Packaging Co. of America Q4 2024 Earnings Call Transcript

AlphaStreet
Provided by AlphaStreet
January 29, 2025
Skip to Questions & Answers
Operator

Good morning, everyone. Thank you for joining Packaging Corporation of America's 4th-Quarter and Full-Year 2024 Earnings Results Conference Call. Your host for today will be Mark, 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 Colesan. Please proceed when you are ready.

Mark W. Kowlzan
Chairman and Chief Executive Officer at Packaging Co. of America

Thanks for the introduction, Jamie, and good morning, everyone, and thank you for participating in Packaging Corporation of America's 4th-quarter and full-year 2024 earnings release conference call. Again, I'm Mark, Chairman and CEO of TCA. And with me on the call today is Tom Haster, Executive Vice-President, who runs the Packaging business; and Bob Mundae, our Chief Financial Officer. As usual, I'll begin the call with an overview of the 4th-quarter and the full-year results, and then I'll be turning the call over to Tom and Bob, who will provide further details. And then I'll wrap things up and we'd be glad to take questions. Yesterday, we reported 4th-quarter 2024 net income of $221 million or $2.45 per share. Excluding special items, 4th-quarter 2024 net income was $22 million or $2.47 per share compared to the 4th-quarter of 2023 net income of $192 million or $2.13 per share. Net sales were a 4th-quarter record $2.1 billion in 2024 and $1.9 billion in 2023. Total company EBITDA for the 4th-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 the special items for the years 2024 and 2023 were included in the schedules that accompanied the earnings press release. Excluding special items, the $0.34 per share increase in 4th-quarter earnings for 2024 compared to the 4th-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 Pet Paper segment. Lower freight and logistics expenses benefited $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 4th-quarter guidance. Looking at our Packaging business, EBITDA, excluding special items in the 4th-quarter 2024 of $426 million with 4th-quarter record sales of almost $2 billion, resulted 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 $1.6 billion with sales of $7.7 billion or a 21% margin compared to the full-year 2023 EBITDA of $1.6 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 4th-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 system 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.

Thomas A. Hassfurther
Executive Vice President, Corrugated Products at Packaging Co. of America

Thank you, Mark. As Mark mentioned, continuing strong demand during the 4th-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 4th-quarter versus the previous record-breaking 3rd-quarter of 2024, shipments per day were up 3.2%. Outside sales volume of containerboard was 9,000 tons above last year's 4th-quarter and down 18,000 tons versus the 3rd-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 4th-quarter of 2023. 4th-quarter prices and mix, which were impacted by a less rich customer and product mix compared to the 3rd-quarter were up $0.05 per share versus the previous quarter. Export containerboard prices were up $0.06 per share compared to the 4th-quarter of 2023 and flat versus the 3rd-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 Rissy Pulp 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 risky 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 risky 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.

Mark W. Kowlzan
Chairman and Chief Executive Officer at Packaging Co. of America

Thanks, Tom. Looking at the Paper segment, EBITDA, excluding special items in the 4th-quarter was $39 million with sales of $152 million or a 26% margin compared to the 4th-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 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 4th-quarter and up 1% from the 3rd-quarter of 2024, while volume was 5% above last year and down 5% versus the seasonally stronger 3rd-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 year last year. I'll now turn it over to Bob.

Robert P. Mundy
Executive Vice President and Chief Financial Officer at Packaging Co. of America

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 payments of $82 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 per share. 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 3rd-quarter and $0.45 per share in the 4th-quarter. I'll now turn it back over to Mark.

Mark W. Kowlzan
Chairman and Chief Executive Officer at Packaging Co. of America

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 shipments 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 efficiency improvement projects in our corrugated products plants that will allow us to better optimize our entire packaging business for the future and deliver profitable growth and mix enhancement opportunities for our customers and shareholders. 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 very 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 and 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 less operating days and scheduled maintenance outages at the Counts, Tennessee mill and Baldasta, Georgia mills. Domestic prices will be higher with an improved product mix together with our previously-announced price increases. Export prices -- excuse me, export prices are assumed to be stable. In our Paper segment, we forecast slightly lower-volume with two less 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 lower corporate tax-rate. Considering these items, we expect the first-quarter earnings for $2.21 per share. With that, we'd be happy to entertain any questions, but I must remind you that some of the statements we've made on the call constituted forward-looking statements. The statements were based on current estimates, expectations and projections of the company and involve inherent risks and uncertainties, including the direction of the economy and those identified as risk factors in the annual Report on Form 10-K and in subsequent quarterly reports on Form 10-Q filed with the SEC. Actual results could differ materially from those expressed in the forward-looking statements. And with that, Jamie, I'd like to go-ahead and open up the call for questions, please.

Skip to Participants
Operator

And ladies and gentlemen, at this time, we'll begin that question-and-answer session. To ask a question, you may press star and then one using a touchstone telephone to withdraw your questions. You may press star and two. If you are using a speakerphone, we do ask that you please pick-up the handset prior to pressing the keys to ensure the best sound quality. Once again, that is Star and then one to join the question queue. Our first question today comes from George Staphos from Bank of America Securities. Please go-ahead with your question.

George Staphos
Analyst at Bank of America Securities

Hi, thanks very much. Good morning, everybody. Thanks for the details. Mark, I guess 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 PC 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.

Thomas A. Hassfurther
Executive Vice President, Corrugated Products at Packaging Co. of America

Hey, George, it's 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 -- 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, yeah, 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 shipping a lot of business around. But you know, again, our people have just done a tremendous job handling that and taking care of our customers.

Mark W. Kowlzan
Chairman and Chief Executive Officer at Packaging Co. of America

Yeah, George,

Thomas A. Hassfurther
Executive Vice President, Corrugated Products at Packaging Co. of America

Bob.

George Staphos
Analyst at Bank of America Securities

Go-ahead,

Mark W. Kowlzan
Chairman and Chief Executive Officer at Packaging Co. of America

George. George, for last year for 2024, we -- on the converting side, we accomplished 12 major new equipment installations on the converting side. These are major -- major reconfigurations of converting lines. And then on the -- within corrugators, we either had major rebuilds or new corrugator installations at 12 locations and we finished building out the new Salt Lake City plant and then we got ready to build-up a new Glendale operation. But we continue at this pace. I mean, prior year and then last year, we're on that pace of around 60 major projects within the corrugated business and we'll continue that this year. So along with all the benefit, there is some short-term disruption that occurs, but the capability that it gives us is just incredible. We would not be doing what we're doing today if we hadn't been keeping up this pace of spending over the last half-dozen years. So it's the gift that keeps on giving.

George Staphos
Analyst at Bank of America Securities

So in some ways, we shouldn't Call-IT out because it's what enabling the growth is what you -- is kind of your answer there, right?

Mark W. Kowlzan
Chairman and Chief Executive Officer at Packaging Co. of America

Exactly. Yeah. It's truly the growth engine. Yeah.

George Staphos
Analyst at Bank of America Securities

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 teated 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 you know, 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 ask -- when you announce and when you make it effective? So two questions there.

Mark W. Kowlzan
Chairman and Chief Executive Officer at Packaging Co. of America

Let's start with let's start with Bob.

Robert P. Mundy
Executive Vice President and Chief Financial Officer at Packaging Co. of America

Hey, George. Yeah, just on some of the cost movements from 4Q to 1Q, you know, if you look at the buckets of what's -- what's higher, there's a higher mill higher-cost of relative to the mill mix, there's just on that's a component. Then there's the weather seasonal items that we typically have, but this is sort of exacerbated by the severe cold that the country went through during the month of January. And then there are those timing items that we typically talk about relative to wage increases and taxes fringe benefits and so forth. So if you say that our cost round numbers somewhere between $0.50 and $0.60 higher on all operating and converting costs. 65% of those are these items that typically will flip back the other way, not totally, but I would say 70% of that some amount is -- we'll flip back-in the second and third quarters. So that's sort of how we -- we rebridge the fourth to the first and then what we expect -- how much of that we expect to turn-around in subsequent quarters.

George Staphos
Analyst at Bank of America Securities

Okay.

Thomas A. Hassfurther
Executive Vice President, Corrugated Products at Packaging Co. of America

Okay, George, it's Tom. Let me let me let me see if I can fill you in a little bit on the pricing side. So for starters, let's make the distinction here. We're talking about linerboard and medium. So we're talking about containerboard, all right. And in the containerboard segment, we raised the prices. We're billing at those prices. Our customers are paying -- they will be paying those invoices at those higher prices. And we will be doing likewise on the outside purchases that we have as well. So some of that is -- comes from overseas because it's a specialty grade that may or may not be made here in the United States or certainly the products that are made here in the United States that we are a net buyer of and we were paying -- we're paying those invoices as we go. So that is in-place and that is set, all right. The frustration, as I mentioned in the verbage that I gave you in the opening statements is related to our discussions around boxes and things like that. Now we've always said our box price increases are between us and our customers. Those aren't publicly announced, but we do have some and it's a -- it's a relatively sizable amount that are still tied to, you know what happens in and what's reported in. And as I said, we're moving away from that as fast as we possibly can because I think in a lot of ways, and I've been at this a long-time. And if you go back-in time, there was a pretty large open-market and today it's a very, very small open-market. So I think there's become some confusion in terms of how the reporting goes and what the interpretations are. And so we're finding this -- this vehicle a little less useful going-forward. And therefore, we're moving away from it as fast as we can. Hopefully that -- hopefully that kind of wraps up your question a little bit.

George Staphos
Analyst at Bank of America Securities

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

Mark W. Kowlzan
Chairman and Chief Executive Officer at Packaging Co. of America

Thanks, George. Next question, please.

Operator

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

Mike Roxland
Analyst at Truist Financial

Yeah. Thank you, Mark, Tom and Bob for taking my questions and congrats on a strong year.

Mark W. Kowlzan
Chairman and Chief Executive Officer at Packaging Co. of America

Thanks, Mike.

Mike Roxland
Analyst at Truist Financial

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 timeframe over which you expect to add capacity at Counts and? You mentioned that. I think you teased that on the last earnings call. When do you think those projects will be operational and what incremental capacity do they add?

Mark W. Kowlzan
Chairman and Chief Executive Officer at Packaging Co. of America

You know, we've got the opportunity to add capacity as time goes on. We -- 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 Counts and Daldasta, those projects, if we go-forward with those would be 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 the -- our demand growth presents the 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.

Mike Roxland
Analyst at Truist Financial

Got it. I appreciate that, Mark. So how much -- can you just comment that about where the system is running now in terms of operating rate and how much -- how much ability or how much flex you have in the system right now to meet what seems to be really growing demand?

Mark W. Kowlzan
Chairman and Chief Executive Officer at Packaging Co. of America

Yeah. We are running. I'm not going to say we're running full-out. We're just -- we're running hard, which is a good place to be. We run best when the -- when the pressure is on. But again, we've got room to optimize the system and the grade mix. And also, as we've always done, we did this back over the years. The ability to buy some open-market guns within a region where it's -- it makes sense. So we have those opportunities. So again, the ability to really utilize our capacity right now and whether you Call-IT running full-out, we always find ways to squeeze more tons out-of-the system and we'll continue doing these projects. These are the high-class opportunities we engage with?

Mike Roxland
Analyst at Truist Financial

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 the midyear in the back-half, probably due to tougher comps.

Thomas A. Hassfurther
Executive Vice President, Corrugated Products at Packaging Co. of America

Well, I'll tell you, Mike, the comps are going to get much tougher as the year goes on. If you look at -- if you look at last year's so -- but we -- but we see -- we see continued volume growth throughout the year, a steady growth, but it will be -- but obviously, the numbers come down a little bit on percentages compared when you do a year-over-year comparison as we move throughout the year. But -- but -- but we have plenty -- we have plenty of growth opportunities and lots of things that we're already putting in-place and we'll continue to put in-place as some of our capital projects come on-board, and we're able to produce more.

Mike Roxland
Analyst at Truist Financial

Thanks very much, Tom. Good luck in '25.

Thomas A. Hassfurther
Executive Vice President, Corrugated Products at Packaging Co. of America

Thank you.

Mark W. Kowlzan
Chairman and Chief Executive Officer at Packaging Co. of America

Thanks, Mike. Next question.

Operator

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

Gabe Hajde
Analyst at Wells Fargo & Company

Mark, Bob, good morning.

Mark W. Kowlzan
Chairman and Chief Executive Officer at Packaging Co. of America

All right. Good morning, Gabe.

Gabe Hajde
Analyst at Wells Fargo & Company

Start with the sequential numbers that you kind of give us on a quarterly basis in terms of the split corrugated price realization and export. And if I'm doing my math right, I'm seeing about $50 a ton of price realization in the 4th-quarter -- or excuse me in 2024, which would imply sort of $30 million of unfavorable mix. And that in my mind seems a bit punitive and probably uncharacteristic of how PCA would operate. So I'm just curious if you guys have thought about it that way and if you're still realizing any price in Q1 '25 from movements that transpired in 2024 on a sequential basis from Q4 to-Q1.

Robert P. Mundy
Executive Vice President and Chief Financial Officer at Packaging Co. of America

Yeah. Yeah, Gabe, it's Bob. Yeah, there is some of that does some things that just move on an annual basis. So there is some movement relative to that as you said regarding these price increases of 2024. But the other thing you have to look at is, if you sort of do the math and make sure you account for the inventory change and what's export volume and what's domestic volume, you. I think it's somewhere around the mid $50-something dollar a ton change. And then you have to compare rather than comparing to $80, which were the two increases at the beginning of 2024, you have to remember, there was a $20 per ton drop late in the year in '23. So you sort of look at it that way and they say that's a net $60 a ton. And like I said, I think we're in mid 50s, something like that and similar to your math. And then you do have mix changes, you have customer mix, product mix and seasonal mix, things like that weigh into it. So we feel-good about capturing the price-based on those index changes that you referenced.

Gabe Hajde
Analyst at Wells Fargo & Company

Okay. Thank you. And I guess for the avoidance of doubt in the first-quarter, are you telling us that included in the guidance that you gave us to '21 includes price increases on open-market tons and not on the converted box side or are you embedding in what was been announced on both the corrugated and

Robert P. Mundy
Executive Vice President and Chief Financial Officer at Packaging Co. of America

No, there's definitely some open-market, as we've always said, those things happen -- it happens 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, as Tom was talking earlier, not picking it up in January. So you have to adjust for that a little bit, but there is some of that in our number as well.

Gabe Hajde
Analyst at Wells Fargo & Company

Understood. Okay. And last one on capex. You did signal on the Q3 call that it would be up into '25, 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 the numbers that we see are $240 million to $260 million for a new Box plant to paying assets 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 '25 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?

Mark W. Kowlzan
Chairman and Chief Executive Officer at Packaging Co. of America

No, there certainly is. There's work going on in the mills. Again, there is no one big project. There's just a whole host of small projects that we always do every year to enhance what we have. One of the challenges that we've laid out to the team over the last year is that over the last six or seven years of all these conversions that we've done at a very blistering pace. Now is the time to step-back in and really optimize what we have. And so we were doing these conversions and moving on to the next mill at such a pace. We've never really taken the time to really drill down and make sure we're getting all the benefits from all the spending that was taking place. So now we've got the technology organization stepping back-in and engaging with the mills and making sure that what we are doing is extracting all the value we can. So that gives us a good return. But as far as the capital spending, this year, if you think about the Glendale project down in Arizona, we're finishing out that box plant. And there is some number, the 10 years ago, you could build a box plant for $50 million and now a big full-line box plant, you're talking $200 plus million. We've also -- just this week, we broke ground in Newark, Ohio for another big new box plant. Now that's been in the works for the last few years. We actually bought the land three years ago. And so that box plant will be under-construction and hopefully have everything ready to run by the end of next year. We also with this 800 -- high 800 capital call-out that we're talking about right now, there is a major rebuild taking place at another plant in the Northeast. It's not a new box plant, but essentially, it will be like-new and we're done with it inside. And then there's another reconfiguration in the East Coast that's a major enhancement, major rebuild of that plant. So there's four big activities going on within the corrugated product side of the business along with I'll call-out right now and I'm probably right, there's probably another 50 projects going on for the year. That will be the smaller projects, the evolves, single converting line replacements that will just continue forever. And so that's all baked into that capital call-out. But there's a good portion of new business growth in that capital along with optimization and just enhancing the business and not just maintenance. Maintenance is a small portion of that capital.

Robert P. Mundy
Executive Vice President and Chief Financial Officer at Packaging Co. of America

Yeah. And Gabe, relative to your question on the maintenance expense, thinking it was down. You know, if you're recalling something from the last quarter's call, there was a question about what's normal relative to what we had as outages in 2024. But it was not an indication of what our plan was for 2025 regarding outages. And the reality is, there's a couple of things. One is we have more larger mills with more days down in this year's plan versus last year, larger mills, more expensive, more days down and so on and so forth. The other thing is, you know, in the second-half of '22, all of '23 and then for the first part of 2024, certainly in the first-quarter of '24. We were still taking running to demand. So we had market downtime and the way we sort of bucket our variances, if you're in-market downtime and you have a maintenance outage, you would not include the profit per ton of those in your -- you wouldn't penalize your outage for that because you're in-market downtime, you couldn't sell the ton anyway. So those -- the negative impact of that shows up in your -- in our volume variances that we talk about. Whereas this year, we have none of that. So that profit per ton is in our outage calculations for every ton that's down. That's another reason it's going to be higher on relative to 2024, if you follow-me.

Gabe Hajde
Analyst at Wells Fargo & Company

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

Mark W. Kowlzan
Chairman and Chief Executive Officer at Packaging Co. of America

Good deal. Next question.

Operator

Our next question comes from Mike from Seaport Research Partners. Please go-ahead with your question.

Mark Weintraub
Analyst at Seaport Research Partners

Hi,

Mark W. Kowlzan
Chairman and Chief Executive Officer at Packaging Co. of America

Morning, Mark.

Mark Weintraub
Analyst at Seaport Research Partners

Good morning. So to the extent you can help us just trying to understand how much of the higher box prices that would come as a part of the containerboard price increase initiative that's been announced for January would is incorporated in your 1Q guidance. Just really trying to understand how much additional upside there could be through the balance of the year if the price increase gets fully implemented.

Thomas A. Hassfurther
Executive Vice President, Corrugated Products at Packaging Co. of America

Yeah, Mark, this is Tom. You know, what happens is it's a timing issue, especially relative to the contracts that we have left that relate to. So we got to take a relatively conservative approach in the first-quarter to what -- to how those contracts would roll-through. However, we are implementing right now the non-contractual business we are we're going ahead and putting in-place. But again, those amounts and those sorts of things is between us and our customers when it comes to boxes. So we -- we take a -- we don't -- we don't publicly come out and announce some of those things that those agreements that we've got with our customers. But I think what you're really referring to is the index and what's left tied to the index. Like I said, that rolls through at a different rate. And until that index indicates that the prices of liner and medium going up, it won't trigger some of those -- some of those contracts.

Mark Weintraub
Analyst at Seaport Research Partners

So is it fair to say -- and again, I'm really trying to get potential upside beyond the 1Q, but another way to maybe ask the same question is, though if for whatever reason, didn't publish the containerboard price increase in February or March, how significant an impact would that have on what you provided in the guidance versus what you then would expect, if that's that question you can ask?

Thomas A. Hassfurther
Executive Vice President, Corrugated Products at Packaging Co. of America

Well, well, again, 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 -- once this once this is indicated in.

Mark Weintraub
Analyst at Seaport Research Partners

Okay. And then can you give us any more color in terms of like the process of moving customers off the indexes and/or are -- or what type of what variables are being put in-place or is it just like 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, et-cetera?

Thomas A. Hassfurther
Executive Vice President, Corrugated Products at Packaging Co. of America

Well, it's going to be -- it's probably going to be a little more of a mixed bag. The -- as I mentioned, our customers have been very, very frustrated with this process and so have we. So -- and I think at the end-of-the day, it's more of a -- more of a discussion with our customers about what's going to happen going-forward with pricing and an agreement that we come to. You know there's -- we've not found any other indicator out there that we feel comfortable with. So I think it's going to be -- it's -- it's going to take a little time to unwind, but -- but we feel very comfortable in our discussions with our customers about where we're going to-end up going-forward. And it's going to be a little different per customer, but -- but I think that the discussions have gone very well.

Mark W. Kowlzan
Chairman and Chief Executive Officer at Packaging Co. of America

You know, Mark, our customers, they are undergoing the same inflation that we undergo and the same cost pressures. They appreciate what we're talking about every day. They also appreciate and they understand the capital spending that we do and we expect to return for our capital spending. That capital spending provides incredible benefits for the customers in terms of quality and on-time delivery. So there's a -- that discussion is truly a customer-driven discussion one-on-one.

Mark Weintraub
Analyst at Seaport Research Partners

Thank you for the color.

Mark W. Kowlzan
Chairman and Chief Executive Officer at Packaging Co. of America

Next question, please.

Operator

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

Anthony Pettinari
Analyst at Smith Barney Citigroup

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 RESI? Is it -- 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?

Thomas A. Hassfurther
Executive Vice President, Corrugated Products at Packaging Co. of America

Well, Anthony, this endeavor didn't -- didn't start five years ago, it started about a year-ago. So you know this is -- as I said, this is going to take some time to unwind. Those contracts, some of those are long-term contracts. And obviously, as we've stated many, many times, I mean, we've dealt with these customers for decades and we've got long, long-term relationships. So we're very sensitive to those relationships and we're making sure that we're doing what is in the best interest of ourselves and our customers as we move forward. So this is going to take a little time to unwind. I'm not going to give you percentages of how this is going to sequentially fall into place here, but you know it's going to take some time, but we're moving in that direction.

Anthony Pettinari
Analyst at Smith Barney Citigroup

And then just switching to the capex guide, I think you talked about four big-box plant projects, Ohio, Glendale and then two maybe reconfigurations in the East Coast. Is it possible to say what -- of the $840 to 870, how much of that is those four big-box plant projects? And are there any that you would call-out, whether it's Ohio or Glendale or others as being a especially large component of the 840?

Mark W. Kowlzan
Chairman and Chief Executive Officer at Packaging Co. of America

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

Anthony Pettinari
Analyst at Smith Barney Citigroup

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

Mark W. Kowlzan
Chairman and Chief Executive Officer at Packaging Co. of America

Yes,

Anthony Pettinari
Analyst at Smith Barney Citigroup

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

Mark W. Kowlzan
Chairman and Chief Executive Officer at Packaging Co. of America

I mean, there's -- we -- again, there's another -- one of the projects is it's about a $70 million project to reconfigure one of our plants and that's a discrete project that we'll see this year also that's in that number.

Anthony Pettinari
Analyst at Smith Barney Citigroup

Got it. Got it. Thank you.

Mark W. Kowlzan
Chairman and Chief Executive Officer at Packaging Co. of America

And again, just to remind you of 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.

Thomas A. Hassfurther
Executive Vice President, Corrugated Products at Packaging Co. of America

And let me remind you, Anthony, also that you know, as we've said many, many times, these -- these are already growth opportunities that are in-place. These aren't -- we're not expanding or doing any of those sorts of things in hopes that we get more business. This is growing with the existing customer-base we have.

Anthony Pettinari
Analyst at Smith Barney Citigroup

Thank you.

Mark W. Kowlzan
Chairman and Chief Executive Officer at Packaging Co. of America

All right. Next question.

Operator

Your next question comes from Philip from Jefferies. Please go-ahead with your question.

Philip Ng
Analyst at Jefferies Financial Group

Hey, guys.

Mark W. Kowlzan
Chairman and Chief Executive Officer at Packaging Co. of America

Good morning.

Philip Ng
Analyst at Jefferies Financial Group

Exciting times with growth project. Mark, I guess perhaps help us think through how the contribution kicks-in. I know the Phoenix, Arizona box plan at least was scheduled to come on, I think late 1Q, 2Q. 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 around?

Mark W. Kowlzan
Chairman and Chief Executive Officer at Packaging Co. of America

Yeah. Well, yeah, the Arizona project should start-up this spring as scheduled. And that new project will take the place of three -- we've been running a business down in Phoenix for years. But to run that business, we've been operating out of three different locations within the kind of the neighborhood, so to speak. It's not the most effective way to run a business. And so this new plant will allow us to consolidate all the operations to one state-of-the-art high-efficiency operation. In terms of unit labor efficiencies, it will add tremendous efficiencies and probably will probably triple or quadruple the production capability of the of the region down there now coming out of this one plant. And again, the quality, cost structure, we'll see immediately this year. I don't -- I'm not going to even attempt to give you a number, but it's -- it will be immediately accretive to the system when we bring the plant on and we exit the old operation. And the employees are moving over from the existing operation right into the new operation.

Philip Ng
Analyst at Jefferies Financial Group

The ramp-up of some of these other projects you've called out, New Jersey, the reconfiguration.

Mark W. Kowlzan
Chairman and Chief Executive Officer at Packaging Co. of America

There's a New York and a Pennsylvania project going on and they'll again, those will be more disruptive type of projects that Tom spoke of and that I spoke of. Those are the type of projects that you suffer a little bit of pain while you're doing them, but then once they're done, they provide incredible opportunities for the next 10 years for us.

Philip Ng
Analyst at Jefferies Financial Group

But any color on the timing of that, Ram? Mark, is that at '25?

Mark W. Kowlzan
Chairman and Chief Executive Officer at Packaging Co. of America

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

Thomas A. Hassfurther
Executive Vice President, Corrugated Products at Packaging Co. of America

Yes. Philip, I'll add just a couple of things to this. You know, don't forget that any one of these projects, we're building in, as Mark mentioned, a lot of efficiency in these projects, including the closures of inefficient box plants and things like that where we can consolidate some operations into one. But in addition, that it gives us a lot more capacity to satisfy those customers that I talked about earlier who want to do business with us, want us to supply them, have agreements for us to supply them, including different markets that we haven't been in, in, especially when you consider Phoenix because we had a smaller three building operation that couldn't didn't have a lot of reach. This will -- this will give us provide us a lot more opportunities. And the one in Ohio is the same. I mean, which where we've got a very large footprint. And this will be able to consolidate that footprint a little bit in terms of numbers of plants, but also more importantly, create a lot more efficiency and a lot more reach for us in terms of our customer-base.

Philip Ng
Analyst at Jefferies Financial Group

Super. And then from a demand standpoint, Tom, you guys comment around box events in '24 and that momentum sounds like it continued into January so-far. Can you just help us think through some of this? I mean some of it's 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 makings. Do you see that as a big driver and a catalyst in terms of momentum you've seen thus far this year? Like how should we think about share gain opportunities this year for you guys?

Thomas A. Hassfurther
Executive Vice President, Corrugated Products at Packaging Co. of America

Well, I think as I mentioned many times, I said, we've got our core customer-base. If you're a -- if you -- if you position yourself as the best supplier and the most reliable supplier to that customer-base, you know there it presents -- it presents many internal opportunities for you to continue to grow your grow your volume. And you know, I think traditionally a lot of corrugated customers have split their business and done other things because they just couldn't -- couldn't get comfortable with sole suppliership and things like that. But that's changing dramatically over-time. And we're proving in a lot of cases that we're just -- we're a great supplier, incredibly reliable, got the best -- we consider the best quality and the best service of anybody in the business. Business and we're great partners for our customers. And we position our business around those customers and about and about their game plans. So you know that's a -- I think that gives us a competitive advantage. And you know when -- unfortunately, we've got the financial flexibility to be able to expand at a rapid rate to be able to do some things quicker than maybe some others can do it. And I see nothing but a solid runway for those opportunities going-forward?

Philip Ng
Analyst at Jefferies Financial Group

Got it. Then one quick one. Mix was a modest drag last year-on the Brown side. Do you anticipate mix being much of a good a good guy or bad guy when you think about '25?

Mark W. Kowlzan
Chairman and Chief Executive Officer at Packaging Co. of America

Yeah. Well, the 4th-quarter, we had that mix impact. There was a lot more e-commerce activity, quite frankly in the 4th-quarter. We're -- 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, 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 4th-quarter again, I expect.

Thomas A. Hassfurther
Executive Vice President, Corrugated Products at Packaging Co. of America

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

Philip Ng
Analyst at Jefferies Financial Group

Okay. Appreciate the color. Good.

Mark W. Kowlzan
Chairman and Chief Executive Officer at Packaging Co. of America

Next question, please.

Operator

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

Charlie Muir-Sands
Analyst at BNP Paribas

Yes, good morning, guys. Thank you very much for taking my questions. Just returning to the capital expenditure. I wondered if you could give us an estimate at all as to how much you would consider to be genuine maintenance capex within the overall budget for this year?.

Robert P. Mundy
Executive Vice President and Chief Financial Officer at Packaging Co. of America

Yeah, Charlie, this is Bob. Typically that's about -- it runs 60% 65% of our total spend. Think that's probably just a good way to think about it. Year-to-year, it's different, but I'd say that's -- I mean, this is year we've got a few bigger discrete projects that go a little less with the -- yeah, it's going to be on a percentage basis, it will be less this year because we've got four big discrete projects going on in the packaging side of the business. But as I said earlier, the bulk of the spending is going towards growth opportunities and not just maintaining what we have. We've been fortunate that over the decades, we've done a good job of maintaining our assets and continuing to make sure we stay on-top of the asset preservation. So we're not playing catch-up.

Charlie Muir-Sands
Analyst at BNP Paribas

Yeah, very clear. And on the weather impacts that you called out, I recall that January 2024, there was some pretty severe cold-weather as well that I'm not sure if it was you, but I think some of the other boxmakers called that out as an impact in Q1 last year. So just I just 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 and carry more cost than last year?

Mark W. Kowlzan
Chairman and Chief Executive Officer at Packaging Co. of America

Yeah, let me comment and then Bob can. We -- obviously we've just gone through the month of January. We're wrapping up here, but we've had a couple of couple of weeks of severe weather and not just severe normal weather, but we've had more colder, snowy weather in the very deep South region. As you all know, last week along the Gulf Coastal area, Interstate 10 was shut-down from Houston all the way over to Florida for a couple of days. And so that was very disruptive. So it wasn't just the cold and weather impacting energy usage and raw-material consumption and yield, but it was actually impacting business in general, commercial activity. So there'll be a volume impact there with the cold-weather. But again, we just had it in generally without a colder winter right now, we're running well. We're operationally, we're running very well, but it's more expensive to run well under these conditions. And again, last week-in particular, we saw some volume impact from that weather.

Charlie Muir-Sands
Analyst at BNP Paribas

Thank you very much.

Mark W. Kowlzan
Chairman and Chief Executive Officer at Packaging Co. of America

Next question, please.

Operator

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

Ryan Fox
Analyst at Bloomberg

Hey, good morning.

Mark W. Kowlzan
Chairman and Chief Executive Officer at Packaging Co. of America

Good morning.

Ryan Fox
Analyst at Bloomberg

I know Gabe, I think asked this question, but maybe he asked it a different way and I was hoping you could clarify. So if we look at the revenue per produced ton in '23 versus '24, it looks like '24 is down about $50 per ton. Even while the index is up about $35 a ton, creating a margin of about $85. How do you -- how can you help us understand that?

Robert P. Mundy
Executive Vice President and Chief Financial Officer at Packaging Co. of America

Run that -- say that again, Ryan.

Ryan Fox
Analyst at Bloomberg

Yeah. So revenue -- if we look at revenue compared to the produced tonnage over year-over-year, that number is down about $50 per ton, even while the index has gone up for containerboard.

Robert P. Mundy
Executive Vice President and Chief Financial Officer at Packaging Co. of America

Which period are you talking Ryan, which period are you talking about that it's gone down $50 a ton?

Ryan Fox
Analyst at Bloomberg

$23 to '24, so full-year 2023 to full-year '24?

Robert P. Mundy
Executive Vice President and Chief Financial Officer at Packaging Co. of America

Yeah. 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.

Ryan Fox
Analyst at Bloomberg

Okay. Well, I guess just in light of the fact that there were two price increases last year for about $80 and I realized that there was a $20 slide at the end of '23, but if you look just a look at the averages for Containerboard over those two years, even that's up. So there's about an I Call-IT $85 could be a little bit less than that, but there's -- there's a differential where prices are going the opposite direction of where the index is going. I'm just trying to figure out how do we -- how do we square that?

Robert P. Mundy
Executive Vice President and Chief Financial Officer at Packaging Co. of America

Yeah. It's -- there's also in the way you're looking at that is there's export a good chunk of export volume in that. And during that period, I think export was definitely going down. So that's sort of getting into your math a little bit. I think if you sort of accommodate for that as well as some inventory change thing and some mixed things, you know, I think we're right there where we would expect to be based on how that index moved.

Thomas A. Hassfurther
Executive Vice President, Corrugated Products at Packaging Co. of America

And let me just add another element to this too, because if we don't -- we don't actually sell tons, we sell MSF. And if the basis weight is working its way down on MSF, that's going to -- that's going to trigger a different situation in tons. And so there's a lot of variables that go into this. And again, that's a whole nother subject that you know that we could get into. But here again, we've got -- we have an industry that is measuring something they don't even sell, which is which is tons. And here we sell MSF. So when you -- when you're factoring everything around a ton, there are a lot of variables that go into that and that have to be taken into consideration.

Robert P. Mundy
Executive Vice President and Chief Financial Officer at Packaging Co. of America

Yeah. And just lastly, Ryan, as you know, price started moving down at the end of '22 throughout a good part of '23 and all the way into late '23 and just the way -- the way those -- that affects our box, that's -- you've got to overcome all that. Price has come up $80 since then, but it was down $110 with all those decreases. So it's just the way the timing and the way things -- when they start to appear, it's sort of impacting -- impacting you know what you're doing, which is just taking high-level revenues by tons.

Ryan Fox
Analyst at Bloomberg

Yeah. 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?

Robert P. Mundy
Executive Vice President and Chief Financial Officer at Packaging Co. of America

Both?

Ryan Fox
Analyst at Bloomberg

Both. Interesting. Okay. I guess, I guess last question, help me understand, I mean, in the US, the mill operating rates are about 90%. We are -- I mean, we're going to be on pace to export nearly 5 million tons in '24. Why would an open-market somebody who maybe doesn't have a mill, why would they be wanting to pay higher prices for containerboard with such overcapacity?

Thomas A. Hassfurther
Executive Vice President, Corrugated Products at Packaging Co. of America

You'll have to ask them. I can tell you that our customers -- our customers don't see it the same way you're calling it out. Again, I'm going to -- I'm going to refer to something that you're measuring in terms of tons, but we don't sell any tons. We sell MSF. So there's a large disconnect in my opinion to what's to what's really going on in the marketplace and what exists out there in terms of numbers. I'll give you another example, there's a -- there's a relatively large mill that produces -- that is producing everything they can produce and their output is about 50% of what is projected for that particular mill. So that you know the projections and the realities are very different as well. And although we can -- although we can buy some tons in the open-market, the type of tons that we need to produce the boxes that our customers require is very limited. And we've had long-term relationships to be able to do that. If those -- if those relationships did not exist, I would have some difficulty buying the buying the proper tons.

Ryan Fox
Analyst at Bloomberg

Yeah. Obviously with the lighter basis weights, that definitely creates a -- 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?

Thomas A. Hassfurther
Executive Vice President, Corrugated Products at Packaging Co. of America

Yeah. Well, I wouldn't Call-IT a drag. I just think it's a -- it's a fact of life.

Mark W. Kowlzan
Chairman and Chief Executive Officer at Packaging Co. of America

Actually, I mean, it becomes an opportunity. We're making -- we're making more product with less fiber. And that's part of the capital investment over the 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.

Ryan Fox
Analyst at Bloomberg

Great. Thank you so much.

Mark W. Kowlzan
Chairman and Chief Executive Officer at Packaging Co. of America

Thank you. I think we -- 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.

Operator

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

George Staphos
Analyst at Bank of America Securities

Thanks, guys. I'll try to make it painless, Mark. Thanks for taking it. Just to wrap-up all the pricing discussion, when we look at 4th-quarter last year, 4th-quarter this year, prices are up per 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?

Robert P. Mundy
Executive Vice President and Chief Financial Officer at Packaging Co. of America

Yeah, George, let's my math, I would say we're closer to $55 a ton, something in the mid-50s rather than 40%. But go-ahead.

George Staphos
Analyst at Bank of America Securities

Understood. Okay. And then the other question I had, aside from fiber, where are you seeing the most cost inflation? Because when we look at-cost per ton, it's been trending steadily higher over-time despite the fact that you are spending a good amount of capital to become more productive and more efficient. So looking at your return on capital history over-time, you don't spend bad dollars, so you're being coming up more efficient. Where are you seeing the most pressure on your cost? And what are you going to do about that on a going-forward basis? What kind of products do you have that will take bend the curve back the right way on cost per ton? Thanks, guys. In the quarter.

Mark W. Kowlzan
Chairman and Chief Executive Officer at Packaging Co. of America

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 a 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 biggest.

Robert P. Mundy
Executive Vice President and Chief Financial Officer at Packaging Co. of America

Yeah. And energy as far as your direct items, George, I mean even chemicals, but chemicals are going to be up. And you look at just pretty much across-the-board for the types of chemicals we use, we're seeing price increases in the first-quarter and those will stay with us throughout the year. But as Mark alluded to, 65 -- the majority of the inflation we're seeing is in those items below all your direct costs on the things that Mark was referring to, that's where the biggest -- that's where the biggest hit will be.

George Staphos
Analyst at Bank of America Securities

It also means you need to -- you need to be given the expense, the inflation on labor, 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

Mark W. Kowlzan
Chairman and Chief Executive Officer at Packaging Co. of America

Well, that's -- and that's -- and George, that's what we -- that's what we've been doing. I mean, think about the rate of spending over the last seven or eight years now, now, especially the last six years, you know, the benefits that we've gained from this activity are immense. It's allowed us to do what we do and be where we are. And now good news is we're going to continue at this pace and we'll continue to take advantage of this. But nevertheless, with this comprehensive inflation across-the-board, it doesn't matter how much capital you spend. Yeah, you will -- will you will never you know unless you see appropriate pricing you can't keep up with all the inflation.

George Staphos
Analyst at Bank of America Securities

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

Robert P. Mundy
Executive Vice President and Chief Financial Officer at Packaging Co. of America

Thank you.

Mark W. Kowlzan
Chairman and Chief Executive Officer at Packaging Co. of America

Thank you appreciate it. Jamie, I think that may be wrapping things up. Do you want to conclude this?

Operator

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

Mark W. Kowlzan
Chairman and Chief Executive Officer at Packaging Co. of America

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

Operator

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

Corporate Executives
  • Mark W. Kowlzan
    Chairman and Chief Executive Officer
  • Thomas A. Hassfurther
    Executive Vice President, Corrugated Products
  • Robert P. Mundy
    Executive Vice President and Chief Financial Officer
Analysts

Alpha Street Logo

Transcript Sections