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Packaging Corp. (PKG) Up 7.1% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Packaging Corp. (PKG - Free Report) . Shares have added about 7.1% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Packaging Corp. due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Packaging Corp’s Q2 Earnings & Sales Top Estimates, Up Y/Y

Packaging Corp 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.

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.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 12.81% due to these changes.

VGM Scores

At this time, Packaging Corp. has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Packaging Corp. has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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