follow-ups, inventories, you talked about them a couple of times. I just explicitly like where are inventories relative to where you would like them versus your plan in containerboard.

Well, we never give absolute numbers. Again, we dropped down 60-some-odd thousand tons from the third quarter to the end of the fourth quarter. We're going to build, again, some extra inventory in January, February period to get ready for the outages at the DeRidder, Louisiana mill and the Counce, Tennessee mill. It's not an extraordinary amount of inventory. It's just a little bit of insurance cushion here for making sure that we take care of the box plants. But I think I will say it this way. What we ended the year 2022 with, we're in a good comfortable range of where we need to be now going forward with what we're seeing in the marketplace demand and our capabilities now. So this lower inventory certainly meets the current requirements. But with just a little bit extra build to get us through these big outages. Annual outages are always an uncertainty. You never know what could happen. Obviously, we're very good at what we do, but we always plan to try to mitigate some risks and the risk mitigation comes in a little bit of an insurance policy with some extra inventory on hand to make sure the box plants are well taken care of and our outside customers.

Right. I think that makes a lot of sense. And that's very clear. And then I know you said that the number one machine is down at Jackson is idled temporarily. I mean, are you expecting to take any other economic downtime in Q1? Or is it really more about maintenance in the first quarter?

I'll let you know in April, what we did.

Okay. Good luck guys. Thanks very much.

All right. Next question. Thanks.

And our final question today will come from Anthony Pettinari from Citi. Please go ahead with your question.

Good morning. Just a couple of follow-ups, Mark or Tom, the second phase of the Jackson conversion that you're postponing from spring, maybe until next year or beyond, sorry if I missed this, is there a capacity number that you would kind of associate with that second phase or any kind of finer point you can put on that?

Historically, we've stated that the ultimate project at Jackson is designed to give us a 2,000 ton per day containerboard machine, which would be among the largest in the Western Hemisphere in terms of productivity. If you consider our efficiencies, it will not only be one of the largest and most productive virgin kraft linerboard machines but also one of the lowest cost machines. We started up last week and are currently operating at a rate of 1,300 tons per day. We're excited to explore the machine's capabilities over the next month or two, looking for any limitations and ensuring that we haven’t overlooked any process aspects. If we discover any issues, we will have ample time to address them in the months ahead. Ultimately, the final phase will provide additional drying and speed on the paper machine, allowing us to increase our capacity from the current 1,500 tons per day to the full 2,000 tons per day.

That's very helpful. I have another quick question. You mentioned the fiber flexibility projects. With those completed, what impact does that have on your fiber mix or your ability to switch from Virgin to OCC? Additionally, I would like to ask a related question. Historically, you’ve discussed customer preferences and the advantages of kraft liner. It seems that the price difference between kraft liner and recycled has increased somewhat. Are you noticing any specific trends in customer demand for recycled versus kraft liner? How is that dynamic evolving, and what is your current capability to transition between the two?

I'll address part of that, and then Tom can add his thoughts. We discussed some of the projects focused on fiber flexibility. At the Wallula Mill, over a 2.5-year period, we added a significant OCC plant and completely rebuilt the woodyard, enhancing our chip handling, screening, and fiber yield capabilities. Wallula now has the ability to process OCC at very high rates when pricing and availability allow. We also recently completed a major OCC project at Jackson alongside other improvements at the mill. Jackson, Counce, DeRidder, and Wallula, all primarily linerboard mills, have the capacity to produce medium as well. They have excellent opportunities to adjust the proportions of OCC and DLK used in the furnish based on pricing and access to different fiber sources. If we look at the overall composition of our fiber, it's probably still around 20% made up of OCC, DLK, and virgin fiber. However, each mill's capability to adapt daily has improved significantly. Tom, would you like to add anything?

Yes, I'll add that from our customers' perspective, their primary desire aligns with ours, which is performance. One of our advantages, being mainly virgin fiber, is that we have greater potential to achieve performance metrics at specific basis weights, giving us a distinct edge. This allows us to leverage our fiber flexibility while also reducing chemical usage and other components in the process. Therefore, we consider our output from the mills to be performance-driven, and I noted some proprietary products that are all centered around performance.

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

Thank you. Next question please.

Our next question comes from John Dunigan from Jefferies. Please go ahead with your question.

Hey, guys. It's actually Phil. I have a quick question. Good morning, Tom. Great results in a tough environment. My first question is about the usual trend of prices increasing on the container wood side. We understand how that impacts your profit and loss. Does the timing of that dynamic speed up when prices drop, and have you noticed more business being put out for bid recently?

The answer to that is no, it does not accelerate when prices fall. In fact, it is likely the opposite. Our feedback from customers indicates that they have not been anticipating this change and are interested in a long-term alignment. This is not a short-term strategy. Consequently, we have not observed any increase in bids or similar activity.

That's really encouraging. It’s great to see your disciplined approach to operating your mills. Tom, you mentioned the macro environment, which has a lot of uncertainties right now. Assuming we are facing more of a soft-landing scenario, there is a significant amount of capacity expected to come online in the next 12 months. How do you see that affecting the industry? More importantly, how do you view PCA's position in navigating through this situation?

The new capacity being added will have minimal impact on us. If you look at historical examples, such as the Verso mill in Jay, Maine, which converted a machine to virgin kraft and ultimately failed, you can see that additional capacity does not guarantee success. The Midwest Paper situation further illustrates this, as the open market in the U.S. is quite limited. Most suppliers will need to look outside the U.S. for opportunities. The existing market is highly integrated, and most business conducted in the open market is secured through long-term contracts or established relationships, like the ones we maintain with external buyers. Therefore, I believe the new capacity will have very little effect on our operations. We are focused on meeting current demand, and simply increasing production for its own sake would be counterproductive. I hope this helps clarify our perspective.

That's great color. Really appreciate it.

Okay. Next question please.

Our next question comes from Kyle White from Deutsche Bank. Please go ahead with your question.

Hey, good morning. Thanks for taking the question. I just wanted to go back to boxes at demand. And just wondering if you can give us a little bit more details on what you're seeing by end market in that business. Any end markets that are really still working to the destocking and a bit weaker that we should really monitor here versus other end markets that have gone through this impact already?

Well, regarding some of the end markets, it's clear that the durable goods sector experienced a significant surge during the COVID years, but that demand has since decreased considerably. Consumers have limited needs for certain durable goods, leading to this decline. Additionally, in the agricultural sector, Florida has been affected by two hurricanes that have destroyed some seasonal crops, and the Pacific Northwest has faced considerable challenges, including droughts in other areas. Consequently, the agricultural business took a notable hit this year, but it is expected to recover strongly. Overall, across all our segments and sectors, there are various factors affecting performance, with some performing better than others, which reflects the typical seasonal fluctuations we experience.

Got it. And then you're fairly active in share repurchases this past quarter. Can you just talk about your thought process there? And should we expect you to continue to be active throughout 2023, given your healthy balance sheet and maybe just how you weigh those decisions versus any potential acquisitions?

Again, we'll be opportunistic as we've always been looking at these opportunities, whether it's a great acquisition came along and it made sense to us. We have the ability and the flexibility to take advantage of that type of use of cash. Same thing with share repurchase and dividends will continue to be something we keep in front of us and look at how do we provide the best return for our shareholders and also at the same time, be in a position to take care of our customer needs. So again, as I said in my prepared comments, as we go forward, we're in a great position to maintain the flexibility with our uses of cash and maintain a very strong balance sheet. And so none of that's changed. It's just part of our norm every day.

Sounds good. I'll turn it over.

Okay. I think we might have time for one more question, please.

Our final question today will come from Mark Weintraub from Seaport Research Partners. Please go ahead with your question.

When he asked about the cadence of how price adjustments flow through the P&L. And I think you suggested that it was not faster on the way down than it is on the way up. So I guess that kind of begs the question. So of the $50 that has already been reflected by PPW, is a significant share of that anticipated to already be showing up in the box prices in the first quarter? Or is a meaningful portion of that yet to come in the second quarter if we were just to assume prices were in PPW flat from here?

Well, Mark, the $50 has come in increments, and whether the price changes based on the contracts varies. Each contract is unique, and their timing mechanisms differ. That's why I mentioned that you can't predict if it will decrease faster than it increased or the other way around. It simply exists as it is. As these adjustments happen, they will occur in their own way. Some customers have even requested to pause for now because they are uncertain about the current situation. So, as I said, it factors in and adjusts in a way that's different from the increase due to the small incremental changes that occur.

Is there any color you can help us with in terms of the proportion based on what you're seeing now, you would think would show up in the first quarter versus what might slide into the second, recognizing situations can change.

I would say, as Tom indicated, that based on how these matters flow, there are different timing mechanisms involved. Roughly one-third of the results should appear in the first quarter, while the remaining two-thirds will likely be reflected in the second quarter.

Okay. Thanks very much.

Thanks, Mark. Jamie, I think that concludes our questions.

Sir, that does conclude today's Q&A session. Do you have any closing comments?

Yes, I'd like to thank everybody for taking the time and look forward to talking with you with Tom and Bob and I in the April call. Take care. Have a good day. Bye-bye.

Ladies and gentlemen, with that, we'll conclude today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.