Investing.com -- On May 19, 2025, Moody’s Ratings boosted the senior unsecured ratings of Packaging (NYSE: PKG ) Corporation of America (PCA) from Baa2 to Baa1. The outlook for the company was also revised from positive to stable.
The upgrade by Moody’s reflects PCA’s history of superior performance and a prudent financial policy. This policy will enable the company to handle uncertainty associated with the fluctuating trade and economic environment while maintaining robust credit metrics, according to Anastasija Johnson, a senior analyst at Moody’s Ratings.
PCA, the third largest producer of containerboard and corrugated products in North America, benefits from its strong market position. The company’s low-cost and well-integrated operations predominantly use virgin fiber. PCA’s debt-to-EBITDA ratio, adjusted by Moody’s, has varied from 1.4x to 2.4x over the past five years, consistently lower than its larger, similarly-rated industry peers. The leverage exceeded 2x only in 2020 during the COVID pandemic. Moody’s anticipates the leverage to hover around 1.4x-1.6x in the forecast period as PCA reinvests its strong free cash flow in its business, focusing on organic growth.
PCA’s strong operating margins, better than its North American containerboard competitors, are due to high containerboard integration rates, consistent investment in converting capabilities, and a focus on both smaller regional customers and national accounts. Moody’s expects PCA to continue maintaining strong margins and market position, and to uphold its conservative financial policy.
Despite a lack of a specific leverage target, PCA has a history of maintaining a robust balance sheet to preserve financial flexibility. This allows the company to reinvest in its business, pursue acquisitions, and return cash to shareholders. Moody’s does not anticipate major changes in the company’s strategy and financial policy following the recent change in senior management, as the new CFO has a long tenure with the company.
PCA’s credit profile is somewhat limited by its scale in comparison to its direct competitors, such as SmurfitWestrock and International Paper Company (NYSE: IP ). Other constraints include its modest operational flexibility through seven containerboard mills and one paper mill, lack of geographic diversity outside the US, and remaining exposure to communications paper, which is in secular decline.
As of March 2025, PCA had strong liquidity with about $753 million in cash, $162 million in marketable debt securities, and $323 million available under a $350 million committed revolver, which matures in June 2026. The company’s next maturity after the revolver is $500 million bonds due in 2027. The company also had $436 million available for share repurchases under its $1 billion authorization as of March 2025.
The stable outlook is based on Moody’s expectation that PCA will maintain strong credit metrics even in a weaker economic environment. Factors that could lead to a ratings upgrade or downgrade include changes in PCA’s financial management policies, significant deterioration in its operating performance, and shifts in its debt/EBITDA ratios or RCF/net debt ratios.
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