PACKAGING CORP OF AMERICA

Trade publications reported North American industry-wide corrugated products shipments were down (5.0%) during 2023, compared to 2022. Reported industry containerboard production decreased (3.1%) compared to 2022, and reported industry containerboard inventories at the end of 2023 were approximately 2.6 million tons, down (3.1%) compared to 2022. Reported containerboard export shipments increased 2.6% compared to 2022. For linerboard, index prices decreased $10 per ton in January 2023, followed by additional decreases of $20 per ton in February 2023, $20 per ton in May 2023, and $20 per ton in November 2023, a total decrease of $70 per ton during 2023. For corrugating medium, index prices decreased $30 per ton in January 2023, followed by additional decreases of $20 per ton in February 2023, $40 per ton in May 2023, and $20 per ton in November 2023, a total decrease of $110 per ton during 2023.

The market for communication papers competes heavily with electronic data transmission and document storage alternatives. Increasing shifts to these alternatives have reduced usage of traditional print media and communication papers. Trade publications reported North American uncoated freesheet paper shipments decreased (9.7%) in 2023, compared to 2022. Although average prices reported by a trade publication for cut size office papers were higher by $57 per ton, or 4%, in 2023 compared to 2022, index prices declined throughout the year. For cut size office papers, index prices decreased $20 per ton in April 2023, followed by additional decreases of $10 per ton in June 2023 and $20 per ton in October 2023, a total decrease of $50 per ton during 2023. For offset printing papers, index prices decreased $30 per ton in April 2023, followed by additional decreases of $10 per ton in June 2023, $20 per ton in August 2023, $10 per ton in September 2023, and $15 per ton in November 2023, a total decrease of $85 per ton during 2023.

Outlook

For the first quarter of 2024, compared to the fourth quarter of 2023, in our Packaging segment, we expect higher total corrugated products shipments from continued strong demand along with two additional shipping days in the first quarter. Containerboard volume is expected to be lower due to a prolonged outage at the Jackson mill for the conversion of the No. 3 machine and a scheduled maintenance outage at our Counce, TN mill. We have restarted the No. 2 machine at the Wallula mill, which will partially offset the effect of these outages. Prices and mix should be slightly higher as we implement our January price increases, which will be partially offset by a decrease in the published prices that occurred late in 2023. We expect export containerboard prices to be flat. In our Paper segment, we expect an improved mix to move prices slightly higher with flat sales volume. Recycled fiber and energy prices will be higher, and seasonally colder weather will negatively impact usages and yields for energy, wood and chemicals along with higher operating costs associated with the restart of full operations at the Wallula mill compared to fourth quarter operations. Labor and benefits costs will have seasonal timing-related increases that occur at the beginning of a new year related to annual wage and benefit increases, the restart of payroll taxes, and share-based compensation expenses. Scheduled outage expenses will be higher and will include the significant first quarter impact of the conversion outage at our Jackson mill. Considering these items, we expect first quarter earnings to be lower than the fourth quarter of 2023.