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Packaging Corporation (PKG) Beats on Q3 Earnings & Revenues

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Packaging Corporation (PKG) Beats on Q3 Earnings & Revenues

Packaging Corporation's (PKG) full-year 2018 performance will be supported by strong demand and price increases, despite rising fuel costs.

Packaging Corporation of America PKG delivered third-quarter 2018 adjusted earnings of $2.23 per share, surpassing the Zacks Consensus Estimate of $2.15. The reported figure also surged 33% year over year. Earnings came above management’s guidance of $2.14 per share, primarily aided by higher prices and mix in Packaging and Paper segments, as well as solid volumes in the Paper segment.

Including one-time items, earnings came in at $2.18 per share compared with $1.47 per share earned in the year-ago quarter.

Operational Update
 
Net sales for the quarter came in at $1,810 million, up 10% from the $1,640 million recorded in the year-earlier quarter. The reported figure also beat the Zacks Consensus Estimate of $1,764 million.

Packaging Corporation of America Price, Consensus and EPS Surprise

 

Packaging Corporation of America Price, Consensus and EPS Surprise | Packaging Corporation of America Quote

Cost of products sold rose 10% year over year to $1,367 million in the quarter under review. Gross profit jumped around 12% to $443 million from $397 million witnessed in the prior-year quarter. Gross margin expanded 30 basis points (bps) year over year to 24.5% in the quarter. Selling, general and administrative expenses flared up 3.5% to $134 million from $130 million incurred in the year-ago quarter. Adjusted operating income advanced 15.6% year over year to $309 million.

Segmental Performance

Packaging: Sales from this segment went up to $1,535 million from $1,347 million reported in the prior-year period. Segment income, excluding special items, came in at $290 million in the third quarter compared with $264 million in the comparable period last year.
 
Printing Papers: The segment’s revenues came in at $254 million in the Sep-end quarter, down from $271 million witnessed in the year-ago quarter. Segment income, excluding special items, for the quarter increased to $33 million from $23 million reported in the year-earlier period.

Cash Position
 
At the end of the third quarter, the company had cash balance of $294 million compared with $371 million at the end of the prior-year quarter.
 
Outlook
 
Packaging Corporation projects fourth-quarter 2018 earnings at around $2.15 per share. It anticipates solid demand in the Packaging segment. Nonetheless, there will be two less shipping days during the current quarter. The Paper segment will benefit from the recent price increases and strong demand.

The company expects fuel costs to be higher in the Oct-Dec quarter due to seasonally colder weather. Furthermore, prevalent inflation in operating and converting costs, including incremental wage pressure with a tighter labor market, will dampen its margin. Packaging Corporation will also have an extended outage at Wallula Mill to complete the remaining work related to the conversion of the No. 3 machine from paper to linerboard.
 
Share Price Performance

Over the past year, Packaging Corporation has underperformed the industry with respect to price performance. The stock has depreciated 24%, wider than the nearly 19% decline witnessed by the industry.



Zacks Rank & Key Picks
 
Packaging Corporation carries a Zacks Rank #3 (Hold).

Better-ranked stocks in the same industry include Tetra Tech, Inc. TTEK, Tenaris S.A. TS and Mobile Mini, Inc. MINI. While Tetra Tech sports a Zacks Rank #1 (Strong Buy), Flowserve and Mobile Mini carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Tetra Tech has a long-term earnings growth rate of 14%. The stock has appreciated around 32% in a year’s time.

Tenaris has a long-term earnings growth rate of 38.3%. The company’s shares have rallied 12% over the past year.

Mobile Mini has a long-term earnings growth rate of 14%. Its shares have gained 18% in the past year.

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