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Packaging Corporation of America (PKG - Snapshot Report), the fourth largest containerboard and corrugated packaging manufacturer in the U.S., reported stellar first-quarter 2014 results with record net sales and earnings. Net income for the reported quarter increased to $90.1 million or 92 cents per share from $62.3 million or 64 cents per share in the year-earlier quarter.

Excluding integration costs of $2.6 million related to the Boise Inc. acquisition and $2.6 million non-cash charge for the DeRidder restructuring, recurring earnings for the reported quarter were a record $106.5 million or $1.08 per share compared with $62.3 million or 64 cents in the year-ago quarter. Recurring earnings for the reported quarter comfortably beat the Zacks Consensus Estimate of 99 cents by a huge margin.

The year-over-year rise in earnings was driven by synergies from the Boise acquisition as well as higher prices for corrugated and containerboard products. While improved product price and sales mix contributed 21 cents per share to the recurring earnings, lower medical, pension and worker’s compensation costs contributed 3 cents to the tally, partially offset by higher energy costs, fiber costs as well as labor and repair expenses. Severe weather conditions translated into lower shipments and increased costs, costing the company 9 cents per share, of which 6 cents were recognized in first-quarter earnings.


Net sales for the reported quarter hit a record high of $1.4 billion, up from $755 million in the year-ago period, representing an outstanding year-over-year increase of 85.4%. Record revenues were largely driven by strong operations and the accretive Boise acquisition. The acquired company, whose integration remains ahead of schedule, generated synergies that accounted for 48% of earnings. Net sales for first-quarter 2014 were in line with the Zacks Consensus Estimate.

In the Packaging segment, box shipments increased 31% year over year and 29% per workday. Excluding Boise, corrugated products’ shipments increased 3.4% over the prior-year period, and were up 1.8% per workday in the reported quarter. Total containerboard production stood at 821,000 tons, and inventories were down 4,000 tons at quarter-end on year over year basis. Excluding special items, segment EBITDA for the reported quarter was $244 million, on revenues of $1,097 million.

In the Paper segment, office paper shipments increased 5.5% to about 10,000 tons over the prior-year period, but printing and converting and pressure sensitive grades went down about 20,000 tons due to last year’s capacity rationalization at the International Falls, MN mill. Total paper inventories decreased by about 25,000 tons from first-quarter 2013. Aided by improved prices, segment EBITDA for the reported quarter came in at $40 million (excluding special items), on sales of $309 million.

Balance Sheet

Packaging Corporation had cash balance of $185.7 million at quarter-end, while capital spending in the quarter stood at $50.9 million, compared with $268 million in the year-ago quarter.


Management expects higher volume in the second quarter for corrugated products, and white paper performance is expected to benefit from improved prices. With a relatively warmer weather, fuel consumption will reduce, leading to lower costs. However, production is likely to be weakened due to annual maintenance outage in three mills, thus increasing costs.

The reported quarter saw comparatively low medical and workers’ compensation costs, and management expects them to rise for the second quarter. Earnings are expected to be negatively impacted by increased electricity costs and higher tax rates. Moreover, earnings will be diminished as the capitalized portion of extreme weather-related costs is written off in the coming quarter. Consequently, the company anticipates second-quarter earnings to be approximately $1.10 per share.

Packaging Corporation currently has a Zacks Rank #3 (Hold). Other companies in the Industrial Products sector that are worth mentioning include Kadant Inc. (KAI - Snapshot Report), Middleby Corp. (MIDD - Analyst Report) and Belden Inc. (BDC - Snapshot Report), each carrying a Zacks Rank #1 (Strong Buy).

Read the Full Research Report on BDC
Read the Full Research Report on PKG
Read the Full Research Report on KAI
Read the Full Research Report on ^MIDD

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