Earnings Call Transcript
PACKAGING CORP OF AMERICA (PKG)
Earnings Call Transcript - PKG Q3 2025
Operator, Operator
Good day, and welcome to the Packaging Corporation of America Third Quarter 2025 Earnings Conference Call. Please note this event is being recorded. I would now like to turn the conference over to Mr. Mark Kowlzan. Please go ahead.
Mark Kowlzan, Chairman and CEO
Thank you, Elissa. Good morning, everyone, and thank you for joining Packaging Corporation of America's Third Quarter 2025 Earnings Release Conference Call. I’m Mark Kowlzan, Chairman and CEO of PCA, and I’m joined today by Thomas Hassfurther, President, and Kent Pflederer, our Chief Financial Officer. I will start with an overview of our third quarter results before handing it over to Tom and Kent for more details. After that, I’ll conclude with some remarks, and we will be happy to answer any questions. Yesterday, we reported a third quarter net income of $227 million, or $2.51 per share. Excluding special items, the net income for the third quarter of 2025 was $247 million, or $2.73 per share, compared to a net income of $239 million, or $2.65 per share for the same period in 2024. Our third quarter net sales reached $2.3 billion in 2025, up from $2.2 billion in 2024. The total company EBITDA for the third quarter, excluding special items, was $503 million in 2025 compared to $461 million in 2024. The third quarter net income included a special items expense of $0.22 per share related to the acquisition of the Greif Containerboard business, which included the step-up of acquired inventory, integration-related expenses, and transaction expenses. Details about these special items for the third quarters of 2025 and 2024 can be found in the schedules that accompanied our earnings press release. We completed the acquisition of the Greif Containerboard business on September 2. Our results reflect one month of operations from Greif, impacting earnings per share by $0.11 after accounting for special items. This impact includes depreciation and amortization after preliminary purchase accounting and additional interest on new borrowings for the acquisition. After excluding the special items and the acquisition impact, our earnings rose by $0.19 per share compared to the third quarter of 2024. This increase was primarily driven by higher prices and mix in the Packaging segment contributing $0.73, reduced fiber costs adding $0.16, higher prices and mix in the Paper segment contributing $0.02, and a lower maintenance outage expense of $0.01. These improvements were partially offset by higher operating costs of $0.33, decreased production and sales volume in the Packaging segment costing $0.16, increased depreciation expense of $0.07, higher freight expense of $0.07, other higher expenses totaling $0.07, increased interest expense (excluding the Greif acquisition debt) of $0.02, and lower production volume in the Paper segment costing $0.01. Because of uncertainties around the Greif closing date, our third quarter guidance did not predict any impact from the acquisition. Excluding special items and the acquisition impact, our results exceeded the third quarter guidance of $2.80 per share by $0.04, mainly due to favorable price and mix in the Packaging segment and reduced freight costs. In our Packaging business, including the acquired operations, EBITDA for the third quarter of 2025 was $492 million, with sales of $2.1 billion, yielding a margin of 23.1%. This compares to last year's EBITDA of $446 million and sales of $2 billion, or a margin of 22.2%. Corrugated volume was largely on track and continued to reflect cautious ordering patterns observed throughout the year. We managed production to meet demand during the quarter, producing 38,000 fewer tons of containerboard than in the third quarter of 2024, while also producing 59,000 more tons than in the second quarter of 2025. Our containerboard inventory in the legacy system increased by 15,000 tons during the quarter in preparation for the fourth quarter DeRidder outage. Operationally, we performed well throughout the quarter, achieving strong cost and production efficiency across our mills and corrugated systems, which reflects the successful investments we’ve made in our business. We continually seek opportunities to reduce costs and enhance production capabilities, supported by our in-house technical and capital execution expertise. The acquired mills produced 47,000 tons during their first month of operation. Having closed the acquisition on September 2, we leveraged the initial month to our advantage. While our activities affected the September results, they will ultimately improve our productivity and efficiency long-term. Massillon had a scheduled annual maintenance outage that we extended to five weeks, completing it earlier in October. We undertook a comprehensive refurbishment of the mill, focusing on reliability improvements in the paper machines, the OCC plant, and the power plant. We cleaned and inspected all mill infrastructure and unit operations. We temporarily halted two paper machines at the larger Riverville facility for five days each to implement the first phase of our reliability enhancements. More work is on the horizon, and we anticipate completing this first phase by the end of the fourth quarter. We are already observing improved performance and quality, with both mills operating at higher efficiency levels. We will continue to manage and invest in these facilities to align operating performance with the standards of our legacy PCA system. I will now turn it over to Tom for more details on containerboard sales and our corrugated business.
Thomas Hassfurther, President
Thank you, Mark. The performance of the Packaging business was largely as we expected, and it was another strong quarter. Domestic containerboard and corrugated products prices and mix were $0.72 per share above the third quarter of 2024 and down $0.02 per share compared to the second quarter of 2025, which was all attributable to containerboard mix. Export containerboard prices were up $0.01 per share versus last year's third quarter and flat with the second quarter of 2025. As Mark mentioned, while customer ordering patterns have continued to reflect market conditions that have persisted throughout most of the year, corrugated demand improved as the quarter progressed. In the legacy business, shipments per day in our corrugated products plants were down 2.7% versus last year's record third quarter when per day shipments were up more than 11% over 2023. We will continue to see tough comparisons going into the first quarter of 2026. Total shipments were down 1.1% in the third quarter of 2025 versus last year, reflecting one more workday this year. For a little context, on a per workday basis, July shipments were about 6% down from last year, while August was less than 1% down and September was less than 2% down. Margin performance was very strong again with Packaging segment EBITDA margins improving to 23.1% versus 22.6% in the second quarter and 22.2% last year. Including the acquisition, shipments were up 3.7% over last year per day and 5.3% overall. The acquired plants had a strong September with volume growth and good price realization. We're working very hard to integrate the operations into the PCA corrugated system, and we like what we see so far. The culture is highly compatible with PCA's, and our new colleagues have gone beyond the call of duty to continue to develop strong customer relationships and serve those customers. Greif has historically carried relatively more inventory in its corrugated system than we do. With the acquired plants being part of a much larger integrated system, we can more efficiently and nimbly supply them now that they are part of PCA. We have the opportunity to bring inventory down to lower levels, and we'll manage our operations to do so over the next couple of quarters. As expected, export sales volume of containerboard was down 8,000 tons from the second quarter of 2025 and down 32,000 tons from the third quarter of 2024. I'll now turn it back to Mark.
Mark Kowlzan, Chairman and CEO
Thanks, Tom. Looking at the Paper segment, EBITDA, excluding special items in the third quarter was $40 million, with sales of $161 million or a 24.9% margin compared to the third quarter of 2024 EBITDA of $43 million and sales of $159 million or 27.1% margin. Sales volume was 1% below the third quarter of 2024 and 10% above the second quarter of 2025. Prices and mix were up 2.1% from the third quarter of 2024 and 0.5% from the second quarter of 2025. Performance reflected the seasonally stronger third quarter and sales volume was higher than expected. I'm now going to turn it over to Kent.
Kent Pflederer, Chief Financial Officer
Thanks, Mark. Cash provided by operations was an all-time quarterly record of $469 million. And after $192 million of CapEx during the quarter, free cash flow was a record $277 million. In addition to CapEx and funding the Greif purchase price, the primary payments of cash during the quarter included dividends of $113 million and cash tax payments of $19 million. Our quarter-end cash balance, including marketable securities, was $806 million with liquidity of approximately $1.4 billion. To update you on annual shutdown expenses, we now expect $0.45 in the fourth quarter for the legacy PCA system and $0.02 for the acquired business. The legacy system expense is expected to be $0.29 higher than the third quarter of '25 and $0.17 higher than the fourth quarter of '24. We are revising our capital forecast for the year to be approximately $800 million from our previous forecast of $840 million to $870 million. This is primarily as a result of timing of expenditures, and we have not changed our overall capital plan. This revision includes incremental expenditures for the acquired business. As part of the Greif acquisition purchase accounting, we are required to record the acquired assets on our books at fair value. Our valuation is preliminary and is subject to change over the 1-year period after the acquisition. Our preliminary evaluation in addition to working capital includes approximately $870 million of property, plant and equipment, $530 million of intangibles, and $280 million of goodwill. We recorded $12 million of depreciation and amortization of the acquired assets during the third quarter, and we expect an annual run rate going forward of approximately $130 million. As a reminder, annual net interest expense is expected to increase by $95 million, and we recorded $8 million in additional interest during the third quarter. We were a significant containerboard supplier to Greif before the acquisition, and shipments of containerboard that were recorded as third-party sales in the past are now integrated. This affects the timing of recognition as shipments are now recorded as inventory with sales and profit being recorded when that inventory is converted and sold to a customer. We estimate that this affected results by about $0.03 in the third quarter, which will not recur going forward. I will now turn it back over to Mark.
Mark Kowlzan, Chairman and CEO
Thanks, Kent. For the fourth quarter, we expect per day corrugated shipments to be higher than the third quarter with three fewer shipping days. Export containerboard sales will be higher than the third quarter, but relatively low when compared to traditional fourth quarter volume. Containerboard production in the legacy system will be slightly lower than the third quarter with the maintenance outage at the DeRidder mill, and we expect inventory levels in the legacy system at year-end to be similar to levels entering the fourth quarter. Outage expenses will be $0.29 higher than the third quarter. We expect prices and mix in the Packaging segment to be lower as a result of seasonally less rich mix. In the Paper segment, we expect seasonally lower production and sales volume and flat pricing. We also expect seasonally higher energy and fiber costs as well as slightly higher freight and other operating costs. We expect significant improvement in the results of operations from the acquired business. We will be impacted by lower production and higher maintenance expenses from the Massillon mill outage that did continue into October and seasonally lower volume and mix in the corrugated business. We will benefit from a full quarter of improved operations at the Riverville mill. We will be managing production to achieve lower inventories, as Tom mentioned. Considering these items, we expect fourth quarter earnings of $2.40 per share, excluding special items. And 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 do 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 on file with the SEC. Actual results could differ materially from those expressed in the forward-looking statements. And with that, Elissa, I'd like to open the call up for any questions, please. Thank you.
Operator, Operator
First question is from George Staphos, Bank of America.
George Staphos, Analyst
I guess maybe the first question, as it normally comes up during Q&A. Can you talk about bookings and billings as we're starting fourth quarter? Obviously, you have fewer shipping days, but what are you seeing on a per workday basis or however you want to frame it? And then we had some other questions.
Thomas Hassfurther, President
George, this is Tom. Right now, kind of the blend of bookings and billings that we see so far is a little over 1% up. And again, I'll remind you, very tough comps. Okay?
George Staphos, Analyst
Got it. You mentioned that the tough comparisons will be difficult through the first quarter. Are you indicating that you believe these tough comparisons will conclude by the end of this quarter? Additionally, are there any strong areas in the end markets that you can highlight or any particular challenges you are currently facing?
Thomas Hassfurther, President
Outside of a couple of end markets, our business has been very good. Those markets have struggled in the marketplace. For instance, the beef segment is significant for us, and the cattle herds are at a 70-year low, leading to numerous challenges. We even have the administration exploring solutions to this issue. Additionally, the building materials sector has also been impacted by the downturn in housing starts. These two areas have been a drag on our performance. However, we are pleased with the results in all of our other sales segments.
George Staphos, Analyst
As regards to Greif, I know we'll get more color over time, but any big picture, any large sort of boulders you could tell us about in terms of what you're finding with Greif relative to the deal model? And is there any way at this juncture you can give us a view on what the maintenance might look like? So in that regard, again, is $300 million of EBITDA reasonable for the combined business? What does maintenance look like? And then I had one or two last follow-ons. That will be quick.
Mark Kowlzan, Chairman and CEO
I believe we discussed earlier that the CorrChoice segment we acquired was in excellent shape and well-funded. Since September 2, we have consistently had around 100 of our PCA personnel at the mills in Massillon and Riverville, providing our operational expertise. Tom, would you like to share your thoughts on the corrugated aspect?
Thomas Hassfurther, President
Yes. To summarize, the organization is very customer focused, and their culture aligns well with ours. This acquisition is a valuable addition. Operationally, it is not as strong as PCA, but we have more resources and a great team to tackle those challenges. In typical PCA fashion, we address issues immediately without focusing on quarterly results; we are looking at the long term. Given their customer focus and the markets they serve, this will significantly enhance our earnings moving forward.
Mark Kowlzan, Chairman and CEO
One note, George. We took the machines down at Riverville for basically about a 5-day period, each machine in September. But during the time we ran in September, we improved operations. We were running like 97.2% for the month of September in Riverville, and that's up dramatically from prior to the acquisition. And so we've seen immediate improvements in both efficiency and quality. But the good news is we'll continue to see a lot more benefits as we work through things. And as far as your question about some of the accretive value, I think, Kent, you and I were talking this morning.
Kent Pflederer, Chief Financial Officer
Yes. So George, as we approach the acquisition, historical Greif performance indicated that $240 million was a solid annual run rate for the EBITDA. Our projection for synergies on a run rate basis after the second year is approximately $60 million. We are on track to meet that goal. We anticipate being in the 20-ish range by the second quarter of next year to provide further clarity on that on a run rate basis.
George Staphos, Analyst
Quickly, $0.20, and possibly a sequential increase in depreciation and amortization as part of the $2.40 is somewhat rough math. Is there any way to discuss the inventory strategy and what the tons coming down might indicate in the Greif system compared to your previous situation?
Mark Kowlzan, Chairman and CEO
The comment about inventory, again, it was mentioned, we've got 10 mills now in the system. We've got an incredible opportunity to take care of all of our box plants nationwide. So we will quickly incorporate that strategy into the CorrChoice operation. And it will take some time to work the inventory down. We've already started that.
Thomas Hassfurther, President
Yes. Also, George, I'd just add that mix is a part of that equation also. So we've got to do both at the same time, but very good opportunities there.
Mark Kowlzan, Chairman and CEO
All right. With that, next question, please.
Operator, Operator
Next question is from Mike Roxland, Truist.
Michael Roxland, Analyst
Congrats on closing the acquisition. I just wanted to follow up, Kent, with you, one, on the numbers that you just mentioned in relation to George's question, the $240 million of EBITDA and the $60 million of synergies. Now that you've owned the assets for roughly 6 weeks, can you talk about any potential upside to those numbers that you foresee from those assets?
Mark Kowlzan, Chairman and CEO
Right now, I want to let you know that we're seeing positive results from our efforts every day. A lot will depend on the market in the future and how we can capitalize on our converting capabilities. The mills will continue to improve and deliver in a manner similar to how the Boise assets performed over the past decade. I'm inclined to be conservative and maintain the numbers we've already provided, acknowledging that there is always potential for upside, but it is contingent on market conditions.
Michael Roxland, Analyst
Got it, Mark. Can you comment on the improvements in efficiency costs related to Massillon? You mentioned in your comments and the press release that you extended the maintenance outage to 5 weeks. Can you discuss some of the benefits you're getting from the additional work done at the mill?
Mark Kowlzan, Chairman and CEO
Yes, it's quite impressive that with our capabilities in PCA, we have over 200 people in our technology engineering team. Since the morning of September 2, we have been working simultaneously at both mills, with at least 100 PCA personnel in Massillon full-time for over six weeks to help enhance the mill's capabilities. I believe everything in that mill has been addressed. We spent the first week cleaning the mills, inspecting, and performing major equipment repairs, including bearing changes, lubrication system updates, hydraulic system adjustments, roll changes, and power equipment maintenance, including boilers and turbine generators. I'm confident that we have a comprehensive understanding of the opportunities available for future improvement. In Massillon, we recognize both the limitations and the potential. Some initiatives will depend on ordering and receiving new equipment, but I maintain that, as we discussed, for the conversion of some Boise acquisitions, we are investing $0.5 billion in facilities like DeRidder, Jackson, and Wallula. However, for the work at Massillon and Riverville, we expect the investment to be in the tens of millions, with $10 million allocated here and there for system upgrades and technological enhancements. The fundamental structures of the mills are solid; we just need to modernize them and operate them according to PCA's business practices. I'm optimistic about what we have accomplished in just a month and a half. At both mills, for instance, we noticed a 50% improvement in the quality of various profiles, including moisture and basis weight profiles, which significantly enhances the customer experience with our products through CorrChoice. Overall, I'm very encouraged by the progress.
Michael Roxland, Analyst
Got you. I appreciate the color there. And one last question before turning it over. Greif EBITDA for the 1 month you owned the assets came in a little lower than we expected given recent performance prior to your ownership. Was that all due to the outages, these will get Massillon and Riverville? Or was there any economic downtime that you took due to choppy backdrop or as you manage elevated inventories? And then any initial thoughts on 2026 CapEx?
Kent Pflederer, Chief Financial Officer
Mike, I'll take that one. It was largely from the outages and the timing effects of the revenue and profit recognition that hit us by about $12 million during the quarter. So it was those. In terms of economic downtime, no, we didn't factor that in, the Greif results for September. No.
Mark Kowlzan, Chairman and CEO
Regarding your question about capital expenditures for next year, we will provide an update in January. However, I believe we are on track to leverage our opportunities. I want to remind everyone that our major capital spending this year involves several significant projects on the converting side. One of these is a large project in Ohio, where we are constructing a new facility. Additionally, in upstate New York, we are completely upgrading one of our existing facilities as part of a significant capital expenditure project, both of which will extend into next year. We continuously look for opportunities to insert new converting lines and enhance our converting operations. In January, we'll offer a clearer view of our plans. We also have some promising energy opportunities that we will discuss in more detail during the January call.
Operator, Operator
Next question is from Gabe Hajde, Wells Fargo.
Gabe Hajde, Analyst
I wanted to ask about the number I see, and I think you've adjusted for input costs. I'm going to refer to it as the frictional inflation treadmill, which seems to be around $1 year-to-date. In this quarter, it was $0.33, so if I annualize that, we're looking at around $170 million. Is this especially high this year or more reflective of post-pandemic trends regarding labor inflation and insurance costs? Is this a reasonable rate to expect going forward for the combined entity or perhaps just legacy PCA?
Mark Kowlzan, Chairman and CEO
Let me mention that we are all facing rising energy costs, particularly in electricity rates. In the past year or two, we've observed that some of our facilities have seen electricity rates increase by 50% to 75%. This illustrates the challenges we are all encountering, and we are not exempt from this reality. That's why I indicated that we have three significant projects set to launch early next year, which will make three of our mills essentially independent from electricity within the next 2.5 years.
Kent Pflederer, Chief Financial Officer
And then, Gabe, on the others, it's the usual. It's the labor inflation. It's chemicals. It's any kind of supplies, insurance, rent, those sorts of things that have been going up at a fairly healthy clip in the last few years.
Gabe Hajde, Analyst
Okay. But is it particularly elevated this year? Or is that something that sort of…
Mark Kowlzan, Chairman and CEO
Well, again, it's just I think the biggest factor was electricity rate increases nationwide. If I take one element of cost, it would be electricity.
Gabe Hajde, Analyst
All right, Mark. But when you're planning for next year and you're looking at that number, maybe it's down a little bit because we don't expect more energy price increases and maybe we do because we've got to build data centers.
Mark Kowlzan, Chairman and CEO
On the contrary, I don't see electricity costs stabilizing given the ongoing demand from all the data centers. I believe electricity rate increases will not lessen anytime soon. That’s why we have plans in place for three more of our mills. A couple of our mills are currently in excellent condition regarding electricity independence. Within 2.5 years, we aim to have three additional mills off the grid, putting us in a strong position.
Gabe Hajde, Analyst
Mark, I feel like you've got me on the hook, so I have to ask. Are you referencing maybe some biogenic carbon capture opportunities? And I think we've read in some outside articles that, that could contribute up to $85 a ton that you produce.
Mark Kowlzan, Chairman and CEO
No, that's a separate issue. We're discussing gas turbine technology. We have advanced in this area and have some exciting projects lined up. There are facilities that have been using a significant amount of natural gas and power boilers, but these operations are not maximizing the benefits of downstream electricity generation. With combined cycle efficiency, there is untapped potential from each unit of gas consumed. The gas turbines will enable us to achieve full efficiency in both steam and electricity generation. We will present these projects to you early next year, and we will provide more detailed discussions during the call in January.
Gabe Hajde, Analyst
Yes, sir. Tom, one, we've read recently about, I'll call it, price elasticity on corrugate. I'm just curious in your conversations with customers, broadly speaking, how sensitive are customers in terms of potential price increases or trying to do more with less, whether it's lightweighting and how that's showing up maybe in your own volumes, not necessarily specific to price increases, but more thinking about lightweighting on that front?
Thomas Hassfurther, President
Gabe, we don't discuss any future pricing. However, I can share that we expect our mills and the mills we've acquired to operate very efficiently and to meet strict specifications. These specifications are tied to the advanced technology we've integrated into our boards, which allows for unique lightweighting capabilities. These solutions are presented to our customers. In the current inflationary environment, where costs continue to rise, we are taking every possible measure to support ourselves and our customers in managing these challenges. Nevertheless, it is important to acknowledge the ongoing inflation. I believe our innovative offerings give us a competitive edge in the market.
Operator, Operator
Next question is from Mark Adam Weintraub, Seaport Research Partners.
Mark Weintraub, Analyst
First, I just wanted to just follow up on Greif, the big increase in D&A from purchase accounting. Just want to reconfirm in terms of CapEx related to those assets, I think you in the past talked about $50 million to $60 million. And with that type of spend, you can get them up to Packaging Corp efficiencies, etc. Is that still a reasonable number, which obviously would be a lot lower than the $130 million D&A you had talked about?
Mark Kowlzan, Chairman and CEO
Yes, after observing the progress in Massillon and Riverville, we are planning to allocate similar capital to what we invested in International Falls over the past 14 years. We did not need to spend large sums on indiscernible areas; instead, we focused on enhancing capabilities across various smaller systems and upgrading some technology. We are making significant progress, and this expenditure will fall within the tens of millions of dollars, occurring over the next year or two. I remain confident that this estimate is still accurate.
Thomas Hassfurther, President
Mark, this is Tom. I would also add that, as we indicated before, the sheet feeders and corrugated box plants are very well capitalized, and we're very pleased with that. And although we've got some maintenance costs and some other things that will take place there, we're not going to invest huge amounts of capital in those facilities.
Mark Weintraub, Analyst
Right. Cash earnings from Greif are significantly stronger than the book earnings. I'm also curious if there are any tax shield benefits from accelerated depreciation, or is that not worth mentioning specifically?
Kent Pflederer, Chief Financial Officer
Well, I think you saw it in our cash tax payment for the third quarter that we called out in the script. The allocation that we had to PP&E, we were able to take bonus depreciation on and reduce our cash taxes out pretty significantly this year. So yes, I think you see that in our cash for the third quarter.
Mark Weintraub, Analyst
Okay. You might expect to see that next year as well. But shifting gears, it has been quite a challenging environment in the industry with box shipments, among other factors. In the past, you've managed to grow considerably faster than the industry through business wins and fill out the new box plants you are constructing. Have you had any recent business wins that you are aware of which would give us confidence that you can continue to outperform in terms of volume?
Thomas Hassfurther, President
Mark, this is Tom. We haven't made any changes to our typical processes. Absolutely nothing. As I mentioned, we've been affected in our numbers by a couple of significant segments where we have limited influence. However, we continue to grow substantially within our existing accounts. And yes, we keep achieving wins, but these are victories that we have to work for. They aren’t simply handed to us due to unique offerings. We are just maintaining our current strategies. Clearly, we're not seeing much improvement from the economy, and the ongoing fluctuations throughout the year regarding tariffs and various other factors are definitely affecting our business.
Mark Weintraub, Analyst
Great. And then lastly, we've had this extraordinary year in terms of magnitude of capacity closures in the North American containerboard business. And box demand hasn't been good. But are you actually feeling any more tightness because of the closures of containerboard capacity? Any color you could give would be appreciated there.
Thomas Hassfurther, President
I believe that the capacity in containerboard is adjusting consistently to match demand, and we operate according to that demand. This is what PCA focuses on. Additionally, on the corrugated side, we have closed some facilities and streamlined some underperforming assets, and we will continue to make those adjustments. We are committed to responding to the demand we observe in the market.
Mark Weintraub, Analyst
Okay, Tom, I know I'm taking a bit of time here, but you mentioned that you have two box plants that will be closing in the fourth quarter. Can you provide some insight into the decision to close them?
Thomas Hassfurther, President
They happen to be box plants that we can't sustain through capitalization alone, and they need to be located in markets where we have other larger and better-equipped facilities to serve those customers. We're not abandoning these customers; we are retaining them, but we need to adjust according to the demand we observe in a specific market.
Mark Kowlzan, Chairman and CEO
I think people tend to forget, Mark, if you think about the last 16 years, we probably made 25 acquisitions. And during that period of time, we probably shut 20-some-odd plants.
Thomas Hassfurther, President
20-some-odd plants, yes.
Mark Kowlzan, Chairman and CEO
During that period, we have built several new plants and effectively revamped our existing operations. However, as Tom mentioned, we focus on demand, and it's important to remember that we have closed a number of our older plants that no longer meet our requirements.
Operator, Operator
Next question is from Anthony Pettinari, Citi.
Anthony Pettinari, Analyst
With Greif, your mix into recycled will increase. And I'm wondering if it's possible to say how many tons of OCC PCA might buy kind of with the Greif assets. And as you look at your end markets and talk to your customers, as you think about the next three to five years, is there any reason to think recycled demand will grow faster or maybe slower than kraftliner? Or do you not necessarily think about it that way?
Mark Kowlzan, Chairman and CEO
I look at it as an opportunity. Quite frankly, I look at Massillon and Riverville as an opportunity to make more medium, which we need. And our plans run very well on the recycled medium, but combining that with our high-performance liner grades, we get the best of both worlds. And so it's not on a total percentage basis. It's really just taking advantage of the opportunity, and we'll play into that in the marketplace. But the recycled medium works very well with us.
Thomas Hassfurther, President
Yes, Mark, the key is that we do need the medium, and 100% recycled medium is a good run rate in our facilities and stuff. And so trade for some of that and those sorts of things. But as far as end markets go, we attack every end market with whatever the best solution is.
Kent Pflederer, Chief Financial Officer
Anthony, we were adaptable before and could adjust the system to some extent, but we typically operated around 20 percent recycled OCC. That is expected to increase by about 10 percent overall to around 30 percent moving forward, if that helps.
Anthony Pettinari, Analyst
Got it. Got it. That's very helpful. And then just a couple of quick questions on CapEx. I mean, understanding you'll give us more detail in February. But the box plant projects that you referenced, does the CapEx spend for that from '25 to '26, is it sort of directionally similar? Or does it sort of ramp down modestly or maybe ramp down more sharply? And then I guess second question, Mark, you've got us really interested in these energy projects. Are there currently PCA mills that are selling meaningful amounts of electricity back to the outside utility company? And could that be potentially an opportunity or part of the projects that you'll tell us more about next year?
Mark Kowlzan, Chairman and CEO
As we wrap up the two major projects in Ohio and New York State next year, we expect our capital expenditures to remain relatively stable in that range. We plan to leverage this situation. The positive aspect is that Greif has provided us with opportunities in the CorrChoice converting segment, which will help reduce our capital outlay in certain areas, allowing us to avoid significant investment in new plants for the next few years. We will still undertake some converting installations related to EO, rotary die cutters, and some corrugating opportunities, but major plant projects will be limited. Looking ahead, the key projects in the coming years will revolve around energy initiatives, which we anticipate will take about 2.5 years to develop. We will provide further details in January and early next year. These projects have a payback period of approximately 1.5 years and promise high returns. Regarding capital expenditures, we will maintain a comfortable level given our cash generation. I believe people will be curious about how we are managing our cash reserves, which will be a favorable concern to address. Overall, I have no concerns regarding our capital expenditures, as our historical spending has yielded solid returns. Therefore, I recommend that you continue to model based on our existing trends, and we will keep you updated next year. Regarding your question about electricity, we are not transmitting power into the grid at any of our facilities. We do have one facility that is nearly 100% independent, but we are not sending power back to the grid.
Operator, Operator
Next question is from Philip Ng, Jefferies.
Philip Ng, Analyst
Appreciate all the great color. So Mark, you talked about potentially some of these energy projects in the next few years. And then obviously, you're going to do some great work at these Greif mills kind of get it up to PKG levels. And then you called out some of the inventory where it's a bit more elevated at Greif. So curious, when we think about '26, does that translate to more downtime than we should kind of be appreciative, which could potentially mute some of the EBITDA contribution from Greif. I think Kent gave a number in that $240 million range plus synergies. So I just want to be mindful just because it was extra noise in the back half of this year. Is there a friction that we need to be thoughtful of that could be impactful next year?
Mark Kowlzan, Chairman and CEO
The recent work we completed at Massillon over approximately six weeks provided us with an extensive evaluation of the mill. We thoroughly inspected everything, from the ceilings to the U-drain sewers, ensuring that everything was clean and well-maintained, including the new lighting. This effort allowed us to identify the components, motors, pumps, rolls, and systems on the paper machines that need to be upgraded to meet PCA standards. We have our plan set, and the changes will be implemented during monthly outages rather than the longer, three-week outages. These will occur during 24-hour outages and the annual outage lasting five or six days. Therefore, we expect to be in a good position next year. Riverville is facing a similar scenario. It’s essential to continue maintaining the mills, and we will invest as needed. I’m optimistic about the next few years ahead. We previously experienced a lengthy outage at Jackson, but we don’t anticipate anything of that nature occurring again. We will be in a strong position.
Philip Ng, Analyst
So it sounds like you would largely be able to do the work that you want to do, whether it's energy projects and then, I guess, even taking down the inventory at Greif within the scope of your normal managed outage. It shouldn't be an outside year next year.
Mark Kowlzan, Chairman and CEO
Yes. No, I mean the inventory management, that will happen over the next couple of quarters as we work our way down. And like I say, that's just future upside for the business.
Philip Ng, Analyst
Okay. Helpful. And then a question for Tom. You called out building math and beef being more problematic. Tom, can you size up how much of that of your box business is tied to those end markets? Are trends in those end markets getting worse, it's kind of bouncing along the bottom in the other categories, are you seeing order patterns pick up a bit? And how do you kind of envision your customers managing inventory to kind of close out the year?
Thomas Hassfurther, President
I appreciate your question, Philip. While I can't provide specific figures for the segments, I can tell you they are significant to us, particularly because we're facing declines in beef and building products. The challenges in the beef segment are more focused on long-term factors, and we're currently only a year into a rebuilding process that typically takes 2 to 3 years, especially with herds at 70-year lows. As for building products, these are heavily influenced by interest rates, material costs, and approval timelines across the country. The remodeling sector, however, seems to be shifting positively, which is encouraging. Other areas of our business have remained steady and are seeing gradual growth. Our customers appear optimistic about the future, indicating that overall, our portfolio is in a strong position.
Philip Ng, Analyst
I mean I'm hearing from many of your customers that they have desires to kind of work down inventory to close out the year...
Thomas Hassfurther, President
Yes, I overlooked that part of your question. Our customers are currently operating with very low inventory levels, and I believe they would agree on that. Their inventory has been reduced as much as possible due to various events throughout the year, including challenges with tariffs and other factors. As a result, our customers have been quite cautious.
Operator, Operator
This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Mark Kowlzan for any closing remarks.
Mark Kowlzan, Chairman and CEO
I'd like to thank everybody for joining us today and appreciate it and look forward to talking with you all at the end of January. We're very, very pleased with where we are today with the acquisition and looking forward to having a good conversation with you in January. With that, have a good day and have a great holiday period. Take care.
Operator, Operator
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.