Why Is Packaging Corp. (PKG) Down 5% Since Last Earnings Report?
A month has gone by since the last earnings report for Packaging Corp. (PKG). Shares have lost about 5% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Packaging Corp. due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Packaging Corp Q2 Earnings Lag Estimates on Low Volumes
Packaging Corporation of America reported adjusted earnings per share (EPS) of $2.31 in the second quarter of 2023, beating the Zacks Consensus Estimate of $1.95. The reported figure was higher than the company’s EPS guidance of $1.96 in the quarter under review. However, the bottom line decreased 28% year over year.
The downside was primarily caused by lower volumes in the Packaging and Paper segments. Lower price and mix in the Packaging segment combined with higher depreciation expense and other converting costs were major headwinds. Nonetheless, lower operating costs, higher prices and mix in the Paper segment, a lower share count and reduced scheduled maintenance outage expenses, and a lower tax rate offset some of these negatives.
Including one-time items, earnings in the reported quarter were $2.24 per share compared with the prior-year quarter’s $3.20.
Operational Update
Sales in the second quarter fell 12.7% year over year to $1,952 million. The top line missed the Zacks Consensus Estimate of $1,980 million.
Cost of products sold was down 8.6% year over year to $1,507 million in the reported quarter. Gross profit fell 24.5% year over year to $444.7 million. Selling, general and administrative expenses totaled $146 million compared with the prior-year quarter’s $157 million. Adjusted operating income slumped 30% year over year to $146 million.
Segment Performances
Packaging: Sales in this segment decreased 13.4% year over year to $1,790 million in the second quarter of 2023. The figure lagged our estimate of $1,794 million.
In the Packaging segment, total corrugated products shipments and shipments per day fell 9.8% year over year. We had anticipated a volume decline of 7%, and an unfavorable price and mix impact of 6.3%.
Adjusted operating profit was $286 million compared with $420 million in the prior-year quarter. the metric plunged 32% year over year. Per our model, the estimated segmental adjusted operating income was $251 million, that had factored in a fall of 40.1% from the year-earlier reported figure.
Paper: The segment’s revenues were $143 million in the Apr-June quarter, down 4.7% year over year. It missed our estimate of $146 million. The segment reported an adjusted operating profit of $29 million compared with the year-ago quarter’s $23 million. Our projection for the segment’s adjusted operating income was $24.2 million.
Segmental sales volume was down 19,000 tons compared with second-quarter 2022 levels. We had expected a positive pricing/mix impact of 9.4% in the second quarter. Volume was expected to be a negative 11.7%.
Cash Position
Packaging Corp had a cash balance of $630 million at second-quarter 2023 end, down from $811 million at the end of the prior-year quarter.
Outlook
Packaging Corp projects third-quarter 2023 EPS to be $1.88. Shipments per day is anticipated to improve sequentially despite one less shipping day for the corrugated business. Pricing is, however, likely to fall as a result of previously announced domestic containerboard price decreases and lower export pricing.
In the Paper segment, volumes are expected to pick up, aided by back-to-school shipments. Prices are suggested to trend lower based on the recent declines in index prices.
Operating and converting costs are anticipated to be slightly higher primarily due to elevated recycled fiber prices and seasonal energy cost. Scheduled maintenance planned at International Falls, MN mill is expected to hurt earnings. Due to all of these factors along with higher tax rate the third-quarter EPS projection hints a year-over-year decline of 33.6%
How Have Estimates Been Moving Since Then?
It turns out, estimates revision flatlined during the past month.
VGM Scores
At this time, Packaging Corp. has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Packaging Corp. has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Packaging Corporation of America (PKG) : Free Stock Analysis Report
