Why Is Packaging (PKG) Down 0.8% Since Last Earnings Report?
A month has gone by since the last earnings report for Packaging Corp. (PKG). Shares have lost about 0.8% 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 its most recent earnings report in order to get a better handle on the important catalysts.
Packaging Corporation Beats on Q2 Earnings & Revenues
Packaging Corporation delivered second-quarter 2018 adjusted earnings of $2.08 per share, surpassing the Zacks Consensus Estimate of $1.97. The figure also surged 37% year over year.
Including one-time items, earnings came in at $1.97 per share compared with $1.52 per share reported in the year-ago quarter.
Operational Update
Net sales for the quarter came in at $1.8 billion, up 12% from the $1.6 billion recorded in the year-ago quarter. The reported figure also beat the Zacks Consensus Estimate of $1.7 billion.
Cost of products sold rose 10% year over year to $1.3 billion in the quarter. Gross profit jumped 15% to $420 million from $364 million witnessed in the prior-year quarter. Gross margin expanded 80 basis points (bps) year over year to 23.8% in the quarter. Selling, general and administrative expenses escalated 6% to $138 million from $130 million incurred in the year-ago quarter. Adjusted operating income advanced 21% year over year to $283 million.
Segment Performance
Packaging: Sales from this segment went up to $1.5 billion from $1.3 billion reported in the prior-year period. Segment income, excluding special items, came in at $279 million in the second quarter compared with $227 million in the prior-year quarter.
Printing Papers: Sales from this segment came in at $251 million in the reported quarter, down from $254 million reported in the year-ago quarter. Segment income, excluding special items, for the quarter declined to $24million from $27 million reported in the prior-year period.
Cash Position
At the end of the second quarter, the company had cash balance of $200 million compared with $321 million at the end of the prior-year quarter.
Outlook
The company expects third-quarter earnings at around $2.14 per share. It anticipates strong demand in the Packaging segment. However, corrugated products shipments will have one less shipping day during the quarter. The company will continue to implement price increases through the quarter. Notably, the majority was implemented in the second quarter.
In the Paper segment, volumes will be lower than normal during the seasonally stronger period as the company manages its already tight inventory levels around the scheduled outage at the Jackson Mill. It expects lower operating costs related to the No. 3 machine at the Wallula Mill as the first phase of the conversion from paper to linerboard is now over. Further, the segment will benefit from paper price hike.
However, persisting inflation in majority of operating costs, including slightly higher recycled fiber prices and incremental wage pressure with a tighter labor market will remain headwinds. The company also anticipates increased freight and logistics expenses, higher scheduled maintenance outage costs, as well as a slightly higher tax rate.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
VGM Scores
Currently, Packaging Corp. has a great Growth Score of A, 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 A. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is more suitable for growth investors than value investors.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Packaging Corp. has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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
Packaging Corporation of America (PKG) : Free Stock Analysis Report
To read this article on Zacks.com click here.
