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Why Is Packaging Corp. (PKG) Down 1% Since Last Earnings Report?

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It has been about a month since the last earnings report for Packaging Corp. (PKG - Free Report) . Shares have lost about 1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Packaging Corp. due for a breakout? 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 Q3 Earnings & Sales Top Estimates, Up Y/Y

Packaging Corporation reported adjusted earnings per share of $2.69 in third-quarter 2021, beating the Zacks Consensus Estimate of $2.36. The bottom line jumped 71.3%, year over year.

This upside was mainly driven by higher volume, price and mix in the Packaging segment. The Paper segment witnessed higher production volume, improved prices and mix, lower non-operating pension expense and lower interest expense. These were partly offset by higher operating costs, freight and logistics expenses, converting costs, scheduled outage expenses and lower sales volume in the Paper segment.

Including one-time items, earnings in the reported quarter were $2.63 per share compared with the prior-year quarter’s $1.46 per share.

Operational Update

Sales in the third quarter climbed 18% year over year to $2,000 million. The top line surpassed the Zacks Consensus Estimate of $1,947 million.

Cost of products sold was up 10.5% year over year to $1,489 million in the third quarter. The gross profit surged 48% year over year to $511 million. Selling, general and administrative expenses amounted to $145 million compared with the prior-year quarter’s $127 million. The adjusted total segment operating income grew 61.6% year over year to $360 million.

Segmental Performance

Packaging: Sales in the segment increased 22% year over year to $1,829 million in the third quarter of 2021. The segment’s adjusted operating profit amounted to $371 million in the reported quarter compared with the $236 million witnessed in the prior-year quarter.

Paper: The segment’s revenues came in at $150 million in the July-September quarter, indicating a year-over-year decline of 16%. The segment reported an adjusted operating profit of $12.2 million compared with the year-ago quarter’s $7.3 million.

Cash Position

The company had a cash balance of $1,849 million at the end of third-quarter 2021, up from the $1,096 million of cash held at the end of prior-year quarter.

Outlook

Packaging Corporation projects the fourth-quarter earnings per share to be around $2.04. The company expects the average export containerboard prices to flare up. Volume in the Packaging segment will be lower due to three less shipping days as well as the scheduled outage at the DeRidder Mill. The Paper segment is also likely to witness lower volume as the Jackson Mill is not expected to produce any paper grades.

Energy costs will flare up due to the higher gas prices and anticipated colder weather. Wood costs in the southern mills will likely be higher due to the wet weather, low inventory and high demand. Management expects inflation to prevail for the remaining period of the current year. Scheduled outage costs are also expected to shoot up in the fourth quarter. Meanwhile, the company will continue to implement its proposed price-rise actions in the domestic containerboard, corrugated packaging and paper to offset these impacts.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review.

VGM Scores

Currently, Packaging Corp. has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the top 40% 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 broadly trending upward for the stock, and the magnitude of these revisions indicates a downward shift. 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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