Packaging Corporation of America (PKG), the fourth largest containerboard and corrugated packaging manufacturer in the U.S., reported stellar third quarter 2013 results with record net sales and earnings. Net income for the reported quarter increased to $84.2 million or 86 cents per share from $39.8 million or 41 cents per share in the year-earlier quarter.
Excluding a one-time charge of $5 million related to the proposed acquisition of Boise Inc. (BZ) and annuity plans, recurring earnings for the reported quarter were $88.9 million or 91 cents per share compared with $53.3 million or 55 cents in the year-ago quarter. The recurring earnings exceeded the Zacks Consensus Estimate by 2 cents.
The year-over-year rise in earnings was primarily attributable to higher prices for corrugated and containerboard products during the quarter. While high product prices contributed 44 cents per share to the recurring earnings, higher sales volume contributed 5 cents to the tally, partially offset by higher energy costs, higher fiber costs, higher labor and transportation expenses.
Net sales for the reported quarter hit a record high of $845.4 million, up from $723.5 million in the year-ago period, representing a year-over-year increase of 16.8%. Record sales for the quarter were largely driven by strong demands for containerboard and corrugated products as most mills ran well. Net sales for third quarter 2013 exceeded the Zacks Consensus Estimate of $831 million.
Corrugated products’ shipments increased 7.8% per workday in the reported quarter. Total shipments were a record 671,000 tons as box shipments set an all-time high for shipments per workday. Total containerboard inventories decreased 4,000 tons compared with year-end 2012.
During third quarter 2013, Packaging Corporation inked a deal to acquire Boise for $1.995 billion in cash. The transaction is expected to close by the fourth quarter of 2013, subject to regulatory approvals.
Based in Boise, Idaho, Boise produces a broad range of packaging and paper products. The strategic acquisition will increase Packaging Corporation’s containerboard capacity by 42% to 3.7 million tons. The deal is also likely to boost the company’s corrugated products volumes by 30%. Moreover, the acquisition will enable Packaging Corporation to facilitate mill grade optimization, reduce operating costs, and optimize corrugated products production. The company is expected to generate a pre-tax benefit of about $105 million from these areas within three years of the deal’s closure.
Management expects lower fourth quarter corrugated products volume compared with third quarter due to seasonality factors and lesser number of shipping days. In addition, production is also likely to be affected by annual maintenance outage at the Filer City, Michigan mill. Operating costs are also expected to increase due to high fuel costs and cold weather conditions. Consequently, the company anticipates fourth quarter earnings to be approximately 84 cents per share.
Packaging Corporation currently has a Zacks Rank #3 (Hold). Other companies in the industry that are worth mentioning include Orchids Paper Products Company (TIS) and KapStone Paper and Packaging Corporation (KS), both carrying a Zacks Rank #2 (Buy).
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