Good morning, everyone. Thank you for joining Packaging Corporation of America's Fourth Quarter and Full Year 2024 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 question-and-answer session. Please also note today's event is being recorded. And at this time, I'd like to turn the conference call over to Mr. Kowlzan. Please proceed when you are ready.

Thanks for the introduction, Operator, and good morning, everyone, and thank you for participating in Packaging Corporation of America's Fourth Quarter and Full Year 2024 earnings release conference call. Again, I'm Mark Kowlzan, Chairman and CEO of PCA. And with me on the call today is Tom Hassfurther, Executive Vice President, who runs the Packaging business; and Bob Mundy, our Chief Financial Officer. As usual, I'll begin the call with an overview of the fourth quarter and the full year results, and then I'll be turning the call over to Tom and Bob, who'll provide further details. And then I'll wrap things up, and we'd be glad to take questions. Yesterday, we reported fourth quarter 2024 net income of $221 million or $2.45 per share. Excluding special items, fourth quarter 2024 net income was $222 million or $2.47 per share compared to the fourth quarter of 2023 net income of $192 million or $2.13 per share. Net sales were a fourth quarter record $1 billion in 2024 and $1.9 billion in 2023. Total company EBITDA for the fourth quarter excluding special items, was $439 million in 2024 and $394 million in 2023. Excluding special items, we also reported full year 2024 earnings of $814 million or $9.04 per share compared to 2023's earnings of $784 million or $8.70 per share. Net sales were $8.4 billion in 2024 and $7.8 billion in 2023. Excluding special items, total company EBITDA in 2024 was $1.6 billion in both 2024 and 2023. Details of all special items for the year 2024 and 2023 were included in the schedules that accompanied the earnings press release. Excluding special items, the $0.34 per share increase in fourth quarter earnings for 2024 compared to the fourth quarter of 2023 was driven by higher prices and mix $0.52 and volume $0.40 in the Packaging segment, higher prices and mix, $0.02 and volumes, $0.02 in the paper segment. Lower freight and logistics expenses benefited us $0.06. These items were partially offset by higher operating costs of $0.48 as inflation remains a significant issue across most of our cost structure. In addition, scheduled maintenance outage expenses were higher by $0.08, depreciation expense was also up $0.06 and other expenses were higher by $0.06. Results for the quarter were equal to our fourth quarter guidance. Looking at our Packaging business. EBITDA, excluding special items in the fourth quarter of 2024 was $426 million, with fourth quarter record sales of almost $2 billion resulting in a margin of 22% versus last year's EBITDA of $385 million and sales of $1.8 billion and also a 22% margin. For the full year 2024, Packaging segment EBITDA, excluding special items was $6 billion with sales of $7.7 billion or a 21% margin compared to the full year 2023 EBITDA of $1.2 billion with sales of $7.1 billion or a 22% margin. The operational benefits of our capital spending program and the continued great focus and execution by our sales, customer service, mill, and corrugated products plant employees continues to deliver impressive results while helping to minimize the inflationary impact across most of our cost structure. As we've seen throughout the year, demand in our Packaging segment remained very strong during the quarter. Our corrugated products plants delivered record fourth quarter total shipments and an all-time record shipments per day. The plants also set new annual records for total shipments and shipments per day. Excellent operations throughout our mill containerboard systems set new quarterly and annual production records as well. This allowed us to meet our customer service and quality demand needs in a timely manner as well as build some very much needed inventory ahead of this year's annual mill outage schedule that will take place in the first half of 2025. I'll now turn it over to Tom, who will provide further details on the containerboard sales and corrugated business.

Thank you, Mark. As Mark mentioned, continuing strong demand during the fourth quarter resulted in record-breaking performance for our plants and mills. Total shipments and shipments per day were up 9.1% over last year's fourth quarter. Compared to the previous record-breaking third quarter of 2024, shipments per day were up 3.2%. Outside sales volume of containerboard was 9,000 tons above last year's fourth quarter and down 18,000 tons versus the third quarter of 2024 as we emphasized hitting our year-end inventory targets. For the full year, annual corrugated shipment records were set as well, both in total and per day, up 10.5% and 10.1%, respectively, with one more shipping day compared to 2023. Domestic containerboard and corrugated products prices and mix together were up $0.46 per share versus the fourth quarter of 2023. Fourth quarter prices and mix, which were impacted by a less rich customer and product mix compared to the third quarter, were up $0.05 per share versus the previous quarter. Export containerboard prices were up $0.06 per share compared to the fourth quarter of 2023 and flat versus the third quarter of 2024. As we've indicated, we have continued to see very strong demand and are continuing to experience inflation across most of our cost base. Beginning January 1, 2025, we began invoicing a $70 per ton increase for linerboard and a $90 per ton increase for medium according to our recent price announcement. These prices have been accepted by our customers, and for our market containerboard purchases, we are paying higher prices to containerboard suppliers that began invoicing us according to their recent announcement. We were very surprised when, as you are probably aware, a couple of weeks ago, the RISI Pulp and Paper Week publication did not recognize any increase in the industry's benchmark prices for either linerboard or medium. Industry sources and the Pulp and Paper Week publication itself have previously reported that at least 12, or around 90% of the top containerboard producers have issued January price increase announcements. The publication even noted that certain box makers have postponed purchases of linerboard this month to avoid the price increase. Yet the publication left the reported prices unchanged. As the industry's open market has shrunk over the years, we believe that the RISI publication is gathering information from a very small sample of the containerboard market and using that to opine on market conditions for the entire industry. Additionally, the publication often references comments regarding box prices when the relevant product is containerboard. As you know, boxes are highly customized to customer needs and have different pricing attributes. This continues to be a source of frustration, not only for us but for our customers who want predictability in their prices. As mentioned previously, we have been moving off of indexing our prices to the RISI publication as quickly as contracts allow. However, this will take some time to complete. I'm sure you will have some questions for us on this topic, and we'll be happy to discuss them with you shortly. I'll turn it back to Mark.

Thanks, Tom. Looking at the Paper segment, EBITDA excluding special items in the fourth quarter was $39 million with sales of $152 million or a 26% margin compared to the fourth quarter of 2023's EBITDA of $35 million and sales of $144 million or a 24% margin. For the full year 2024, paper segment EBITDA, excluding special items, was $154 million with sales of $625 million or a 25% margin compared to the full year 2023 EBITDA of $151 million with sales of $595 million or a 25% margin. Prices and mix were up 2% from last year's fourth quarter and up 1% from the third quarter of 2024, while volume was 5% above last year and down 5% versus the seasonally stronger third quarter of 2024. Additionally, during the quarter, we notified customers of a $60 per ton price increase effective with shipments beginning January 13 for all office papers, printing papers, and converting papers. The management team and all employees of the paper business have done a tremendous job optimizing our inventory and product mix and remain highly focused on efficient and cost-effective operations in order to deliver outstanding results throughout the last year. I'll now turn it over to Bob.

Thanks, Mark. Cash provided by operations during the quarter totaled $325 million and free cash flow was $124 million. The primary payments of cash during the quarter included capital expenditures of $201 million, dividend payments of $112 million, cash tax payment $50 million, and net interest payments of $37 million. For the full year 2024, cash from operations was $1.2 billion with capital spending of $670 million and free cash flow of $521 million. Our year-end cash balance, including marketable securities, was $852 million with liquidity of $1.2 billion. Our final recurring effective tax rate for 2024 was 24.4%. Regarding full-year estimates of certain key items for the upcoming year, we estimate dividend payments of $450 million, total capital expenditures to be in the range of $840 million to $870 million and DD&A is expected to be approximately $565 million. Our full-year interest expense in 2025 is expected to be around $56 million and net cash interest payments should be around $65 million. The estimate for our 2025 book effective tax rate is 25%. Compared to 2024, the planned annual outages in 2025 include all of our larger mills with a higher number of outage days, including lost volume, direct costs, and amortized repair costs, we currently expect the outages to total $1.18. The current estimated impact by quarter in 2025 is $0.23 per share in the first quarter, $0.32 in the second, $0.18 in the third quarter, and $0.45 per share in the fourth quarter. I'll now turn it back over to Mark.

Thanks, Bob. The hard work of our employees, along with strong relationships between us and our customers and suppliers delivered outstanding results for PCA for 2024. In our Packaging segment, new annual company records for shipment and production were achieved in our corrugated products plants and mills. We successfully completed the number three machine conversion to containerboard at the Jackson mill and many other key initiatives throughout the system. We also completed numerous high-return and deficiency 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. And we still have many key strategic capital spending opportunities in progress or ahead of us in 2025. 2024 also saw our paper business match the record margins from 2023, reflecting the capabilities of our employees to optimize our product mix, inventory, distribution channels, and overhead structure, along with running very cost-effective and efficient manufacturing operations. We ended the year with $1.2 billion of liquidity and a strong balance sheet, which maintains the financial flexibility to react quickly to most situations or opportunities in the future. We remain committed to a balanced approach towards capital allocation in order to profitably grow our company and maximize returns to our shareholders while still adhering to our conservative balance sheet views as we've done in the past. I'm very proud of our employees, these accomplishments, and the very strong partnerships we've built with our customers and suppliers over many years. Looking ahead, as we move from the fourth into the first quarter in our Packaging segment, although seasonally slower, we expect volume in our corrugated products plants to set new first quarter records for total shipments and shipments per day. Containerboard volume will be lower with two operating days and scheduled maintenance outages at the Counts Tennessee and Valdosta, Georgia Mills. Domestic prices will be higher with an improved product mix together with our previously announced price increases. Export prices are assumed to be stable. In our Paper segment, we forecast slightly lower volume with two fewer mill operating days and prices and mix to be fairly flat. With the exception of recycled fiber prices, we expect price inflation across most of the direct, indirect and fixed operating and converting costs along with a higher cost mix of mill operations. In addition, wood, energy, and chemical costs will also increase due to the unusually cold seasonal weather negatively impacting usages and yields for these items. Labor and benefits costs will be higher due to the timing-related items that occur at the beginning of a new year for annual increases, the result of payroll taxes and share-based compensation expenses. First quarter rail rate increases at three of our mills will impact freight and logistics expenses, and we expect higher depreciation expense. Lastly, scheduled outage expenses should be slightly lower and we assume a low corporate tax rate. Considering these items, we expect first quarter earnings of $2.21. With that, we'd be happy to entertain any questions, but I must remind you that the statements do not constitute forward-looking statements. The statements were based on current estimates, expectations, and projections of the company and involve inherent risks and uncertainties and the direction of the economy and those identified as risk factors in the annual report on Form 10-K and 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, Operator, I'd like to go ahead and open up the call for questions, please.

At this time, we will begin the question-and-answer session. Our first question today comes from George Staphos from Bank of America Securities. Please go ahead with your question.

Hi. Thanks very much. Good morning, everybody. Thanks for the details. Mark, I guess the first thing I wanted to ask of you, Tom and Bob, can you talk a little bit about bookings and billings to start the quarter, what you're seeing? And given how busy PCA has been over the last couple of quarters, is that influx of volume creating any sort of inefficiencies beyond normal that you would call out and that we should be at least considering in terms of our modeling for you on a going-forward basis? And I had a couple of follow-ons.

Hey, George, this is Tom. Bookings and billings are up 8% so far in January. So we're off to a very good start, and we indicated that in our opening statements as well. So that's very good. The volume increase, I think if you take it, coupled with the capital initiatives that we have, yes, that has caused some cost inefficiencies quite frankly, because we've got a lot of those projects going on a lot of plants, and you're shifting a lot of business around. But again, our people have done a tremendous job handling that and taking care of our customers.

George, for 2024, we completed 12 significant new equipment installations on the converting side, which involved major reconfigurations of converting lines. Additionally, we either had major rebuilds or new corrugator installations at 12 locations. We finished constructing the new Salt Lake City plant and prepared to establish the new Glendale operation. We intend to maintain this pace, similar to the previous year, with around 60 major projects in the corrugated business continuing into this year. While there are some short-term disruptions, the capabilities we gain are remarkable. We wouldn't be able to achieve our current progress without maintaining this level of investment over the past several years. It truly is a continuous benefit.

So we shouldn't mention it because enabling the growth is essentially your answer there, right?

Exactly, yes. It's truly the growth engine, yes.

Now can you help us a little bit in terms of the sequential move from 4Q to 1Q in terms of some of the cost factors. And in particular, I'm thinking about whether usage input costs, what that might be causing you and for that matter, on the incentive comp. And then since you had teed it up on pricing, you're out with your price increases effective in January, others are as well. I know it gets a little bit sensitive because you can't talk about what others may or may not be doing or forward-looking, but how do you square the circle then if you're raising an effective in January? And the arbiters are saying it hasn't happened yet. Are you giving your customers at all any price protection or time delay between when it's effective when you announce and when you make it effective? So two questions there.

Let's start with Bob.

George, regarding the cost changes from the fourth quarter to the first quarter, if you examine the reasons for the increase, you'll notice a higher cost associated with the mill mix. This is one component contributing to the rise. Additionally, we experience seasonal weather-related costs, which were worsened by the severe cold that affected the country in January. There are also timing factors related to wage increases and tax fringe benefits that we often discuss. In terms of our costs, we estimate they are approximately $0.50 to $0.60 higher across all operating and converting costs, with about 65% of these items typically reversing over time. I would estimate that around 70% of this increase will likely revert in the second and third quarters. This outlines how we transition from the fourth quarter to the first quarter and what we anticipate regarding turnarounds in subsequent quarters.

Okay. George, this is Tom. Let me provide some clarity on the pricing aspect. First, we should differentiate between linerboard and medium, which pertains to containerboard. In the Containerboard segment, we have increased our prices, and our customers will be billed at these higher rates. We will also apply these prices to our external purchases. Some of these purchases come from overseas due to a specialty grade not necessarily produced in the United States, while others are products that we buy domestically, and we are paying for them as we receive invoices. This pricing structure is established and in effect. The frustration I mentioned earlier relates to discussions about boxes and similar matters. We have always stated that price increases for our boxes are negotiated directly with our customers and are not publicly disclosed. However, we do have significant price increases that are still linked to what is reported in RISI. We are actively trying to distance ourselves from this as quickly as possible because, over the years, the open market has diminished considerably. This has led to some confusion regarding reporting and interpretation. As a result, we find this reporting method less useful moving forward, and we aim to move away from it as swiftly as possible. I hope this addresses your question.

It’s helpful. I’ll turn it over. Thank you guys.

Thanks, George. Next question please.

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

Yes. Thanks, Mark, Tom, and Bob for taking my questions and congrats on a strong year.

Thanks, Mike.

I just wanted to follow up. Can you give us a sense of the operating rate you're currently at? Would it be fair to say you're running full out given the strong demand you have? And if that's the case, can you help us understand the time frame over which you expect to add capacity at Counce and Valdosta? You mentioned that, I think you teased that in the last earnings call. What do you think those projects will be operational? What incremental capacity do they add?

We've got the opportunity to add capacity as time goes on. As we've always said, we have tremendous flexibility on how we provide containerboard tons into the system. Obviously, we completed the big Jackson reconfiguration. But nevertheless, we also have a lot of opportunity on how we optimize the seven-mill system right now. Regarding what you mentioned between Counce and Valdosta, those projects, if we go forward with those would be in the next couple of years timing. And so again, that's something that we haven't decided to execute. We're studying all opportunities as we always do, and we have tremendous flexibility on how we bring new tons into the system when they're needed. And so that's the beauty of where we are. The high integration and the continuation of our demand growth presents high opportunity, high return for these projects in our mills as we go forward. So we'll let you know when the decisions get made.

I understand, Mark. Can you provide some insight on the current operating rate of the system? How much capacity or flexibility do you have right now to accommodate the increasing demand?

Yes, we are working hard, which is a positive position to be in. We perform best under pressure, but we still have opportunities to optimize our system and adjust our product mix. Additionally, we can look to buy in open markets where it makes sense. We have these opportunities available to us. Ultimately, we have the ability to maximize our capacity right now and, although we may not be running at full capacity, we consistently find ways to increase output from our system, and we will continue with these efforts. These are valuable opportunities that we pursue.

Got it. And one last question just before turning it over. Can you give us a sense of the volume cadence you're expecting through 2025? Should we expect some more pronounced volume growth in the first half and then maybe lessening as you get towards midyear and the back half, probably due to tougher comps?

The comparisons will become significantly more challenging as the year progresses compared to last year's figures. However, we anticipate sustained volume growth throughout the year, with steady increases. It's important to note that year-over-year percentage figures may decline a bit as we move forward. Nonetheless, we have ample growth opportunities and are actively implementing several initiatives as our capital projects come online, allowing us to boost production.

Thanks very much, Tom. Good luck in 2025.

Thank you.

Thanks, Mike. Next question.

And our next question comes from Gabe Hajde from Wells Fargo. Please go ahead with your question.

Mark, Tom, Bob, good morning.

Good morning, Gabe.

Let me start with the sequential numbers that you typically provide on a quarterly basis regarding the split of corrugated price realization and export. From my calculations, it appears there is about $50 per ton of price realization in the fourth quarter of 2024, which suggests around $30 million of unfavorable mix. This seems somewhat extreme and not typical of how PCA usually operates. I'm curious if you have approached this situation in the same way. Additionally, are you still seeing any price impact in the first quarter of 2025 due to changes that occurred in 2024 on a sequential basis from the fourth quarter to the first quarter?

Gabe, it's Bob. There are certain factors that vary on an annual basis, so there’s some movement associated with the price increases for 2024. Additionally, when calculating, it’s important to consider inventory changes along with export and domestic volumes. I estimate the change is around the mid-$50 range per ton. Instead of comparing it to the $80 price from the two increases at the beginning of 2024, we need to keep in mind that there was a $20 per ton drop late in 2023. This perspective gives a net change of about $60 per ton. I believe we’re in the mid-$50 range, similar to your calculations. Moreover, there are changes in customer mix, product mix, and seasonal factors that influence this as well. We’re optimistic about capturing the price based on those index changes you mentioned.

Thank you. Just to clarify, in the first quarter, are you indicating that the guidance provided includes $221 million attributed to price increases for open market tons rather than for the converted box side? Or is there an inclusion of what has been announced regarding both the corrugated and...

No, there's definitely some open market. As we've always said, those things happen immediately when there's a price change, up or down. But there are some things relative on the box side that regarding those price increases from last year that now will take effect in the first quarter. So that's embedded in there too, along with what we feel like we'll realize from this year's January price increases. Considering the impact of RISI, as Tom was talking earlier, RISI not picking it up in January. So you have to adjust for that a little bit, but there is some of that in our numbers as well.

Understood. Okay. And last one on CapEx. You did signal on the Q3 call that it would be up into 2025, it's probably up a little bit more than what we were modeling. I don't know how others are thinking about it, but the Glendale, I think box facility, should we sort of pencil in numbers that we see are $240 million to $260 million for a new box plant depending if it's out with a corrugator. But even if I adjust for that, when I look at maintenance, I think that was also supposed to be down in 2025 and it's actually up. So Mark, are you telling us there is no incremental capacity on the containerboard side in 2025, no debottlenecking or anything like that in that CapEx number?

Yes, there is ongoing work at the mills. It’s not a single large project but rather a series of smaller projects that we consistently undertake each year to improve our operations. One challenge we have presented to the team over the past year is to optimize our assets after years of rapid conversions. We’ve been moving to the next mill so quickly that we haven’t taken the time to ensure we’re maximizing the returns on our investments. Now, our technology team is engaging with the mills to ensure we extract all possible value from our efforts. This is a positive return for us. As for capital expenditures, we are completing the Glendale project in Arizona, which involves finalizing a box plant. A significant difference from ten years ago is that a box plant cost about $50 million, while today, a full-line box plant can exceed $200 million. Just this week, we began construction on a new box plant in Newark, Ohio, which has been in development for a few years since we acquired the land three years ago. We aim to have that plant operational by the end of next year. In addition, we are allocating around $800 million for capital, which includes a major rebuild at another Northeast plant that will function similarly to a new facility. There’s also a major enhancement happening at a plant on the East Coast. In total, there are four significant activities underway in our corrugated products segment, alongside approximately 50 smaller projects this year, including EVOL and single converting line replacements. All these are factored into that capital allocation, which includes substantial new business growth in addition to optimization and enhancements, not just maintenance, as maintenance comprises only a small part of that capital.

Gabe, regarding your question about maintenance expenses and whether they were down, if you remember the last quarter's call, there was a discussion about what is considered normal in relation to the outages we experienced in 2024. However, that did not reflect our plans for 2025 concerning outages. The situation involves a few factors. Firstly, we have more larger mills with more downtime in this year's plan compared to last year; larger mills come with higher costs and more days of inactivity. Additionally, in the second half of 2022, throughout 2023, and into the early part of 2024, particularly in the first quarter of 2024, we were still operating according to demand. This led to market downtime, and when we evaluate our variances, if you’re in market downtime and have a maintenance outage, you wouldn’t factor in the profit per ton for those since you couldn't sell the tons anyway. Consequently, the negative effects appear in our volume variances, which we discuss. This year, however, we do not have that issue. Therefore, the profit per ton is included in our outage calculations for every ton that is down. This is another reason why the figures will be higher compared to 2024, if you understand what I mean.

I do. Thank you guys for all the detail, and I appreciate the investment in Ohio.

Next question.

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

Good morning, Mark. Good morning. Can you help us understand how much of the higher box prices related to the containerboard price increase initiative announced for January is included in your first quarter guidance? I'm trying to gauge the potential additional upside for the remainder of the year if the price increase is fully implemented.

Yes, Mark, this is Tom. The situation is primarily a timing issue related to the remaining contracts we have concerning RISI. Therefore, we need to adopt a cautious approach in the first quarter regarding how those contracts will transition. However, we are currently moving forward with noncontractual business. The details concerning those amounts are private and specific to our agreements with customers. What you're likely referring to is the index linked to those contracts, which progresses at a different pace. Until that index shows that the price is on an upward trend, it will not activate some of those contracts.

Is it accurate to say that I'm trying to understand the potential upside beyond the first quarter? Another way to ask the same question is, if for any reason RISI didn't publish the containerboard price increase in February or March, how significantly would that affect the guidance you provided compared to what you would expect?

Well, again, I mean, as I said, we're taking a pretty conservative approach here. So is there upside going forward? Yes. I mean, there's no question about it once this is indicated in RISI.

Okay. And then can you give us any more color in terms of like the process of moving customers off the indexes and or what type of variables are being put in place? Or is it just like a negotiation each time? Or is it being tied to various costs or things like that? Just to help us begin to understand as we want to kind of be able to forecast in the future, what might happen to your pricing, etc.

Well, it's probably going to be a little more of a mixed situation. As I mentioned, our customers have been very frustrated with this process, and so have we. Ultimately, it comes down to discussions with our customers about what will happen going forward with pricing and the agreements we reach. We haven't identified any other indicators that we feel confident about. So, it's going to take some time to resolve, but we are very comfortable with our discussions with our customers about our future direction. The approach will differ for each customer, but I believe the discussions have been productive.

Mark, our customers are experiencing the same inflation and cost pressures that we are. They value our daily conversations and understand the capital investments we make, expecting returns from them. Our capital spending greatly benefits customers by enhancing quality and ensuring on-time delivery. Therefore, the conversations we have are genuinely focused on the customer's perspective, handled individually.

Thank you for the color.

Next question please.

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

Good morning. Just following up on Mark's question, is it possible to say just kind of order of magnitude, what percentage of customers you've moved off of RISI? Is it 5% or 25%? And then given the turnover of customer contracts, like how long it might take for you to get maybe a large majority of customers off the index?

Well, Anthony, this endeavor didn't start five years ago; it started about a year ago. As I mentioned, this will take some time to unwind those contracts, as some of them are long-term. We've worked with these customers for decades and have established long-term relationships. We are very mindful of those relationships and are committed to acting in the best interest of both ourselves and our customers as we move forward. This process will take a little time to unwind. I'm not going to provide specific percentages on how this will unfold, but we are progressing in that direction.

Regarding the CapEx guidance, you mentioned four major box plant projects, including Ohio and Glendale, as well as two potential reconfigurations on the East Coast. Can you clarify how much of the $840 million to $870 million is allocated to these four big box plant projects? Are there any specific projects, such as Ohio or Glendale, that represent a significant portion of the $840 million?

Yes, hold on one second. Let me get some numbers here. Probably $250 million is going to that this year.

Got it. Got it. Is the Ohio greenfield the largest roughly or...

Yes.

Okay. Great. That’s very helpful. I’ll turn it over.

One of the projects is a $70 million initiative to reconfigure one of our plants, and that is a specific project we will see this year as part of that total.

Got it. Got it. Thank you.

And again, just to remind you, the $445 million that was allocated to the corrugated side for 2024, $370 million of the $445 million was for growth opportunities. So again, most of the capital spending that's going on is to enhance our capability to go to market and work with the customer.

And let me remind you, Anthony, that these are already established growth opportunities. We are not expanding with the hope of gaining more business; this is about growing with our existing customer base.

Understood. Thank you.

Next question.

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

Hi, guys. Exciting times with all these growth projects. Mark, I guess, perhaps help us think through how the contribution kicks in. I know the Phoenix, Arizona box plant at least was scheduled to come on, I think, late 1Q, 2Q. So that's probably going to be contributing this year, but the other projects you've called out, the reconfiguration in Ohio. Help us size up what that could actually drop to the bottom line? Do we see any of this year? Or is this more of a 2025 event where you could accelerate growth?

Yes, the Arizona project is set to begin operations this spring as planned. This new facility will replace three existing locations we've been using in the Phoenix area for our business. Operating from multiple locations has not been efficient, so this new plant will enable us to streamline our operations into one modern, high-efficiency facility. This consolidation will significantly enhance our unit labor and overall efficiencies, likely increasing production capacity in the region by three to four times from this single plant. We'll see the benefits in terms of quality and cost structure right away this year. While I won't provide a specific number, the plant will positively impact our system immediately when it starts up and we close the old facility, with employees transitioning directly to the new operation.

And then the ramp-up of some of these other projects you've called out, New Jersey, the reconfigurations...

There are projects ongoing in New York and Pennsylvania that will be more challenging, as Tom and I mentioned. These types of projects may cause some short-term difficulties, but once completed, they will create significant opportunities for us over the next decade.

But any color on the timing of that ramp, Mark? Is that a 2025...

Well, just again, we'll finish those projects this year and then get them running and get the bugs worked out and then again, we'll see immediate benefits out of those also.

Yes, Philip, I want to add a few points. It's important to remember that in these projects, we are incorporating a lot of efficiency, including closing down inefficient box plants and consolidating operations. This will allow us to better serve our customers who are interested in partnering with us, including some new markets, particularly in Phoenix where our previous operation was limited. The new project in Ohio will also help us consolidate our operations and improve efficiency, expanding our reach to our customer base.

Super. And then from a demand standpoint, Tom, you guys have box shipments in 2024, and that momentum sounds like it's continued into January so far. Can you just help us think through some of this? I mean some of it is obviously the market is recovering, but clearly outpacing the market, you're taking share, called out some share gains on the brown side of things. Certainly still a lot of disruption in the marketplace with consolidation in the making. Do you see that as a big driver that's a catalyst in terms of the momentum you've seen thus far this year? Like how should we think about share gain opportunities this year for you guys?

I believe we have a solid core customer base. If you position yourself as the best and most reliable supplier for that customer base, it opens up numerous internal opportunities to further increase your volume. Traditionally, many corrugated customers have diversified their business because they were hesitant about relying on a single supplier. However, this shift is changing significantly over time. We are demonstrating that we are a great supplier, incredibly reliable, and we offer the best quality and service in the industry. We aim to be strong partners for our customers, aligning our business with their strategies. This gives us a competitive edge. Additionally, we have the financial flexibility to expand rapidly and execute initiatives faster than some competitors. I see a clear path for continued opportunities moving forward.

Got it. Then, Tom, one quick one. Mix was a modest drag last year on the brown side. Do you anticipate mix being much of a good guy or bad guy when you think about 2025?

Well, in the fourth quarter, we had that mix impact there was a lot more e-commerce activity, quite frankly, in the fourth quarter. That's done now. And so I think the comment was made during the call earlier that we expect an improved richer mix 1Q versus 4Q. And so we'll probably see that better mix through the first half of this year. And then as the year rolls on, we'll see more e-commerce into the fourth quarter, again, I expect.

Yes, I think our mix is pretty steady compared to what it's always been.

Okay. Appreciate the color.

Next question please.

Next question comes from Charlie Muir-Sands from BNP Paribas. Please go ahead with your question.

Yes. Good morning all. Thank you very much for taking my question. Just returning to the capital expenditure. I wondered if you could give us an estimate as to how much you would consider to be a generic maintenance CapEx within the overall budget for this year?

Yes, Charlie, this is Bob. Typically, that accounts for about 60% to 65% of our total spend. I think that's probably a good way to think about it. Year-to-year, it can vary, but I'd say that's...

This year, we've got a few bigger discrete projects...

Yes, I think a little less.

Yes, on a percentage basis, it will be less this year because we have four major discrete projects underway in the packaging segment of the business. However, as I mentioned earlier, most of our spending is focused on growth opportunities rather than simply maintaining our current operations. We've been fortunate that over the years, we have effectively maintained our assets and ensured we are proactive about asset preservation. Therefore, we are not in a position of playing catch-up.

Yes. Very clear. And on the weather impact that you called out, I recall January 2024, there was some pretty severe cold weather as well. But I'm not sure if it was you, but I think some of the other box makers called that out as an impact in Q1 last year. But I just wondered, is the weather you're talking about here something that you see as adverse just on a quarter-on-quarter basis or also more challenging incurring more costs than last year?

Yes. Let me share some thoughts and then Bob can add on. As we're wrapping up January, we've experienced a few weeks of severe weather, particularly colder and snowier conditions in the deep south. Last week, for instance, the Gulf Coastal area saw Interstate 10 close from Houston to Florida for several days, which was quite disruptive. This cold weather not only affected energy use and raw material consumption but also had a broader impact on overall business activity. We expect there will be a volume impact due to the cold weather. Overall, we are performing well operationally, but operating under these conditions incurs higher expenses. Specifically, last week’s weather did result in some volume effects.

Thanks very much.

Next question please.

Our next question comes from Ryan Fox from Bloomberg. Please go ahead with your question.

Hi, good morning. Gabe asked a similar question, but I would like some clarification. When we compare the revenue per produced ton in 2023 to 2024, it appears that 2024 is down about $50 per ton, despite the index being up around $35 per ton, resulting in a margin of around $85. Can you help us understand this?

Can you repeat that, Ryan?

Yes. If we look at revenue in relation to the produced tonnage year-over-year, that figure has decreased by about $50 per ton, even though the index for containerboard has increased.

Yes. Well, if you adjust I think what you're doing, using produced tons, so you have to account for inventory change. But directionally, I'd say it's probably closer to $40, not $50, but go ahead.

Okay. Considering that there were two price increases last year totaling around $80, and I acknowledge the $20 decrease at the end of 2023, if we examine the averages for containerboard over those two years, it has still increased. I would estimate the differential to be approximately $85, though it could be slightly less. Prices are moving in a different direction than the index, and I'm trying to understand how to reconcile that.

Yes, there was a significant amount of export volume involved. During that time, export levels were certainly declining, which factors into your calculations. If you take that into consideration, along with some changes in inventory and other variables, we are likely where we anticipated, based on the movement of that index.

I want to add another point to this discussion. We don't sell tons; we sell MSF. If the basis weight is decreasing on MSF, it will lead to a different situation in terms of tons. There are many variables to consider, and this is a topic we could explore further. It's important to note that our industry measures something they do not actually sell, which is tons, while we focus on MSF. Therefore, when evaluating everything related to tons, it's crucial to account for all the varying factors involved.

Yes. Finally, Ryan, as you know, prices began to decline at the end of 2022 and continued through much of 2023 and into late 2023. This fluctuation affects our box, and we need to address that. Prices have increased by $80 since then, but they had previously fallen by $110. The timing of these changes impacts our overall revenue, which is calculated based on tons.

My other question for you is you've talked a little bit about how your customers are frustrated. Are you referring to box customers or the containerboard customers?

Both.

Interesting. I have one last question. Please help me understand the situation. In the U.S., the mill operating rates are around 90%. We are on track to export nearly 5 million tons in 2024. Why would someone in an open market, who may not own a mill, be willing to pay higher prices for containerboard given the current overcapacity?

You'll need to direct that question to them. I can say that our customers view the situation differently than how you are presenting it. You are measuring in tons, but we don't sell tons; we sell MSF. There's a significant gap, in my opinion, between the actual market situation and the numbers that are being reported. For instance, there is a sizable mill that is operating at full capacity, yet its output is only about 50% of what is expected for that mill. Therefore, the projections and the actual situation are quite different. While we can purchase some tons from the open market, the specific types of tons required for the boxes our customers need are in short supply. We have established long-term relationships that enable us to secure those materials. Without those relationships, acquiring the right tons would be quite challenging.

Yes. Obviously, with the lighter basis weight that definitely creates some disparity in the contribution per machine hour on your mills. Is that lighter weight? Is that a thing that you're going to continue to see in the future where it's going to be a drag there?

Well, I wouldn't call it a drag. I just think it's a fact of life.

I say, I mean, it becomes an opportunity. We're making more product with less fiber. And that's part of the capital investment over the last decade is to run these mills on a lighter weight grade mix much more efficiently. And so it hasn't impacted the mill profitability and the mill capability.

Great. Thank you so much.

Thank you. I think I know we're out of time, but I know there was one more question. I think George Staphos may have had a question if you're still on, George.

Yes, sir. Our next question is the follow-up from George Staphos. Please go ahead with your follow-up.

Thanks, guys. I'll try to make it painless, Mark. Just to wrap up all the pricing discussion, when we look at fourth quarter last year, fourth quarter this year, prices are up a ton. They're not down. They're up about $43, recognizing it's tons produced. And what you're saying is when we consider the price drop that entered last year, and the fact you're building back from that and you look at mix, you're pretty much where you expect to be. Is that a fair statement?

Yes, George, with my math, I would say we're closer to $55 a ton, something in the mid $50s rather than $40, but go ahead.

Understood. Okay. My other question is, aside from fiber, where are you experiencing the most cost inflation? When we examine the cost per ton, it has been consistently increasing over time, even though you are investing significantly to enhance productivity and efficiency. Given your historical return on capital, you seem to be making wise investments and becoming more efficient. Where exactly are you facing the most cost pressure, and what steps will you take moving forward to address this? What kinds of products do you have that could help reverse the trend in cost per ton?

For the first quarter, energy is obviously a glaring factor. But don't forget, over time, fiber has become less of a component. You've got all of your labor medical benefits, all of that element. Transportation is another example. All of your service costs, services in general, all the lease expenses, everything is up dramatically. We called this out on the call earlier. We've got rail increases taking place significant rail increases, again, taking place in this first quarter. And so the fact that we are fortunate in the ability to effectively spend capital, it helps us maintain our position, but it certainly is not able to overcome all of your inflation. And so that's why you have to have price along with a very, very effective capital spending program to stay ahead of the curve here. But energy right now is probably the big.

Yes. In energy, as far as your direct items, even chemicals are expected to increase. Across the board for the types of chemicals we use, we are seeing price hikes in the first quarter, which will persist throughout the year. However, as Mark mentioned, the majority of the inflation we are encountering lies in the items below your direct costs; that's where we will feel the most significant impact.

It also means you need to be given the expense inflation on labor and medical services, rail, which you can't control necessarily. You've got to be very, very precise, very strategic about where you put that next box plant so that you optimize around those various factors. But..

And George, that's what we've been doing. Think about the rate of spending over the last seven or eight years, especially the last six. The benefits we've gained from this activity are significant. It's allowed us to do what we do and be where we are. The good news is we're going to continue at this pace and keep taking advantage of this. However, with the comprehensive inflation across the board, it doesn't matter how much capital you spend. Unless you see appropriate pricing, you can't keep up with all of the inflation.

Thank you, Mark. Good luck in the quarter. Talk to you soon.

Thank you. Appreciate it. Operator, I think that may be wrapping things up. If you want to conclude this.

Absolutely, Mr. Kowlzan, I do see that there are no additional questions. If you have any closing comments, feel free to proceed at this time.

Thank you, everybody, for joining us, and I look forward to talking with everybody at the end of April. Take care. Have a good day. Bye-bye.

And 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.