Packaging Corporation of America has decided to permanently shut down the No. 2 paper machine (W2) and its kraft pulping facilities at the Wallula, Washington containerboard mill. The closure will eliminate 250,000 tons of annual capacity, leaving the No. 3 machine (W3) to produce 285,000 tons of high‑performance recycled linerboard and corrugating medium. The reconfiguration is expected to lower production costs by $125 per ton, a significant margin improvement for the plant.
The shutdown will generate pre‑tax restructuring charges of about $205 million, including $165 million in non‑cash impairment and accelerated depreciation and $40 million in cash charges for contract termination, severance and other costs. Approximately 200 positions will be eliminated, and the company has committed to providing support to affected employees. The cost savings from the shutdown are projected to offset the one‑time restructuring expense over the long term, improving the mill’s operating margin.
Management cited high wood‑fiber and purchased‑power costs as the primary reason the Wallula mill is no longer competitive. By focusing on the more efficient No. 3 machine and its recycled‑pulping operations, PCA aims to concentrate resources on high‑margin products and reduce exposure to volatile input prices. The company plans to replace the lost capacity with production enhancements at other mills, including a 140,000‑ton increase at the Jackson mill, to maintain overall supply commitments.
In the most recent quarter, PCA reported an earnings‑per‑share miss of $0.10 (2.73 versus an estimate of 2.83) despite a revenue beat of $2.31 billion versus $2.29 billion. The miss was largely driven by the lower‑than‑expected demand for corrugating medium and the impact of the restructuring charges. The company’s Q4 guidance of $2.40 EPS, below the consensus estimate of $2.63, reflects management’s caution amid a softening box‑demand outlook and rising input costs.
CEO Mark Kowlzan said, “Wood fiber and purchased power costs are by far the highest in our system, making the currently configured mill no longer competitive.” He added that the company is committed to supporting employees through the transition, acknowledging the human impact of the decision.
Analysts noted the EPS miss and the lower Q4 guidance as key concerns, highlighting the company’s sensitivity to input‑price volatility and demand fluctuations. The restructuring is viewed as a necessary step to stabilize margins and preserve long‑term profitability.
Looking ahead, PCA will begin production enhancements at other mills in the fourth quarter of 2026, with the Jackson mill expected to add 140,000 tons of linerboard capacity. The company’s focus on high‑performance recycled products and cost‑efficient operations positions it to better navigate the current market environment and maintain its competitive standing in the containerboard industry.
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