Packaging Corporation of America
) reported upbeat second quarter results on July 17th, including a
25.6% year-over-year jump in earnings per share. Analysts made
significant upward revisions to their estimates for fiscal years
2012 and 2013 in response, helping the stock achieve a Zacks #2
In addition to strong earnings growth, this North American
integrated producer of containerboard and corrugated packaging
products pays a dividend that yields a solid 3.3%.
Second Quarter Results
Packaging Corporation's second quarter earnings came in at 49 cents
per share, surpassing the Zacks Consensus Estimate of 46 cents by
6.5%. This marked the fifth straight quarter with a positive
earnings surprise. Growth in earnings was driven by increased sales
volume of containerboards and corrugated products. The company also
benefited from minimized production costs.
Net sales for the quarter grew 7.0% year over year and 6.1%
sequentially to $712 million, comprehensively beating the Zacks
Consensus Estimate of $690 million.
Shipments for corrugated products surged 6.6% year over year.
However, outside sales of containerboards declined from the
year-earlier quarter. The production of containerboard jumped 5.3%
year over year to 638,000 tons.
Gross profit in the quarter was up 15.5% year over year to $158.1
million, while gross margin came in at 22.2%, versus 20.6% in the
year-ago quarter and 21.6% in the previous quarter. Selling and
administrative expenses amounted to $52.9 million, compared with
$48.2 million in the previous year quarter.
Improved corrugated product shipments, enhanced mill operations and
reduced expenses boosted the company's performance in the quarter.
Moreover, there was a rise in export prices compared to the
Strong Guidance and Estimate Revisions
The company is positive that its revenue accruing from corrugated
products will be enhanced in the coming quarter. In addition, the
production from its mills at Counce and Valdosta is expected to
improve with reduced cost of production, as the company has
commenced energy optimization projects at these mills that are
expected to reduce fuel and electricity purchases. Including these
factors, management expects that the earnings per share for the
third quarter of 2012 will be 54 cents.
Analysts raised their estimates considerably for 2012 and 2013. In
the past 7 days, the Zacks Consensus Estimate for fiscal 2012 rose
3.7% to $1.95 per share as 10 of 11 estimates were revised upward.
This implies a year over year growth of 21.0%. Similarly for 2013,
the Zacks Consensus Estimate increased 2.7% to $2.30, driven by
upward revisions in all 11 estimates.
As is evident from the chart below, the stock price has been rising
since the beginning of this year and has also outperformed its
200-day moving average line (SMA 200).
Packaging Corporation has been consistently paying dividends to its
shareholders since December 2003. The company recently raised its
quarterly dividend from 20 cents to 25 cents a share, which affirms
a dividend yield of 3.3%.
Valuation Looks Reasonable
Packaging Corporation of America trades in line with its peer group
average with respect to its forward earnings at 15.7x. While the
price to book ratio indicates a premium to its peer group's 1.98,
this is justified given its ROE of 18.1%, compared with the peer
group average of 14.4%.
Headquartered in Lake Forest, Illinois, Packaging Corporation of
America is a North American integrated producer of containerboard
and corrugated packaging products. Packaging Corporation is the
fifth largest low-cost producer of containerboard in the United
States. The company manufactures a range of linerboard and
corrugating medium and other products such as multicolor boxes, and
displays used to merchandise products in retail locations, and
special design/application boxes used in the food and agriculture
industry. The company is also involved in the production of meat
boxes and wax-coated boxes for the agricultural industry. The
company has a market capitalization of $2.9 billion.
PACKAGING CORP (PKG): Free Stock Analysis
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