Packaging Corp of America Q3 2026 Earnings Call Transcript
Packaging Corp of America (NYSE:PKG) reported third-quarter financial results on Thursday. The transcript from the company’s third-quarter earnings call has been provided below.
This transcript is brought to you by Benzinga APIs. For real-time access to our entire catalog, please visit https://www.benzinga.com/apis/ for a consultation.
Access the full call at https://edge.media-server.com/mmc/p/2xn77jhs/
Summary
Packaging Corp. of America reported third-quarter 2026 net income of $272 million ($3.00 per share), up from $247 million ($2.73 per share) in Q3 2025. Net sales increased to $2.6 billion from $2.3 billion in the prior year.
The company’s earnings were positively impacted by the Greif acquisition, contributing $0.24 per share, along with favorable price and mix in both the packaging and paper segments. However, these gains were partially offset by increased labor, freight, and other operational costs.
Operational highlights included successful integration of the Greif business and improved mill performance, with significant production increases despite maintenance outages. The company is also seeing strong demand in the containerboard market.
Looking forward, Packaging Corp. of America expects Q4 earnings of $2.81 per share, with continued price improvements offsetting higher costs from maintenance outages and increased energy and material expenses.
Management highlighted significant strategic investments in mill and plant upgrades, including energy projects and new equipment installations, to drive future growth and efficiency.
Full Transcript
OPERATOR
Thank you for joining Packaging Corp of America’s third quarter 2026 earnings conference call. Your host today will be Mark Colson, Chairman and Chief Executive Officer of Packaging Corp of America. Upon conclusion of his narrative, there will be a question and answer session. I would now like to turn the conference call over to Mr. Colzan. Please go ahead when you’re ready.
Mark Colzan (Chairman and Chief Executive Officer)
Thank you, Jamie. Appreciate it very much. Good morning, everyone, and thank you all for participating in Packaging Corp of America’s Third Quarter 2026 Earnings Release conference call. Again, I’m Mark Colzan, Chairman and CEO of Packaging Corp of America, and with me on the call today is Tom Hasfruther, our President, and Kent Fletterer, our Chief Financial Officer. I’ll begin the call as usual with an overview of the third quarter results and then I’ll be turning the call over to Tom and Kent who will provide further details, and then after that I’ll be wrapping things up and then we’d be glad to take questions.
Yesterday we reported third quarter net income $262 million or $2.93 per share, excluding special items. Third quarter 2026 net income was $272 million or $3.00 per share compared to the third quarter 2025 net income of $247 million or $2.73 per share. Third quarter net sales were $2.6 billion in 2026 and $2.3 billion in 2025. Total company EBITDA for the third quarter, excluding special items, was $577 million in 2026 and $503 million in 2025. Third quarter net income included special items expense of $0.11 per share, primarily for costs and write-offs related to facilities closures, acquisition and integration related costs, the impact of a fire at our Palmyra, Pennsylvania sheet feeder, and the Wallula restructuring charges. Details of the special items for the third quarter of 2026 and 2025 were included in the schedules that accompanied the earnings press release.
Excluding the special items, our earnings increased by $0.31 per share compared to the third quarter of 2025. The contribution from the acquired Greif business was $0.24 favorable year over year, generating $0.13 of earnings this year versus an $0.11 loss last year in the first month of ownership. Legacy earnings improved by $0.07 per share driven by favorable price and mix in the packaging segment for $0.79, favorable production and sales volume in the packaging segment, which includes the impact of additional containerboard supplied to the Greif operations, of $0.12, favorable price and mix in the paper segment for $0.05, and the lower share count $0.02.
These items were partially offset by higher labor and operating costs, $0.28, higher freight costs, $0.26, higher corporate and other expenses, $0.13, higher fiber costs, $0.12, higher depreciation and amortization expenses, $0.06, higher maintenance outage expenses in the paper segment for $0.04, lower sales volume in the paper segment for $0.1, and higher interest expense, excluding the Greif acquisition and debt, for $0.01. As comparable quarters going forward will include the ownership of the acquired Greif business for the entire periods, we will no longer separate and state the earnings contribution from the acquisition in the future.
We exceeded our guidance of $2.91 on the strength of price realization and a higher than expected contribution from the acquired Greif business. These items were partially offset by higher labor and operating costs, partially driven by lower than forecast corrugated products volume. Looking at our packaging business, EBITDA excluding special items in the third quarter for 2026 of $578 million with sales of $2.4 billion resulted in a margin of 23.9% versus last year’s EBITDA of $492 million and sales of $2.1 billion, or a 23.1% margin. The mills produced 1,489,000 tons during the quarter. The legacy mills produced 1,286,000 tons of containerboard, about 77,000 tons more than the second quarter of 2026 and 31,000 tons more than the third quarter of 2025.
The acquired mills produced 203,000 tons, quite frankly an exceptional number for a quarter in which Riverville was down for an extensive annual maintenance outage system wide. Our inventories were up 34,000 tons from the end of the second quarter and in fact most certainly we need that inventory as we move into the fourth quarter. We’ve been able to catch up with keeping our plants adequately supplied, resume shipping via most efficient methods possible, and we’re in good position to supply our customers in the fourth quarter, even with three of our containerboard mills down for their annual maintenance outages.
Operational performance was excellent across the board, much improved from the second quarter, and we completed the first annual maintenance outage at the River Mill under our own ownership safely and successfully. From the cost side, in addition to increasing freight, we saw significant increases in recycled fiber, purchased power and chemical costs during the quarter and we expect these input costs to continue to go up. Our mill production reflects improved output at Jackson even ahead of the completion of the winder project coming online in the fourth quarter as we continue to maximize the performance of the paper machines.
We also benefited from continued improvement reliability out of the acquired Greif mills. I’ll now be turning it over to Tom who will provide more details on containerboard sales and the corrugated business in general.
Tom Hasfruther (President)
Thanks, Mark. Domestic containerboard and corrugated products prices and mix were $0.75 per share above the third quarter of 2025 and up $1.11 per share compared to the second quarter of 2026. We have realized substantially all of the first net $50 increase and about half of the second $50 increase. Price realization came in ahead of forecast for the third quarter. We expect to realize almost all of the remainder of the second increase in the fourth quarter.
Realization of the $70 increase will be split between Q4 and Q1 and skewed more towards Q1 in terms of timing. Export containerboard prices were $0.04 above last year’s third quarter and $0.03 above the second quarter of 2026. Export sales volume of containerboard was 5,000 tons higher than the second quarter of 2026 and 10,000 tons lower than the third quarter of 2025, and remains at a relatively low level. While various factors that we’ve previously discussed led to lower agriculture end market volume, demand was solid throughout the quarter across the remainder of our customer base.
Shipments were up around 11% in total and per day versus last year, with the legacy business down a half a percent, which is about in line with our expectations taking into account the lower ag shipments. A silver lining is that we got ourselves back on solid footing from an inventory standpoint in time for what looks like a pretty strong fourth quarter from a volume standpoint based upon our September and October bookings. We were also able to save a lot on freight during the quarter by being able to plan and optimize our routes. We remain in a very tight containerboard market which, based upon what we are seeing in our own system, appears to be further tightening with fourth quarter seasonal pickup.
As Mark said earlier, we have three containerboard mills down for annual maintenance in the fourth quarter, including DeRidder, and we will need the mills continuing to perform at the top of their game to keep us properly supplied. The acquired corrugated business meaningfully contributed to our profitability during the quarter, though volumes took a hit from the fire at Palmyra that kept the plant down for most of September. Integration levels continued to improve and legacy PCA mills supplied approximately 45,000 more tons of containerboard into the Greif system during the quarter than it did a year ago. The improved integration, together with better operational performance in the mills that Mark mentioned earlier, has us well ahead of our synergy targets.
All systems work will be completed during the fourth quarter which will further improve our visibility and day-to-day management of the business. This acquisition is working out very well for us in large part due to the quality and performance of our people who have put in a tremendous effort integrating and running the business. I’ll now turn it back to Mark.
Mark Colzan (Chairman and Chief Executive Officer)
Thanks, Tom. Looking at the paper segment, EBITDA excluding special items in the third quarter was $34 million with sales of $163 million, or a 20.6% margin, compared to the third quarter of 2025 EBITDA of $40 million and sales of $161 million, or a 24.9% margin. The differences in EBITDA and margin result from the maintenance outage being in the second quarter last year and the third quarter this year. Sales volume was approximately 0.9% above the second quarter of 2026 and approximately 2.5% below the third quarter of 2025.
Prices and mix were up 2.8% from the second quarter of 2026 and up 3.8% from the third quarter of 2025. Sales volume, price realization, and cost performance contributed to performance above our expectations. I’ll now turn it over to Kent.
Kent Fletterer (Chief Financial Officer)
Thank you, Mark. Cash provided by operations was $472 million and after $247 million of capex, free cash flow was $225 million. In addition to capex, the primary payments of cash during the quarter included dividend payments of $134 million, cash tax payments of $66 million, and net cash interest payments of $29 million. We did not repurchase shares during the quarter. Excluding special items, our effective tax rate during the third quarter was 25.8%.
We expect our fourth quarter rate to be nearly identical to the third quarter. We now forecast $865 to $890 million of capex for the year and, excluding special items, just above $705 million of depreciation and amortization. These primarily relate to timing of expenditures and assets placed in service and do not reflect changes in our overall plans. Our special items expense for the year to date, just to remind you through Q3, included just under $60 million of depreciation expense and write-offs primarily associated with Mobile restructuring.
I’d now like to give you an update on the annual outage schedule and earnings impact for the rest of the year. Our outage expense was $0.28 during the third quarter. Our fourth quarter estimate is $0.72, now totaling $1.48 for the year. The increase of $0.08 from when we last updated you is primarily due to some timing with a couple of cents in Q3 moving into Q4, as well as our decision to substantially increase the scope of maintenance activities at the completed third quarter Riverville outage with more costs now being amortized into the fourth quarter and, to a lesser degree, an increase in the scope of the DeRidder outage will take place next month. I’ll now turn it back over to
Mark Colzan (Chairman and Chief Executive Officer)
Thanks, Kent. As we move from the third quarter into the fourth quarter, we expect solid corrugated products demand with some seasonal improvement. Shipments per day are expected to be at or around last year’s fourth quarter level with two fewer shipping days than the third quarter, and total corrugated shipments will be higher than the third quarter. Prices for containerboard and corrugated products are expected to improve as we continue to implement earlier price increases, but corrugated products mix will be seasonally weaker with higher e-commerce volumes.
Containerboard production will be lower with annual maintenance outages at three of our mills, and mill maintenance outage expenses, including the impact on production volume from the fourth quarter outages, will be significantly higher in the fourth quarter. We expect seasonally lower volume and slightly higher prices in the paper segment. We expect freight costs to increase across our business with diesel fuel prices above third quarter levels. We also expect costs for recycled fiber to continue to increase, as well as higher wood fiber cost due to winter yields and wood mix and mill mix. Rather, costs for chemicals and energy will increase due to higher chemical prices and higher seasonal energy usage. Considering these items, we expect fourth quarter earnings of $2.81 per share excluding special items.
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 today constitute forward-looking statements. The statements are 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, Jamie, I’d like to open the call for questions.
OPERATOR
We’ll begin the question-and-answer session. If you would like to ask a question, please press star and then 1. To withdraw your question, you may press star and 2. If you are using a speakerphone, we do ask that you please pick up your handset prior to pressing the keys to ensure the best sound quality. Once again, that is star and then 1 to join the question queue. Our first question today comes from George Staphos from Bank of America. Please go ahead with your question.
George Staphos (Analyst)
Hi, everyone. Good morning. Thank you for the details. I wanted to maybe kick off on volume. You mentioned, Mark, that you expect volume to be, I’m paraphrasing, even or around the volume trend from last year. Can you talk a little bit about what you’re seeing in terms of bookings and billings and how you characterize volume being at or around comparable with also a tight market as you’re seeing it?
Mark Colzan (Chairman and Chief Executive Officer)
Yeah, we’ll let Tom get into that.
Tom Hasfruther (President)
Hey, George, it’s Tom. Good morning. Bookings were, you know, good in September. They’re doing very well here in October as well, up a little over 5%. Billings have lagged a little bit, and we expect that’ll catch up during the fourth quarter. So, you know, we’re forecasting right now for pretty flat for the fourth quarter, but keep in mind that, you know, that’s a tough comp we’re talking about as well. So, you know, it’s easy to kind of look at October and November and get, and get some insight, but December is always a bit of a crapshoot, so we’re just, you know, we’re just going to be a little cautious in terms of that forecast.
But we’re pleased with the cadence of the volume. You know, we’ve had some struggles, as we mentioned, with the ag business, especially related to the lettuce issues and some things like that from some of our customers. And we expect some pickup, but again, that’ll be determined seasonally. You know, sometimes it picks up in the fourth quarter, sometimes it tracks into the first quarter. So that’s kind of where we are right now. And of course, you know, our mix is going to be a little more concentrated towards e-commerce in the fourth quarter as well.
George Staphos (Analyst)
Right. Appreciate that. Related to mix and volume perhaps again in the third quarter, given the number that you gave in terms of pricing effect in 3Q was quite strong. You said pricing is ahead of your expectations. Do you think that perhaps maybe you’ve lost a little bit of volume momentum at all with your pricing or not really, and why do you view that to be the case? Relatedly, when we do just revenue over tons, the mix was a little bit, a couple points lower than we were expecting.
Is that Greif effect, or is that e-commerce effect in third quarter from what you could see? And then I had one last follow-on.
Tom Hasfruther (President)
Okay, George, you know, I’m going to remind you of something we’ve talked about for years. When we’re in price increase mode, we’re 100% focused on price increase because those opportunities don’t come along that often, and that’s incredibly important to our business in the long term. Relative to volume, you know, we may lose an item or something like that, but, you know, for the most part, you know, these are the same customers we’ve been dealing with for a long, long time, and, you know, they understand the situation we’re in.
And they’re in the exact same situation. When you’re using revenue over tons, yeah, there’s some Greif effect in there, no question about it. That’s a different segment of the market that we weren’t in before, so that’s going to impact that a little bit. Hopefully that gives you your answer.
George Staphos (Analyst)
It does. And then lastly, just, you mentioned that the capex increase and the maintenance spending tweaks were mostly timing. Was there anything in there that was actually required or maybe not anticipated that you had to pull forward in terms of maintenance or capex? Thanks, and good luck in the quarter.
Tom Hasfruther (President)
So, George, I’ll give it to Mark after this, but in terms of timing, no. We were a little favorable in 3Q to what we put out there last time, but rolls into the 4Q. That’s really kind of timing of amortization of expenses more than anything else in terms of activities. You know, Mark can maybe comment a little bit more on what we’re doing in the two mills.
Mark Colzan (Chairman and Chief Executive Officer)
Yeah, I mean, you know, George, we always reserve the right for new discoveries, new opportunities. We, you know, we move the capital up and down as we see fit, and some of it’s just timing on engineering and deliveries of equipment for installation. But we’re pretty encouraged. We just went through that annual shutdown at Riverville, and during that week of downtime, for most of that week, we had over 1,400–1,500 contractors and people in the mill site working on that mill.
We found some good opportunities, and it will lay out some really nice upside opportunity for that mill over the next few years. You know, I’m talking about things like some headbox, some forming section work, some dryer section work, you know, press section work, you know, things in the back end of the mill. So we’re very encouraged by the continuing, you know, opportunity that Massillon and Riverville will provide, much in the same way that the Boise mills delivered over the years.
So using that term, the gift that keeps on giving.
George Staphos (Analyst)
Understood. Thank you. I’ll turn it over.
OPERATOR
Next question, please. Our next question comes from Mike Roxland from Truist. Please go ahead with your question.
Mike Roxland (Analyst)
Yeah, thank you, Mark, Tom and Ken, for taking my questions. First question. It seems like the Greif assets provided most of the upside to 3Q, as price/cost overall was neutral based on our estimate. First, would you agree with that assessment, and if so, what drove the strong performance at Greif and why was it better than expected?
Mark Colzan (Chairman and Chief Executive Officer)
Let me talk about Greif and then Tom and Kent can weigh in. We took some criticism last year during the first phase of our ownership of Greif because we got heavily engaged in fixing the assets right away. We, you know, had all of our technology organization heavily involved in Massillon and Riverville right from the get-go last September when we closed on September 2. So we took advantage of that and very quickly were able to get the mills in a very good position to start delivering results.
And we talked about that on the second quarter earnings call, that we had accomplished a great deal from a reliability and a performance point of view. And so quite frankly, through the summer months into the fall now, we’ve seen exceptional performance coming out of both those mills. And the same thing on the Core Choice side of the business, they continue to make improvements. And so again, that’s what we do. That’s what PCA does best. We’ve got incredible technology and operational group across the board, and so the results speak to that.
Tom, Kent, you want to weigh in on that?
Tom Hasfruther (President)
I’ll just add, you know, obviously the integration did help a lot, but I would not put it all on Greif. You know, some of the other things that we do, and we do incredibly well, is we can utilize these Greif assets in some different ways than they were able to use it since we have such a large system and we’re positioned all across the United States. So, you know, there’s some end market restructuring that took place as well within our system, which contributed.
But that’s kind of a, there’s some puts and takes to that. You know, you may move it over to one as opposed to the other, and so, you know, that’s why I say you can’t just hang it all on Greif. But it did provide a lot of opportunities for us. And as Mark mentioned, that’s what we do well. We get in there and we take advantage of it and we figure out how to maximize these assets in a way that, you know, perhaps wasn’t previously available to the previous owner.
So that’s—and I think, you know, when I talk about end market structure, that’s not only how we’re going to these end markets, but also perhaps how we’re, you know, some of the opportunities that afford themselves in terms of profitability as well. Kent, you got anything else?
Kent Fletterer (Chief Financial Officer)
No, I’m good, thanks.
Mark Colzan (Chairman and Chief Executive Officer)
Anything else, Mike?
Mike Roxland (Analyst)
Yeah, it’s very helpful. Just one quick one. Just can you help me understand, I mean, Tom, what happened to legacy volumes in 3Q? If you look back the last couple of quarters, you were outperforming the industry by a few hundred basis points. In 3Q, legacy box volumes declined 0.5%. Obviously, you had the ag issue, but I think the 0.5%, when all is said and done, when we get the industry numbers, you’d probably be in line with the industry. So wondering what’s happened in terms of the outperformance.
Is it just a matter of you maybe focusing more on price and maybe less so on volumes?
Tom Hasfruther (President)
Well, Mike, let’s put it this way. You know, our objective is profitable revenue growth. That can come in a number of different ways. Price is where we’re—is where, you know, is our supreme focus at the moment. So, you know, that’s what’s driving our results at the moment. And as I mentioned before, we did have a couple of segments that were pretty large that have been a little bit of a drag. But it has nothing to do with losing business. It’s just that they had some issues of their own which cut down some of their demand.
Mike Roxland (Analyst)
Got it. Got it. If I could squeeze one more quickly, Kent, you guys guided 4Q to be down around $0.20 sequentially. How should we think about the progression from 4Q to 1Q this year, particularly given the fact that the third price increase is flowing through?
Kent Fletterer (Chief Financial Officer)
All right, Mike, without putting too fine a point on this, because we really only guide one quarter in advance, but, I mean, these are the drivers. You will see continued price improvement from 4Q to 1Q as the $70 increase, the remainder of that, comes in. Okay. Mix also improves a little bit from 4Q to 1Q as well. Outage expense also significantly. The P&L hit moves in the right direction. Volume goes down just seasonally. 1Q is—you know, 4Q is sort of the peak, 1Q then it comes down a little bit.
Mill production up a little bit because we have less outage impact. On the cost side, you’re going to see mill operating costs primarily at 4Q, if not even a little unfavorable, just because you’re in winter. And then you have the normal inflation that hits the, you know, labor, benefits, services, all that sort of thing, you know, starting at about 3%. We do the best on that, though, to whittle that down through operational efficiency. So you know that I gave you a lot of factors there, but, you know, hopefully that gives you at least a start based upon our historical performance when you try to model all this.
Mike Roxland (Analyst)
Very, very helpful. Thanks, guys, and good luck in 4Q.
Mark Colzan (Chairman and Chief Executive Officer)
Thanks, Mike. Next question, please.
OPERATOR
Next question comes from Mark Weintraub from Seaport Research Partners. Please go ahead with your question.
Mark Weintraub (Analyst)
Great, thank you. First, maybe just following up then a little bit on these kind of sequential type analysis. Since we’ve been going there, as we think about 4Q vs. 3Q. I think at a conference you had sort of talked about something less than 45 cents having been experienced last year might be what you would see this year. Now is the difference now the kind of more 20 cent reduction you’re projecting from 3Q to 4Q, is that a function of the September pricing?
Would that be kind of the main reason why that would have changed?
Kent Fletterer (Chief Financial Officer)
Oversimplified, yes. But I’ll give you a little more color on this. Okay. We saw a fairly large sequential increase from 2Q to 3Q in price. Given the mix and given the timing of roll-in, we won’t be nearly as favorable 3Q to 4Q. But the price favorability should be enough to offset the additional cost that we’re taking on in the outages. It should be, you know, that’s about even. Okay. We then have higher operating costs and, you know, if you look across the portfolio of costs in our mills and operations, you’re going to have higher recycled, higher freight, higher seasonal.
Okay. Offset a little bit by favorable in the corrugated operations just due to better cost absorption. So all those factors into place. Yeah, we’re about 20 to 25 down from 3Q to 4Q. But the big help there is realization of the 70 increase. The beginning of realizing that. Hope that helps, Mark.
Mark Weintraub (Analyst)
Yes, it does. Thank you. And then obviously you’ve been doing a terrific job offsetting a very difficult cost environment. On the pricing side, your long-term track record has been a lot about company-specific value creation as well. And you’ve alluded to several things that should help, ’27 versus ’26 on that score already. Maybe if you could sort of give us, like, a laundry list: Jackson, Counce, the box plant in Ohio, further gains from the Greif improvements, et cetera.
What are the things that, big picture, we should be thinking about? And lastly, I think the energy projects are more 2028, but maybe update us on your thoughts there.
Mark Colzan (Chairman and Chief Executive Officer)
Let me start. Yeah, the energy projects—you’ll see the benefit more into the 2028 period. Again, we’re in construction mode right now at Jackson and breaking ground at DeRidder. We’re waiting on permits for the gas turbine installation at the Riverville mill. So that’s, you know, pending, but you just hit it on the head, you know, we continue with our capitalization program, you know. Tom, comment on the successful startup of the new box plant in Ohio.
That’s, you know, we hit it out.
Tom Hasfruther (President)
We had an incredibly good startup in our new Newark plant, which also allowed us to announce the closure of Middletown a little bit earlier than what we probably would have otherwise. We’ve got further installations going in there as we speak, and we’re continuing the same cadence, basically, with putting in other equipment and upgrading other equipment in box plants all across the United States. So, you know, we have to be incredibly well-equipped to continue to deliver, you know, at the levels that we do for our customers and perform the quality that we have and those sorts of things.
I might mention, in addition, you know, the work we continue to do on our proprietary grades of paper is allowing us a lot of opportunity, and we’ll continue to do that going forward. And that has a lot to do with our capital expenditures as well. So, you know, Mark, we’re in—you know, we continue to do what we do incredibly well. And we’ve been doing, you know, on a regular basis for the last decade.
Mark Colzan (Chairman and Chief Executive Officer)
Yeah, you know, another example, Mark, is the new winder at the Jackson mill, you know, that had been under construction for over a year. And we got that started up at the end of September and the—really the last couple of weeks now. But it came up incredibly well. And that winder is running as planned. And so, you know, Jackson’s got, you know, a duplicate winder now running 10,000 ft a minute if we need it, which, you know, the plan would be to put more fiber over that machine.
And, you know, but I fully see the Jackson mill over the course of the next, you know, year and a half or so will be, you know, become a million-ton-a-year mill. And we’ve been talking about that for the last six or seven years, that that was the direction we were taking the mill and that’s where we’re going. Counce is another example. We’ve got the second phase of the work going on on the number two machine at Counce to, you know, upgrade that capability. So we’ll be seeing further benefits, significant benefits, out of the Counce number two machine, which will be productivity, quality, cost. But again, this is, you know, we’ve got approximately 200 people in the corporate technology organization dealing with these matters seven days a week. And, you know, those of us at the corporate level, this is what we do, you know, and either we’re doing and working on operational matters or the group’s working on customer-based marketing and sales matters.
And that’s what we focus on and that’s what we do well. Anything else?
Mark Weintraub (Analyst)
Actually, one really quick one, if I could, then. Maintenance outage expense, it’s high this year. Is that just because things are more expensive, or were you just taking more outages this year than normal? So if we think about next year, should we just assume similar to this year or not necessarily?
Mark Colzan (Chairman and Chief Executive Officer)
Good question. It’s both. We undertook—obviously with the Massillon mill and the Riverville mill—we undertook more activity, but also we’re just doing some things at the legacy mills that we want to get done. And, you know, we always take care of these assets. And, you know, in terms of, we may have older mills, but if I took you into these mills, you’d think they were new mills. And so, you know, but also it’s the cost of capital. The equipment costs today are significantly higher than they were just a few years ago.
And so whether you’re buying a pump or a motor or a, you know, major—you know, a new headbox—the costs, you know, have gone up dramatically just in the last year or so. And then, you know, again, the labor cost to install, if you’re having contractors come in, that labor cost is up significantly. And so that’s really—it’s the amount of work we’re doing and taking advantage of the time and the capability to do it and the pure capital cost of these components and the labor cost to do it.
So I would mention, you know, we are in a really good position. You know, for the last 10 years, we have gotten ahead of the curve, so to speak, on recapitalizing our, you know, box plant assets. Our mills are in great shape. And so everything we’re doing is more on autopilot, opportunity, taking care of customer base, growing with the customers. And, you know, Tom, why don’t you add a little bit more?
Tom Hasfruther (President)
Well, just to follow up on that, Mark, I think that—I think what’s—what, you know, we’ve mentioned this numerous times, but, you know, this cost of capital has gone up, you know, 2, 3x in a lot of cases, both at the mills and at the box plants. And, you know, so it’s imperative in order to be able to continue to grow with our customers and be able to take care of our customers and all those other sorts of things to be able to, you know, earn your cost of capital.
And, you know, that’s part of, you know, that’s part of a struggle, you know, that we have every day to make sure that we’re able to do that. And, you know, to Mark’s point also, as I mentioned, you know, we’ve been at this for a long time, so a lot of those improvements that we put in place were prior to some of these exorbitant increases that we’re now encountering. But, you know, those are definitely considerations going forward. And, you know, all these projects that we’ve got going on also—God only knows—we need all these tons, too. They’re sold already.
Mark Weintraub (Analyst)
Appreciate all the detail.
Mark Colzan (Chairman and Chief Executive Officer)
Thank you. Thanks, Mark. Next question, please.
OPERATOR
Our next question comes from Anoja Shah from UBS. Please go ahead with your question.
Anoja Shah (Analyst)
Hi, good morning.
Mark Colzan (Chairman and Chief Executive Officer)
Morning, Anoja.
Anoja Shah (Analyst)
Morning. I wanted to ask about synergies. I think you said they’re running ahead of plan. Any way to put a finer point on that, like how much it contributed in 3Q? And also, are you still expecting 30 million—30 million for this year, next year, or do you think you can end up doing a little better than that?
Kent Fletterer (Chief Financial Officer)
No, we’re doing a little better than that. We’re on a run right now between 40 and 50. And, you know, we called out 45,000 tons of increased integration from PCA into the acquired. That’s a big piece of it. There’s other integration benefits and then there’s just the reliability, cost, performance and whatnot at the acquired Greif mills, you know, 70 run rate—you know, 70,000 more tons now than what it was doing at the time of the acquisition. So really those buckets are the factors and the synergies at this point.
Anoja Shah (Analyst)
Right. Okay. And then switching over to end markets, have you seen any pickup? So I know the FDA declared the cyclospora outbreak done. Have you seen any improvement in your shipments, recognizing that it’s probably a bit of a seasonal market? And then also can you talk about what you’re seeing in your other end markets, industrial and consumer?
Mark Colzan (Chairman and Chief Executive Officer)
Anoja, I’ll take a stab at this. You know, I’ve mentioned ag numerous times. You know we do see some recovery in ag. The question will be how much of that occurs in the fourth quarter and how much rolls over into the first quarter, and does weather cooperate? That’s been also a little bit of a drag. Protein markets have been, especially on the beef side, down now for quite some time. Everybody’s heard about the level of the herds and how long it’s going to take to get those herds back up and get that volume back up.
So that’s going to still take some time. But, you know, the other e-commerce is not growing at the same rate it had grown for a long time, but still is a growing market and still doing quite well. Outside of that, the other markets are kind of where they are. I mean, we’d like building products to pick up some and things like that. That has to do with government regulations and a whole bunch of other things and interest rates. So, you know, there’s lots of puts and takes, and we’re in so many different markets and we’ve got thousands and thousands of customers in these various markets.
So it’s hard to predict. Ag has stuck out more than others just because of what’s gone on weather-wise and the lettuce and all the other things that have occurred.
Anoja Shah (Analyst)
Right. Okay, thank you very much for that. I’ll turn it over.
Mark Colzan (Chairman and Chief Executive Officer)
Thanks. Anoja, next question please.
OPERATOR
Our next question comes from Phil Ung from Jefferies. Please go ahead with your question.
Phil Ung (Analyst)
Hey guys, congrats on another strong quarter. I think if I heard you correctly, you guys are doing a little more extensive work in the fourth quarter with DeRidder and I think Massillon as well. My question is does that unlock potentially more capacity, more debottlenecking? I think when you guys announced idling Wallula and debottlenecking some of the other mills, I had a number in mind, roughly 6 million tons of capacity once it’s all said and done.
But you guys always find new things to do. So can you help us think through your capacity to produce, just because, as you kind of pointed out, market’s very tight.
Mark Colzan (Chairman and Chief Executive Officer)
Yeah, I mean, if you think about our expected run rate for 2026, it’s probably going to be 5,757,000 tons. So, you know, I would think we’re on track. And I’ve been talking about this for the last year, that we’ll get to be a 6.6 million ton system with this work that we’re doing. And so it’s basically, you know, we get through these outages next year at Counce, and some of the work we’ve got going on at Jackson. We certainly have that capability that, depending on the grade mix you’re producing, we’re bumping up against that 6 million ton capability.
But this is ongoing. This is what we do. We continue to stretch the capability. We see the opportunities. That’s why I mentioned earlier on the call, the annual shutdown that just occurred at Riverville Mill. It unlocked these opportunities before our eyes in terms of some capital input that will greatly improve the productivity and performance of the Riverville Mill. And so that’s going to be another piece of the containerboard supply over the next couple of years as we get that equipment installed and that mill stretched out.
Massillon Mill is a good example. Massillon Mill’s performing incredibly efficiently compared to a year ago. And so these are the little things that we do that make Massillon such an important mill to us. You’ve got the new box plant down in Newark; I believe it’s like 80 miles from Massillon, so it’s basically shuttle-truck distance away. The Ashland box plant is probably 40 miles away from Massillon. So Massillon being a very efficient mill, just within the first year of ownership, presents an incredible opportunity.
But we’ll continue to stretch out. Long answer to your question: we’re definitely at that 6 million ton, bumping that capacity, and with the projects we got coming on over the next six months to a year.
Phil Ung (Analyst)
Gotcha. And any early read on capex next year and big projects on the horizon? I mean, you spend… most people would be happy with, but anything that you have up your sleeve that—
Mark Colzan (Chairman and Chief Executive Officer)
We’ll give you a better target in the January call, as we always do. But I mentioned some of the bigger projects. We know really the big spend over the next 24 months will come from the gas turbine installations. We’ve got three gas turbines going in, and we’ve got to finish up the Counce Number Two machine improvement work. That was a fairly sizable amount of work. And then the rest of it is just the whole host of opportunities that present themselves across the board in the box plants.
We’re always—it’s going to be the one-off equipment. It’s the EVOLs, the BOBSTs, the various rotary die cutters, new corrugators to continue to grow with our customer base. That’s all customer driven. And that’s the beauty of that, that we invest with the customer. And so I think, without giving you a number, if you think about the cadence of our capital for the last couple of years, we’re going to take advantage of those type of opportunities. We’re generating significant cash flows. So I think the question will come, as it has always been: what are we doing with all the excess cash? I’ll leave it at that.
Phil Ung (Analyst)
Okay, super. Perhaps a question for Kent. Kent, you were kind enough to give some color sequentially from Q4 to Q1. Outside of the labor and benefits piece, which steps up every year around 1Q, are you starting to see your major input costs level off here—just your operations, freight, and stuff like that? And then any color on the September increase: how much of that is flowing through in Q4 versus 1Q? Is it like a 20/80 split?
Kent Fletterer (Chief Financial Officer)
Okay, so take your last one. I think it’s probably a little more into Q4 than what you said, but I don’t want to throw a number, but it’s better than 20/80 in terms of Q4 versus Q1. All right, so on input costs, freight, recycled, you know, right now, at least looking past 4Q, we gotta assume it stays at elevated levels, okay, until we see some sort of breakthrough in the drivers on those. You know, right now I’m assuming at fairly high levels, similar to what we’re forecasting for Q4.
Phil Ung (Analyst)
Okay, that’s helpful. I mean, margin should improve nicely with cost leveling off. Thank you so much.
Mark Colzan (Chairman and Chief Executive Officer)
Thanks, Phil. Next question, please.
OPERATOR
Our next question comes from Anthony Pettinari from Citi. Please go ahead with your question.
Anthony Pettinari (Analyst)
Good morning. Just following up on the energy projects, I think at the beginning of the year you talked about the gas turbine projects taking maybe two and a half years, and I’m wondering if I got that right and if, kind of in the current operating environment, which is pretty tight, is that—are you still on track for that? Are there possibilities to pull that forward, or just—
Mark Colzan (Chairman and Chief Executive Officer)
You know, because there are three installations at three different mills, they’re moving at three different paces. We’re currently in installation mode at the Jackson Mill. That’s moving along very quickly, and part of that was we were able to get the permits very quickly and move on that through the summertime period. And so DeRidder is somewhat behind that. And then Virginia, with the Riverville Mill, we’re going through a permitting process and that’s taking a little extra time.
Part of it is we’re just comprehensively looking at the entire mill footprint with the mill opportunities in terms of productivity on the paper machine side, the pulp mill side, and comprehensively looking at what that mill will become over the next few years. So there’s a little bit of extra time in the permitting process. So that would be kind of like a late ’28 into, you know, truly just the two and a half years out to see that one come on at best. That’s why it’s really a multi-year phased project.
Anthony Pettinari (Analyst)
That’s very helpful. And then apologies if this was asked earlier, but in terms of the most recent box price hike, when we think about the implementation and the timeline for that hike, should we think about that as being basically the same as the first and the second hikes this year, or is there anything about, you know, we’re kind of towards the end of the year or the competitive environment? Just how would you compare the implementation timeline for the third one versus the first two, just based on where we are close to the end of the year?
Tom Hasfruther (President)
Anthony, this is Tom. Our timeline is pretty much the same on each of these. And I gave you the commentary. We still, you know, we’re still realizing some of the second 50 in the fourth. We’ll realize a little bit of the 70 in the fourth, and the majority will come in Q1 of next year. So the cadence on these are pretty much the same. Now, you may be asking the question because it’s not every day that we get three back to back to back. But that’s how the cadence is working for us right now, and it’s all based on the normal procedures that we go through with our customers.
Anthony Pettinari (Analyst)
Okay, that’s helpful. I’ll turn it over.
Mark Colzan (Chairman and Chief Executive Officer)
Thank you. Next question, please.
OPERATOR
Our next question comes from Hilary Casanotto from Deutsche Bank Securities. Please go ahead with your question.
Hilary Casanotto (Analyst)
Hi. Thank you for taking my question. Just a quick clarification question: on the $70 increase, you said you expect obviously more in the first quarter than the fourth quarter, but are you expecting the full $70 increase to be realized by the first quarter, or do you think that that could extend beyond the first quarter into the second wave?
Tom Hasfruther (President)
Hilary, this Tom. In the normal cadence that I just talked about, the great majority of the realization will all be in the first quarter next year.
Hilary Casanotto (Analyst)
Okay, got it. Thank you, that’s helpful. And then just with recycled fiber costs continuing to increase, has anything changed in how you’re optimizing the mix between recycled and virgin fiber?
Mark Colzan (Chairman and Chief Executive Officer)
No. Again, we take advantage that it’s a mill-specific opportunity—mill by mill, location by location. You’ve got transportation considerations on OCC and then, again, just what the pulp mill itself is designed to do. And so you balance out your fiber needs with OCC in general, DLK. But in the conditions we’re under, in terms of the tight market need for containerboard, we’ve got everything pretty well maxed out: virgin kraft productivity, OCC plant productivity.
So it’s basically utilizing everything we can take advantage of right now.
Hilary Casanotto (Analyst)
Got it. Thank you, that’s helpful. Thank you.
Mark Colzan (Chairman and Chief Executive Officer)
Thank you. Any more questions?
OPERATOR
Yes sir, we have a follow up question from George Staphos from Bank of America. Please go ahead with your follow up.
George Staphos (Analyst)
Hi, thanks guys. I’ll make it quick. Mark, can you talk a little bit about what kind of lead times you’re seeing on equipment? You talked a little bit about turbines and obviously you already had purchased those and opportunistically so. But if we think about converting equipment versus equipment you might need at the mill, what are your lead times right now and how would those compare versus what you’re hearing about elsewhere, perhaps? And then, you know, when we think about Greif, the synergies which have now moved up, the turbine project, and then the mill realignment optimization program we announced last year into this year—maybe it was the beginning of this year; I know it depends on where you start the clock—but I think we’ve talked in the past, do you think you’ve added from all of that half a billion dollars to your EBITDA when you think about those three or four larger buckets?
Thanks and good luck in the quarter.
Mark Colzan (Chairman and Chief Executive Officer)
Hey George, I’ll knock off your last one. The answer is we’re pretty darn close to that, you know, and there’s some inflation, there are some inflation effects to that. But yeah, we’ve talked about that before publicly and, you know, in response to your prior questions. But yeah, that’s still a pretty good number there. Just marking a market there. Go ahead, go ahead. And then on some of the lead times, it depends on what you’re ordering. If you’re ordering some very complex pieces of unit operations, the lead times can be longer in some ways. There’s some opportunities that have taken place. Some of the equipment suppliers actually don’t have as big a backlog as they had a few years ago. So the lead times have shortened up. But more than lead times, it’s the cost. Whether two years ago it took 14 months to get something delivered and now you get it delivered in 10 months, it doesn’t matter if the cost is up 60% from what it was a year and a half ago.
It’s the absolute cost to acquire the piece of equipment and then the installation labor that goes into it and the associated installation factors that have increased, in many cases have doubled the cost of capital projects just in the last two years.
Tom Hasfruther (President)
And I’d add that if we’re building at all, I mean, you’re now competing with data centers for land and for steel and all these other things that are going on. So those construction costs are just going through the roof as well.
Mark Colzan (Chairman and Chief Executive Officer)
We’re definitely seeing—if you think about contractor availability is a good example and what Tom just said about data centers within a specific region. If you are in the building trades and you have an opportunity to go work at a data center, quite frankly, if you look at the pay scales and locations and quite frankly just the magnitude of the build-out, it’s put an incredible demand nationwide on a lot of the building and trades. So again, that’s another factor that we deal with.
We’re fortunate we have a good group of contractors that we’ve aligned ourselves with. Again, we have our own incredibly talented maintenance organization that we use across the board. We call that the traveling team, and in conjunction with the technology group. So we’re able to overcome a lot of that. But still, again, I wouldn’t—the delivery times, it’s one factor. But it’s the absolute cost of the equipment that’s really the factor.
George Staphos (Analyst)
Mark, I understand, but if I was ordering a new paper machine, I was converting something. I’m not getting into the business, but let’s say I was. Am I looking at two years on that? If I was buying a new flexo folder gluer, let’s say I was buying an EVOL. Not you, but me. Am I a year before I get that equipment? That’s just what I’m getting at. Thank you and good luck in the quarter. Thanks again.
Mark Colzan (Chairman and Chief Executive Officer)
Yeah, I mean, it just depends on the equipment you’re buying, the vendor you’re buying it from, what country it’s coming from, again, the permitting issues, the contractor’s availability to install it. But I can tell you investing in this business is not for the faint of heart anymore. So the game has changed significantly.
George Staphos (Analyst)
Got it. Thank you so much.
Mark Colzan (Chairman and Chief Executive Officer)
All right, George. Thank you. Jamie, any more questions?
OPERATOR
Mr. Colzan, I see that there are no more questions at this time. Do you have any closing comments?
Mark Colzan (Chairman and Chief Executive Officer)
Yeah. I’d like to thank everybody for joining us today. And as usual, we appreciate the back and forth question and answer period and look forward to talking to everybody in January. With that, have a great rest of the year and a great holiday period. Thank you.
OPERATOR
And with that, we’ll wrap up today’s conference call and presentation. We do thank you for joining. You may now disconnect your lines.
Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company’s SEC filings and official press releases. Corporate participants’ and analysts’ statements reflect their views as of the date of this call and are subject to change without notice.