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Packaging Corp (PKG) Q2 Earnings & Sales Top Estimates, Up Y/Y

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Packaging Corporation of America (PKG - Free Report) reported adjusted earnings per share of $2.17 in second-quarter 2021, beating the Zacks Consensus Estimate of $1.75. The bottom line improved 57% year over year.

This upside was mainly driven by higher volume, price and mix in Packaging segment. The Paper segment witnessed improvement in volumes year over year, which was partly negated by lower prices and mix. Operating costs, annual outage expense, freight and logistics expenses, converting costs and depreciation expense were higher year over year and somewhat dented margins.

Including one-time items, earnings in the reported quarter were $2.17 per share compared with the prior-year quarter’s 59 cents per share.

Operational Update

Sales in the second quarter climbed 22% year over year to $1,880 million. The top line surpassed the Zacks Consensus Estimate of $1,809 million.

Cost of products sold was up 18% year over year to $1,431 million in the second quarter. Gross profit surged 38% year over year to $449 million. Selling, general and administrative expenses amounted to $146 million compared with $136 million in the prior-year quarter. Adjusted total segment operating income grew 49% year over year to $294 million.

Segmental Performance

Packaging: Sales in the segment increased 22% year over year to $1,719 million in the second quarter of 2021. The segment’s adjusted operating profit amounted to $314 million in the quarter compared with the $224 million in the prior-year quarter.

Paper: In the quarter under review, this segment’s revenues were $142 million, indicating a year-over-year improvement of 15%. The segment reported adjusted operating profit of $5.4 million against the year-ago quarter’s loss of $5.7 million.

Cash Position

The company had a cash balance of $1,124 million at the end of second-quarter 2021, up from the $976 million of cash held at the end of prior-year quarter.

Outlook

Packaging Corporation expects earnings per share to be around $2.37 per share in the third quarter of 2021. The guidance indicates year-over-year growth of 51%. Per the company, this will be aided by strong demand for containerboard and corrugated products in the packaging segment. An additional day for box shipments will aid the segment’s results in the quarter. For the Paper segment, the company anticipates flat volumes owing to scheduled maintenance outage at the Jackson Mill. Annual outage costs are expected to be lower with one planned outage in the third quarter compared to the four mill outages in the second quarter.

However, higher operating costs, as well as escalating freight and logistic costs remain headwinds. Energy costs will spike due to higher seasonal usage, and wood costs in the southern mills are expected to go up, due to wet weather, low inventory and high demand. Nevertheless, the company will continue to implement its proposed price-rise actions across both the segments to combat cost inflation.

Price Performance

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The company’s stock has gained 32.0% in the past year compared with the industry’s rally of 23.8%.

Zacks Rank and Stocks to Consider

Packaging Corporation currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the Industrial Products sector include Greif Inc. (GEF - Free Report) ,  Mueller Industries, Inc. (MLI - Free Report) and Pentair plc (PNR - Free Report) , each carrying a Zacks Rank #1 (Strong Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Greif has a projected earnings growth rate of 47.1% for 2021. Over the past year, the company’s shares have gained 58.5%.

Mueller Industries has an estimated earnings growth rate of 154% for the ongoing year. The company’s shares have rallied 52% in the past year.

Pentair has an expected earnings growth rate of around 28% for 2021. The stock has surged 60% in a year’s time.