Packaging Corp (PKG) Faces Headwinds From Low Paper Volumes
Packaging Corporation of America PKG has been witnessing weak packaging demand. Order flow and the demand for the company’s products are affected as customers are working to lower their high inventory levels.
Containerboard production in the upcoming quarters will likely be lower as the company plans to match production with demand. Elevated costs are denting the company’s margins.
Shares of this Zacks Rank #5 (Strong Sell) company have lost 5.9% in the past year compared with the industry’s fall of 3%.
Image Source: Zacks Investment Research
Low Packaging Demand & Paper Volumes Act as Woes
Global and domestic economic conditions continue to be less favorable, with ongoing inflationary pressures, high interest rates and persisting supply-chain disruptions. Amid this scenario, customers are working to lower their high inventory levels, impacting the order flow and demand for Packaging Corp’s products.
Containerboard production in the upcoming quarters will likely be lower as the company plans to match production with demand.
Packaging Corp expects to complete the scheduled annual maintenance outage and the first phase of the containerboard conversion work on the No. 3 machine at the Jackson, AL-based mill. The No.3 machine has reached the first-phase design capacity and is producing high-quality virgin linerboard.
However, given the current containerboard demand, the company decided to postpone the second phase of the conversion work until 2024.
Lower Prices to Hurt Margins
The company anticipates lower prices in the Packaging segment in the second quarter of 2023 as a result of the recent decreases in the domestic containerboard prices and lower export prices.
In the Paper segment, the company will continue implementing the price increase that took effect in September 2022, with a fairly flat sales volume.
Cost Headwinds Weigh on Margins
Labor costs and certain indirect costs are expected to be elevated in the upcoming quarters. Inflated prices for many chemicals, particularly starch and caustic soda, remain headwinds. This will be somewhat offset by lower wood and recycled fiber prices, energy prices and reduced scheduled maintenance outage expenses.
Rising interest and non-operating pension expenses, and a higher tax rate are expected to hurt margins.
Stocks to Consider
Some better-ranked stocks from the Industrial Products sector are Hubbell Incorporated HUBB, The Manitowoc Company, Inc. MTW and W.W. Grainger, Inc. GWW. HUBB and MTW flaunt a Zacks Rank #1 (Strong Buy) at present, and GWW has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Hubbell has an average trailing four-quarter earnings surprise of 21%. The Zacks Consensus Estimate for HUBB’s fiscal 2023 earnings is pegged at $13.81 per share. The consensus estimate for 2023 earnings has moved north by 22.5% in the past 60 days. Its shares gained 70.3% in the last year.
Manitowoc has an average trailing four-quarter earnings surprise of 38.8%. The Zacks Consensus Estimate for MTW’s 2023 earnings is pegged at 85 cents per share. The consensus estimate for 2023 earnings has moved 63.5% north in the past 60 days. MTW’s shares gained 61.1% in the last year.
The Zacks Consensus Estimate for Grainger’s 2023 earnings per share is pegged at $35.83, up 7.6% in the past 60 days. It has a trailing four-quarter average earnings surprise of 9.1%. GWW gained 59% in the last year.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
The Manitowoc Company, Inc. (MTW) : Free Stock Analysis Report
W.W. Grainger, Inc. (GWW) : Free Stock Analysis Report
Packaging Corporation of America (PKG) : Free Stock Analysis Report
Hubbell Inc (HUBB) : Free Stock Analysis Report
