FreightWaves wrote at the beginning of April about continued severe weakness in U.S. box demand based on its survey of over 30 boxmakers, and the Q1 results from the third-largest North American containerboard producer, Packaging Corp. of America, confirmed as much.
Packaging Corp.’s shipments were down nearly 13%, a decline as severe as during the depths of the Great Financial Crisis. (Its shipments were down a virtually identical percentage in the first quarter of 2009.) Furthermore, Packaging Corp.’s demand trends weakened as Q1 progressed, reflecting increasingly weaker consumer spending.
The company expects improved volume in Q2 but not did not indicate to what degree or why following what was worse-than-expected demand in both Q4 and Q1; Packaging Corp.’s demand visibility is quite clearly limited. At least partly as a result of the substantial demand weakness, the company slightly fell short of its Q1 earnings guidance and guided to second-quarter earnings down 11% sequentially and nearly 25% below the consensus estimate.
Box demand is an excellent coincident economic indicator and is among the best barometers of goods demand along with freight/trucking. Box demand rose to historically high levels during the pandemic thanks to unprecedented government stimulus spending but is crashing just as quickly as it rose then.
There have been numerous other indications of intensifying economic weakness outside the box market (employment, retail sales, real average weekly earnings, freight rates and volumes, most regional manufacturing indices, numerous prominent and sizable layoff announcements, rising credit card and auto loan delinquency levels, etc.), but we think box demand by itself speaks volumes. We await the company’s commentary on its earnings call Tuesday, specifically about why it expects improved box volume in Q2 despite the aforementioned economic indicators.
