Packaging Corporation of America (NYSE: PKG) is the sixth largest producer of containerboard and corrugated products in the United States in terms of production capacity. PCA reports in only one segment and sells nearly all of its products within the United States.
Although fiber and recycled fiber is increasing in price, PCA's mills are able to use several types of fiber with little to no modification, and can easily switch between energy sources such as electricity, natural gas, oil, and coal. PCA's flexibility gives them an advantage over other corrugated products producers, many of whom are tied to certain raw materials by the machinery they use.
Since the uses of containerboard is very broad, demand for PCA's products is influenced by general consumer spending, which has been stagnant. The company competes with other producers of containerboard and corrugated packaging such as Weyerhaeuser Company (WY), Smurfit-Stone Container (SSCC) and Temple-Inland (TIN).
PCA manufactures containerboard and corrugated cardboard, which include shipping boxes, corrugated palettes, retail and produce packaging.  PCA's mills use machinery designed to produce corrugated products out of hardwood fiber, softwood fiber, recycled fiber or almost any combination of the three with little to no modification. Likewise, the company uses equipment that can switch between energy sources such as electricity, natural gas, oil and coal to produce steam to power its production lines. Because PCA can switch between raw materials with little cost or labor, they are able to purchase the mix of raw materials that results in the lowest possible manufacturing costs. PCA's flexibility gives them an advantage over other corrugated products producers, many of whom are tied to certain raw materials by the machinery they use.
In 2009, PKG generated a net income of $265.9 million on $2.15 billion in total revenues. This represents a 96% increase in net income and a 9.0% decrease in total revenue from 2008, when the company earned $135.6 million on $2.36 billion in revenues.
PKG operates through only one segment. This single line of business is the integrated manufacture and sale of packaging materials, boxes, and containers for industrial and consumer markets.
When spending on all goods decreases, there is less demand for packaging used to deliver goods safely resulting in lower revenues for PCA. On the other hand, when spending on all goods increases, so does demand for packaging and PCA's revenues.
When the price of raw materials increases, PCA can either raise prices and risk lost sales or watch their margins shrink. However, PCA's flexibility of production that allows it to vary the mix of fibers is an advantage when raw material prices increase.
When the price of diesel fuel rises, it costs PCA more to transport its products from its factories to its customers. The increase in diesel costs increased the cost of transporting raw materials to PCA's factories as well as transporting finished products to PCA's customers.