Why Packaging Corporation of America Shares Are Soaring Today

What happened

Shares of consumer goods packaging outfit Packaging Corporation of America (NYSE: PKG) are higher by 8.8% as of 1:18 p.m. ET Thursday following Wednesday's post-close release of its fiscal fourth-quarter results. The company's top and bottom lines both topped estimates.

So what

Consumerism is still going strong, certainly stronger than it was a year earlier, when the COVID-19 pandemic was stifling commerce of every sort. For the three-month stretch ending in December, Packaging Corporation of America turned $2.04 billion worth of revenue into a per-share operating profit of $2.76. Those numbers beat expectations of $1.92 billion and $2.08, according to Zacks, and were well ahead of the year-ago figures of $1.71 billion and $1.33 per share. The company's full-year numbers were similarly impressive.

Cardboard boxes moving on a conveyer belt.

Image source: Getty Images.

Much of that sales and profit growth stemmed from higher prices that offset Packaging Corporation of America's rising commodity costs. CEO Mark W. Kowlzan commented, "Throughout the quarter, implementation of our previously announced containerboard and corrugated products price increases was executed extremely well," adding, "Although unprecedented inflation in most all of our operating cost categories and freight cost continues, we were able to offset some of this impact by taking advantage of the strong market conditions."

Now what

It's yet another piece of evidence that, while inflation is rampant, consumers are willing and able to pay higher prices. Given this stock's lack of net gain for the past 12 months, it's an idea not all investors were ready to embrace.

To this end, Packaging Corporation of America is almost a buy. The market demand for product packaging is firm enough, and the stock is cheap enough, priced at only 15.6 times this year's projected per-share earnings. The only stumbling block is the scope of today's surge. This much strength may be a tough act to immediately follow, as it invites short-term profit-taking. Would-be buyers may want to wait for the dust to settle before stepping in, allowing the stock to settle a bit first.

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James Brumley has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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