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The Zacks Containers – Paper and Packaging industry will benefit from robust demand for food, beverage and hygiene products, as packaging is integral to the distribution of these products. Booming e-commerce activities and rising demand for sustainable and eco-friendly packaging options due to increasing environmental concerns will favor the industry. Pricing actions implemented by the industry players will help offset the impact of the ongoing supply chain disruptions and rising material and other costs.
Packaging Corporation of America, Graphic Packaging Holding Co., Sonoco Products Co. and Greif, Inc. are set to gain from solid market prospects.
About the Industry
The Zacks Containers – Paper and Packaging industry comprises companies that manufacture paper and plastic packaging products. The packaging solutions provided by the industry help protect and preserve products while also extending shelf life and cutting down wastage and loss across the wide and lengthy range of distribution channels.
The products range from containerboard and corrugated packaging to flexible and rigid plastic packaging. Some companies also manufacture dispensing pumps, closures, aerosol valves and applicators for the beauty, personal, home care and healthcare markets.
The industry serves a wide array of markets, including food, beverage, food services and other consumer products, such as beauty, personal care and home care. They also cater to the chemical, agribusiness, medical, pharmaceutical, electronics and industrial markets, to name a few.
What's Shaping the Future of the Containers - Paper and Packaging Industry
Surging Demand for Essential Products & E-commerce: The industry has considerable exposure (more than 60%) to consumer-oriented end-markets, such as food and beverages and healthcare, which keeps demand for packaging applications fairly stable across economic cycles. The pandemic has triggered the requirement for essential products, such as food, medicine, medical equipment and other critical products that in turn have spurred demand for the industry's packaging solutions since last year.
With rising e-commerce activities over the past few years and the pandemic accelerating it further, the importance of packaging has increased manifold as it helps maintain the integrity and durability of a product to withstand the complex product-delivery process. Per Statista, global retail e-commerce sales that were around approximately $4.9 trillion in 2021 are expected to surge 51% to around $7.4 trillion by 2025. This, in turn, will fuel the Containers - Paper and Packaging industry.
Focus on Eco-Friendly Packaging: Demand for sophisticated packaging has been on the rise, and the industry is constantly striving to meet the same by adopting new technology and innovative products. It is likely to gain from the growing global demand for environment-friendly biodegradable packaging materials, courtesy of customers' increasing awareness about environmental issues.
Industry players have already begun incorporating recycled content into production methods. By maximizing recycling, the industry will be able to implement environmentally- and economically sustainable production methods.
High Input Costs & Supply Chain Issues Persist: The industry participants have been encountering supply chain disruptions and higher raw material costs, which have been stemming from various factors, including general inflationary pressure, limited availability of certain raw materials, and global transportation disruptions.
Higher labor, transportation and chemical costs add to their woes. Shortage of labor might impact their production levels and impair their ability to meet the high demand. The industry players are making every effort to bolster their financial condition, conserve cash and improve profitability.
The companies have been implementing cost-reduction actions, which are likely to help sustain margins in this scenario. They are focused on streamlining their operations and realigning around high-growth key markets to bolster their performances.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Containers - Paper and Packaging industry is a 12-stock group within the broader Zacks Industrial Products sector. The industry currently carries a Zacks Industry Rank #113, which places it at the top 45% of the 252 Zacks industries.
The group's Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bright prospects in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry's positioning in the top 50% of the Zacks-ranked industries is a result of a solid earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group's earnings growth potential. Over the past year, the industry's earnings estimates for the current year have been revised upward by 22%.
Before we present a few Containers - Paper and Packaging stocks that can be retained in one's portfolio, it's worth taking a look at the industry's stock-market performance and valuation picture.
Industry Versus Broader Market
The Containers - Paper and Packaging industry has underperformed the S&P 500 but outperformed the sector over the past year. The industry has gained 7.7% compared with the S&P 500's rally of 13.5%. Meanwhile, the Industrial Products sector has declined 4.8%.
Industry's Current Valuation
On the basis of the forward 12-month EV/EBITDA ratio, which is a commonly-used multiple for valuing Containers - Paper and Packaging companies, we see that the industry is currently trading at 19.48x compared with the S&P 500's 13.80x and the Industrial Products sector's forward 12-month EV/EBITDA of 17.05x.
Over the last five years, the industry has traded as high as 30.07x and as low as 10.95x, with the median at 16.61x.
4 Containers - Paper and Packaging Stocks to Keep an Eye On
Packaging Corporation of America: The company's packaging business, which accounts for around 91% of its revenues, has been benefiting from strong demand in e-commerce and rising requirements for the packaging of meat, fruit and vegetables, processed food, beverages and medicines. The company's corrugated products plants set record fourth-quarter total shipments and all-time record shipments on a daily basis.
This momentum is anticipated to continue in 2022 as well. Backed by this, the company's shares have gained 19% in the past three months. The company maintains a balanced approach toward capital allocation in order to boost growth and maximize returns for shareholders. The conversion of the No. 3 paper machine at its Jackson, AL mill to linerboard in a phased manner over the next three years will help it meet the strong packaging demand.
The Zacks Consensus Estimate for Packaging Corporation's ongoing-year earnings has been revised upward by 11.6% in the past 90 days. The consensus mark indicates year-over-year growth of 11.5%. PKG has a trailing four-quarter earnings surprise of 22.8%, on average. The Lake Forest, IL-based company has an estimated long-term earnings growth rate of 5%. The company currently carries a Zacks Rank #2 (Buy).
Sonoco: Demand in most of the company's consumer and industrial businesses is expected to remain solid in the near term. The recent acquisition of Ball Metalpack is expected to boost earnings. The deal strengthens its global Paper Cans and Closures business while bolstering its sustainable packaging portfolio with metal packaging. It is focused on increasing investment in its core consumer and industrial businesses and achieving an annual EBITDA of $1 billion by 2026.
Recently, the company's board approved $20 million in capital to expand two of its Flexible Packaging facilities. At Edinburgh, IN facility, the company will install a new rotogravure press along with the 3-ply adhesive laminator. In Elk Grove, IL, the company will be installing a new state-of-the-art flexographic press, which will replace two 20-year-old machines.
This press will produce significant productivity savings enabling it to expand the production of peelable and resealable lidding products across multiple food markets. The company's shares have appreciated 6.5% over the past three months.
The Zacks Consensus Estimate for Sonoco's fiscal 2022 earnings has moved north by 19.8% in the past 90 days. The figure indicates year-on-year growth of 31%. The Hartsville, SC-based company has a trailing four-quarter earnings surprise of 1.7%, on average. The company currently has a Zacks Rank #2 and an estimated long-term growth of 5%.
Greif: The company's Global Industrial Packaging segment has been gaining from strong key end markets. It has been witnessing year-over-year higher volume growth for global large plastic drums and Intermediate Bulk Container (IBC), backed by the strategic growth investments in the United States and EMEA, and ongoing recovery in the industrial end markets.
The Paper Packaging segment has been benefiting from strong volumes in converting operations and higher selling prices due to an increase in published containerboard and boxboard prices. Improved demand for textiles and protective packaging has been driving tube and core volumes. Strong demand and pricing increases are likely to boost fiscal 2022 results.
Backed by these trends, the company's shares have rallied 10% over the past three months. GEF continues to invest in the business, return excess cash to shareholders through an attractive and growing dividend, and de-lever its balance sheet, which is commendable.
The Zacks Consensus Estimate for Greif's 2022 earnings has been revised upward by 5% over the past 90 days. The earnings estimate for the year suggests year-over-year growth of 17%. It has a trailing four-quarter earnings surprise of 14.7%, on average. The Delaware, OH-based company has a Zacks Rank #2 and an estimated long-term earnings growth rate of 10%.
Graphic Packaging: The company is capturing new business supported by consumer preference for sustainable, fiber-based packaging solutions. Innovation and more circular consumer packaging solutions are consistently driving its organic sales growth. The company's shares have appreciated 8% in the past three months.
The recent acquisition of AR Packaging has strengthened its innovative offerings for consumers and positions it well for growth in new geographies, markets and products. It has begun commissioning the world's lowest-cost and highest-quality coated recycled paperboard production capabilities at the Kalamazoo, MI campus. This, along with the execution of its coated recycled board platform optimization project, will further reinforce the company's cost and quality leadership in the industry.
The Zacks Consensus Estimate for Atlanta, GA-based company's fiscal 2022 earnings has moved up 3% over the past 90 days. The figure indicates year-over-year growth of 73.7%. The company has an estimated long-term earnings growth rate of 25% and a Zacks Rank of 3 (Hold).
Why Haven't You Looked at Zacks' Top Stocks?
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Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Zacks Industry Outlook Highlights Packaging Corporation of America, Graphic Packaging Holding, Sonoco Products and Greif
For Immediate Release
Chicago, IL – March 22, 2022 – Today, Zacks Equity Research discusses Packaging Corporation of America (PKG - Free Report) , Graphic Packaging Holding Co. (GPK - Free Report) , Sonoco Products Co. (SON - Free Report) and Greif, Inc. (GEF - Free Report) .
Industry: Containers - Packaging
Link: https://www.zacks.com/commentary/1884481/4-packaging-stocks-to-ride-the-solid-industry-demand-trends
The Zacks Containers – Paper and Packaging industry will benefit from robust demand for food, beverage and hygiene products, as packaging is integral to the distribution of these products. Booming e-commerce activities and rising demand for sustainable and eco-friendly packaging options due to increasing environmental concerns will favor the industry. Pricing actions implemented by the industry players will help offset the impact of the ongoing supply chain disruptions and rising material and other costs.
Packaging Corporation of America, Graphic Packaging Holding Co., Sonoco Products Co. and Greif, Inc. are set to gain from solid market prospects.
About the Industry
The Zacks Containers – Paper and Packaging industry comprises companies that manufacture paper and plastic packaging products. The packaging solutions provided by the industry help protect and preserve products while also extending shelf life and cutting down wastage and loss across the wide and lengthy range of distribution channels.
The products range from containerboard and corrugated packaging to flexible and rigid plastic packaging. Some companies also manufacture dispensing pumps, closures, aerosol valves and applicators for the beauty, personal, home care and healthcare markets.
The industry serves a wide array of markets, including food, beverage, food services and other consumer products, such as beauty, personal care and home care. They also cater to the chemical, agribusiness, medical, pharmaceutical, electronics and industrial markets, to name a few.
What's Shaping the Future of the Containers - Paper and Packaging Industry
Surging Demand for Essential Products & E-commerce: The industry has considerable exposure (more than 60%) to consumer-oriented end-markets, such as food and beverages and healthcare, which keeps demand for packaging applications fairly stable across economic cycles. The pandemic has triggered the requirement for essential products, such as food, medicine, medical equipment and other critical products that in turn have spurred demand for the industry's packaging solutions since last year.
With rising e-commerce activities over the past few years and the pandemic accelerating it further, the importance of packaging has increased manifold as it helps maintain the integrity and durability of a product to withstand the complex product-delivery process. Per Statista, global retail e-commerce sales that were around approximately $4.9 trillion in 2021 are expected to surge 51% to around $7.4 trillion by 2025. This, in turn, will fuel the Containers - Paper and Packaging industry.
Focus on Eco-Friendly Packaging: Demand for sophisticated packaging has been on the rise, and the industry is constantly striving to meet the same by adopting new technology and innovative products. It is likely to gain from the growing global demand for environment-friendly biodegradable packaging materials, courtesy of customers' increasing awareness about environmental issues.
Industry players have already begun incorporating recycled content into production methods. By maximizing recycling, the industry will be able to implement environmentally- and economically sustainable production methods.
High Input Costs & Supply Chain Issues Persist: The industry participants have been encountering supply chain disruptions and higher raw material costs, which have been stemming from various factors, including general inflationary pressure, limited availability of certain raw materials, and global transportation disruptions.
Higher labor, transportation and chemical costs add to their woes. Shortage of labor might impact their production levels and impair their ability to meet the high demand. The industry players are making every effort to bolster their financial condition, conserve cash and improve profitability.
The companies have been implementing cost-reduction actions, which are likely to help sustain margins in this scenario. They are focused on streamlining their operations and realigning around high-growth key markets to bolster their performances.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Containers - Paper and Packaging industry is a 12-stock group within the broader Zacks Industrial Products sector. The industry currently carries a Zacks Industry Rank #113, which places it at the top 45% of the 252 Zacks industries.
The group's Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bright prospects in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry's positioning in the top 50% of the Zacks-ranked industries is a result of a solid earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group's earnings growth potential. Over the past year, the industry's earnings estimates for the current year have been revised upward by 22%.
Before we present a few Containers - Paper and Packaging stocks that can be retained in one's portfolio, it's worth taking a look at the industry's stock-market performance and valuation picture.
Industry Versus Broader Market
The Containers - Paper and Packaging industry has underperformed the S&P 500 but outperformed the sector over the past year. The industry has gained 7.7% compared with the S&P 500's rally of 13.5%. Meanwhile, the Industrial Products sector has declined 4.8%.
Industry's Current Valuation
On the basis of the forward 12-month EV/EBITDA ratio, which is a commonly-used multiple for valuing Containers - Paper and Packaging companies, we see that the industry is currently trading at 19.48x compared with the S&P 500's 13.80x and the Industrial Products sector's forward 12-month EV/EBITDA of 17.05x.
Over the last five years, the industry has traded as high as 30.07x and as low as 10.95x, with the median at 16.61x.
4 Containers - Paper and Packaging Stocks to Keep an Eye On
Packaging Corporation of America: The company's packaging business, which accounts for around 91% of its revenues, has been benefiting from strong demand in e-commerce and rising requirements for the packaging of meat, fruit and vegetables, processed food, beverages and medicines. The company's corrugated products plants set record fourth-quarter total shipments and all-time record shipments on a daily basis.
This momentum is anticipated to continue in 2022 as well. Backed by this, the company's shares have gained 19% in the past three months. The company maintains a balanced approach toward capital allocation in order to boost growth and maximize returns for shareholders. The conversion of the No. 3 paper machine at its Jackson, AL mill to linerboard in a phased manner over the next three years will help it meet the strong packaging demand.
The Zacks Consensus Estimate for Packaging Corporation's ongoing-year earnings has been revised upward by 11.6% in the past 90 days. The consensus mark indicates year-over-year growth of 11.5%. PKG has a trailing four-quarter earnings surprise of 22.8%, on average. The Lake Forest, IL-based company has an estimated long-term earnings growth rate of 5%. The company currently carries a Zacks Rank #2 (Buy).
You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Sonoco: Demand in most of the company's consumer and industrial businesses is expected to remain solid in the near term. The recent acquisition of Ball Metalpack is expected to boost earnings. The deal strengthens its global Paper Cans and Closures business while bolstering its sustainable packaging portfolio with metal packaging. It is focused on increasing investment in its core consumer and industrial businesses and achieving an annual EBITDA of $1 billion by 2026.
Recently, the company's board approved $20 million in capital to expand two of its Flexible Packaging facilities. At Edinburgh, IN facility, the company will install a new rotogravure press along with the 3-ply adhesive laminator. In Elk Grove, IL, the company will be installing a new state-of-the-art flexographic press, which will replace two 20-year-old machines.
This press will produce significant productivity savings enabling it to expand the production of peelable and resealable lidding products across multiple food markets. The company's shares have appreciated 6.5% over the past three months.
The Zacks Consensus Estimate for Sonoco's fiscal 2022 earnings has moved north by 19.8% in the past 90 days. The figure indicates year-on-year growth of 31%. The Hartsville, SC-based company has a trailing four-quarter earnings surprise of 1.7%, on average. The company currently has a Zacks Rank #2 and an estimated long-term growth of 5%.
Greif: The company's Global Industrial Packaging segment has been gaining from strong key end markets. It has been witnessing year-over-year higher volume growth for global large plastic drums and Intermediate Bulk Container (IBC), backed by the strategic growth investments in the United States and EMEA, and ongoing recovery in the industrial end markets.
The Paper Packaging segment has been benefiting from strong volumes in converting operations and higher selling prices due to an increase in published containerboard and boxboard prices. Improved demand for textiles and protective packaging has been driving tube and core volumes. Strong demand and pricing increases are likely to boost fiscal 2022 results.
Backed by these trends, the company's shares have rallied 10% over the past three months. GEF continues to invest in the business, return excess cash to shareholders through an attractive and growing dividend, and de-lever its balance sheet, which is commendable.
The Zacks Consensus Estimate for Greif's 2022 earnings has been revised upward by 5% over the past 90 days. The earnings estimate for the year suggests year-over-year growth of 17%. It has a trailing four-quarter earnings surprise of 14.7%, on average. The Delaware, OH-based company has a Zacks Rank #2 and an estimated long-term earnings growth rate of 10%.
Graphic Packaging: The company is capturing new business supported by consumer preference for sustainable, fiber-based packaging solutions. Innovation and more circular consumer packaging solutions are consistently driving its organic sales growth. The company's shares have appreciated 8% in the past three months.
The recent acquisition of AR Packaging has strengthened its innovative offerings for consumers and positions it well for growth in new geographies, markets and products. It has begun commissioning the world's lowest-cost and highest-quality coated recycled paperboard production capabilities at the Kalamazoo, MI campus. This, along with the execution of its coated recycled board platform optimization project, will further reinforce the company's cost and quality leadership in the industry.
The Zacks Consensus Estimate for Atlanta, GA-based company's fiscal 2022 earnings has moved up 3% over the past 90 days. The figure indicates year-over-year growth of 73.7%. The company has an estimated long-term earnings growth rate of 25% and a Zacks Rank of 3 (Hold).
Why Haven't You Looked at Zacks' Top Stocks?
Our 5 best-performing strategies have blown away the S&P's impressive +28.8% gain in 2021. Amazingly, they soared +40.3%, +48.2%, +67.6%, +94.4%, and +95.3%. Today you can access their live picks without cost or obligation.
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Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.