PKG falls 2.7% on earnings miss, Wallula mill restructuring
Packaging Corporation of America misses EPS estimates by 17.6%, provides cautious Q1 guidance amid major mill overhaul
Packaging Corporation of America shares fell 2.7% on Tuesday after the company reported fourth-quarter earnings that missed analyst estimates and provided first-quarter guidance below current performance levels, reflecting ongoing challenges at its Washington mill.
The Lake Forest-based packaging company reported adjusted earnings per share of $2.32 for the fourth quarter of 2025, falling short of the $2.82 expected by analysts—a 17.6% shortfall. Revenue of $2.36 billion topped the $2.31 billion consensus estimate, but the bottom-line disappointment weighed on investor sentiment.
For the first quarter of 2026, Packaging Corporation forecast earnings of $2.20 per share excluding special items, a figure that trails the adjusted performance in the just-completed quarter. The guidance includes significant impacts from the ongoing restructuring of the company's Wallula, Washington containerboard mill.
The Wallula mill reconfiguration, announced in December, involves the permanent shutdown of the No. 2 paper machine and kraft pulping facilities while continuing operations of the No. 3 paper machine and recycled pulping operations. The restructuring will reduce the mill's annual production capacity by 250,000 tons and is expected to be completed by the end of the first quarter.
According to company announcements, the new configuration is expected to decrease production costs at Wallula by approximately $125 per ton from 2025 levels due to improved efficiency and utilization rates. However, the restructuring will incur pre-tax charges of roughly $205 million, including about $165 million in non-cash impairment and accelerated depreciation, plus $40 million in cash charges for contract termination and severance costs.
The overhaul will eliminate approximately 200 positions, with layoffs scheduled for February 2026, according to industry reports. To offset the reduced capacity at Wallula, PCA plans to increase production at other mills, with those initiatives beginning in the fourth quarter of 2026.
Mark W. Kowlzan, chairman and chief executive officer, attributed the fourth-quarter performance to "a seasonally less rich mix with strong e-commerce volume through the holiday season and continued inventory management from other customers." However, he noted that the order book strengthened as the quarter progressed and that demand had "significantly improved across the customer base in January."
Analyst reactions to the earnings report and restructuring plan were mixed. Wells Fargo upgraded PKG from "Equal Weight" to "Overweight" and increased its price target to $233 from $222, while Truist raised its target to $273 from $263, maintaining a "Buy" rating. Both firms cited expectations that disciplined supply management would enable successful price increases by containerboard producers despite challenging volume conditions in early 2026.
Conversely, Citi lowered its price target to $226 from $229, keeping a "Neutral" rating and pointing to a difficult volume environment for the packaging sector in 2026.
The current analyst consensus remains positive, with a "Buy" rating according to recent analyst surveys. The average 12-month price target stands at $228.70, suggesting modest upside from the current share price of $217.61. Individual targets range from a low of $226 to a high of $273.
Packaging Corporation of America, with a market capitalization of $20.1 billion, operates in a competitive containerboard and corrugated packaging market. The company's trailing price-to-earnings ratio of 22.6 reflects investor expectations for the sector, which faces pressure from fluctuating demand and capacity adjustments across the industry.
The Wallula restructuring represents a strategic bet on long-term efficiency at the cost of near-term disruption. Management emphasized the improving demand outlook and a tighter containerboard system compared to the third quarter, indicating a strategy to operate mills at full capacity as market conditions allow.