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Packaging Corp (PKG) Q3 Earnings Beat Estimates, Sales Miss

Zacks Equity Research

Packaging Corporation of America PKG reported adjusted earnings per share of $1.92 in third-quarter 2019, which surpassed the Zacks Consensus Estimate of $1.90. Earnings came in ahead of management’s guidance of $1.91 per share. However, the reported figure declined 14% year over year.

The decline can be attributed to higher operating and converting costs and lower volume in the Paper and Packaging segments. However, these were partly offset by higher prices and mix in the Paper segment, lower annual outage expenses and lower freight and logistics expenses.

Including one-time items, earnings in the reported quarter was $1.89 compared with $2.18 in the prior-year quarter.

Packaging Corporation of America Price, Consensus and EPS Surprise

 

Packaging Corporation of America Price, Consensus and EPS Surprise

Packaging Corporation of America price-consensus-eps-surprise-chart | Packaging Corporation of America Quote

Operational Update

Sales for the third-quarter went down 3% to $1.75 billion from the prior-year quarter’s $1.8.1 billion. The reported figure also lagged the Zacks Consensus Estimate of $1.77 billion.

Cost of products sold declined 2% year over year to $1.34 billion in the reported quarter. Gross profit went down 7% to $411 million from the $443 million witnessed in the prior-year quarter. Selling, general and administrative expenses rose 2% to $137 million from the $134 million incurred in the year-ago quarter.

Segmental Performance

Packaging: Sales in this segment went down to $1,490 million from $1,535 million in the year-earlier period. Segmental income, excluding special items, came in at $238 million for the reported quarter compared with $290 million witnessed in the comparable period last year.

Printing Papers: This segment’s revenues declined 5% year over year to $243 million in the quarter thanks  to discontinuation of the paper business in the Wallula Mill. Segmental income, excluding special items, improved to $48 million from the $33 million reported in the year-earlier period.

Cash Position

At the end of the third quarter, the company had a cash balance of $738.3 million compared with $293.8 million recorded at the end of the prior-year quarter.

Outlook

For the fourth quarter, for the Packaging segment the company expects slightly lower prices, a seasonally less rich mix in corrugated products and slightly lower shipments with one less shipping day. Containerboard sales volume is also anticipated to be lower as the company intends to build some inventory prior to year-end in preparation for first-quarter 2020 scheduled maintenance outages at its three largest containerboard mills.

For the Paper segment, volumes are anticipated to be seasonally weaker along with lower average prices. Due to cold weather, energy costs are likely to be higher for the ongoing quarter. Other operating and converting costs are likely to be higher as well, which includes the costs associated with the start-up of the new Richland, WA box plant during the reported quarter. Scheduled maintenance outage costs are anticipated to be higher sequentially. Considering these, the company envisions fourth-quarter earnings at $1.70 per share.

Share Price Performance

Over the past year, Packaging Corporation’s stock has gained 23.6% against the industry’s decline of 21.7%.

Zacks Rank and Stocks to Consider

Packaging Corporation currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the Industrial Products sector are Dover Corporation DOV, Lawson Products, Inc. LAWS and Tetra Tech, Inc. TTEK, each sporting a Zacks Rank #2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Dover Corporation has an estimated earnings growth rate of 17.71% for 2019. The company’s shares have gained 46% in the past year.

Lawson Products has an expected earnings growth rate of 37.41% for the current year. The stock has appreciated 39% in a year’s time.

Tetra Tech has a projected earnings growth rate of 18.56% for the ongoing year. The company’s shares have rallied 70% over the past year.

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