PKG Q2 Deep Dive: Price Gains Offset Volume Weakness Amid Pending Greif Acquisition

Packaging Corporation of America (NYSE:PKG) missed Wall Street’s revenue expectations in Q2 CY2025 as sales rose 4.6% year on year to $2.17 billion. Its non-GAAP profit of $2.48 per share was 1.5% above analysts’ consensus estimates.

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StockStory’s Take

Packaging Corporation of America’s second quarter results were shaped by higher pricing in both its Packaging and Paper segments, which helped offset ongoing volume declines and cautious customer ordering patterns. Management cited the full realization of previously announced price increases and tight control over operating costs as key to boosting margins. CEO Mark Kowlzan noted that lower fiber costs and efficiency initiatives also contributed, though these factors were partially offset by higher scheduled maintenance expenses and continued softness in certain end markets such as automotive and building products. The company’s ability to adapt operations amid lower export containerboard sales and inflationary pressures was a central theme of the quarter.

Looking forward, management expects a gradual recovery in corrugated shipments, with CEO Mark Kowlzan pointing to improving order trends in July and the prospect of stronger demand in the second half of the year. The pending acquisition of Greif’s containerboard business is expected to provide a growth platform and capital avoidance benefits, particularly in key regions like Dallas where expansion would otherwise require significant investment. However, executives remain cautious, highlighting ongoing uncertainties tied to tariffs, interest rates, and global economic conditions. As President Tom Hassfurther remarked, “there’s tremendous upside for us relative to getting these tariffs behind us and some interest rate movement, which will really catapult us going forward.”

Key Insights from Management’s Remarks

Management attributed the quarter’s results to successful price realization, efficiency gains, and strategic cost controls, while addressing persistent headwinds in certain customer segments and export markets.

• Pricing realization drove margins: Full implementation of earlier price increases in the Packaging and Paper segments was a primary lever for margin improvement, with management stating that realized pricing contributed significantly more than changes in product mix.
• Export containerboard sales weakness: Export demand remained subdued due to global trade tensions and tariffs, resulting in lower containerboard production and sales, which the company managed by aligning production closely to demand and drawing down inventories.
• Operational efficiency and cost control: The company achieved approximately 99% uptime across its manufacturing system and offset inflationary pressures through disciplined cost management, even while running some mills below full capacity due to demand.
• Customer caution and inventory discipline: Persistent uncertainty around tariffs and broader economic conditions led customers to keep inventories lean and order patterns volatile, with notable weakness in automotive and building products sectors linked to high interest rates and stagnant housing markets.
• Pending Greif acquisition for growth: The announced acquisition of Greif’s containerboard assets is expected to deliver capital avoidance—avoiding the need to build new facilities—and provide a platform for expansion in strategic locations, while increasing PCA’s recycled fiber mix and integration rate.

Drivers of Future Performance

Management’s outlook is anchored in expectations for steadier domestic demand, operational leverage from higher mill utilization, and the integration of Greif’s assets—tempered by caution around tariffs and global economic uncertainty.

• Demand recovery potential: Improving bookings and shipments in July suggest a possible rebound in corrugated box demand, particularly if customers gain more confidence as economic and policy uncertainties such as tariffs and interest rates are resolved. Management believes pent-up demand could be released as clarity returns to the market.
• Greif acquisition integration: The pending acquisition is expected to provide immediate capital avoidance benefits, increase PCA’s recycled containerboard capacity, and offer operational synergies, especially with highly integrated assets in regions where PCA previously considered large capital projects.
• Ongoing external risks: Uncertainties related to tariffs, global trade tensions, and the broader economic outlook remain key risks. Management stressed that continued caution among customers, especially in export and cyclical end markets, could limit volume recovery if these headwinds persist.

Catalysts in Upcoming Quarters

Looking ahead, our analyst team will be watching (1) the pace at which the Greif acquisition closes and begins contributing to operational and financial results, (2) any sustained improvements in domestic corrugated box demand as customer ordering patterns normalize, and (3) the company’s ability to maintain margin gains as it manages integration, inflation, and volatile export markets. Developments in trade policy and interest rates will also be critical factors impacting outlook.

Packaging Corporation of America currently trades at $205.93, in line with $206.35 just before the earnings. Is there an opportunity in the stock?See for yourself in our full research report (it’s free).

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