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On Dec 24, Zacks Investment Research downgraded Rock-Tenn Company (RKT - Analyst Report), manufacturer of consumer packaging products, to a Zacks Rank #5 (Strong Sell).

Why the Downgrade?

On Nov 4, Rock-Tenn reported record earnings per share of $2.66 in the fourth quarter 2013, up 91% year over year. Despite record earnings, the company’s earnings estimate underwent sharp downward revisions due to a tempered volume outlook and concerns regarding the negative impact of cost headwinds.

Domestic Old Corrugated Containers (OCC) prices were flat in October with the previous month. Export prices increased by up to $10 per ton, depending on the grade. Rock-Tenn expects continued price moderation during the December quarter.

Industry shipments of containerboard to export markets in the fourth quarter declined 9% from the prior-year quarter. The Corrugated Packaging segment’s shipment also decreased 34,000 tons from the year-ago quarter due to lower domestic sales.

Rock-Tenn will reduce its current mill production to meet current customer demand at several of its other facilities, and is expected to increase production back to normal levels banking on improving customer demand.

The company has scheduled major maintenance outages at its Florence and Fernandina Beach mills in the December quarter. This will impact results in the next quarter.

Following the fourth quarter earnings announcement, the Zacks Consensus Estimate for 2014 has gone down 10.7% to $8.41 per share. Likewise, the Zacks Consensus Estimate for 2015 fell 8% to $9.53.

Other Stocks to Consider

Better-ranked stocks in the paper and packaging industry include Domtar Corp. (UFS - Snapshot Report), KapStone Paper and Packaging Corp. (KS - Snapshot Report) and Orchids Paper Products Co. (TIS - Snapshot Report). While Domtar sports a Zacks Rank #1 (Strong Buy), KapStone Paper and Orchids Paper Products have a Zacks Rank #2 (Buy).

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