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Packaging Corporation (PKG) Lags Q3 Earnings, Sales Beat

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Packaging Corporationof America (PKG - Free Report) reported relatively weak third-quarter 2016 results with GAAP net income of $118.2 million or $1.26 per share compared with $126.3 million or $1.31 per share in the year-earlier quarter.

Non-GAAP earnings were $1.30 per share compared with $1.26 million in the year-ago quarter, driven primarily by higher corrugated product volume. Although adjusted earnings increase year over year, it missed the Zacks Consensus Estimate by a penny.

Net sales for the quarter were $1,484 million, up from $1,470.8 million in the year-ago quarter, and beat the Zacks Consensus Estimate of $1,452 million. GAAP EBITDA for the quarter was $294.4 million, while adjusted EBITDA was $298.9 million.

Segmental Performance

Packaging: Sales from this segment increased to $1,167.1 million from $1,144.4 million in the year-ago period. Segment EBITDA, excluding special items, was $256.0 million in the reported quarter compared with the prior-year quarter figure of $267.9 million. Containerboard production was 950,000 tons, while containerboard inventory was down 16,000 tons compared to third-quarter 2015. Corrugated products shipments were up 1.7% year over year.

Printing Papers: Sales from this segment were $292.8 million in the reported quarter versus $291.9 million in the year-earlier quarter. Segment EBITDA, excluding special items, for the third quarter increased to $59.3 million from $46.1 million a year ago. White paper sales volume was up slightly and pulp volume was lower than the prior-year quarter.

Liquidity

At quarter end, the company had cash balance of $279.8 million compared to $186.9 million.Capital expenditures during the quarter were $66.3 million, compared to $76 million in the year ago quarter.

Acquisition

During the quarter, Packaging Corporation completed the acquisition of TimBar Corporation for $386 million, in cash. The acquisition is likely to be accretive with immediate effect. The company expects this acquisition to increase its containerboard integration by over 200,000 tons or 6% from its current level of 87%. The transaction will also allow for further optimization and enhancement of its mill capacity.

Subsequent to the quarter, the company entered into a definitive agreement to acquire Columbus Container, Inc., an independent corrugated products producer, for $100 million. The deal is likely to be closed by the fourth quarter of 2016. The acquisition is expected to increase containerboard production by over 30,000 tons.

PACKAGING CORP Price, Consensus and EPS Surprise

 

PACKAGING CORP Price, Consensus and EPS Surprise | PACKAGING CORP Quote

Moving Forward

Management expects seasonally lower volumes of containerboard and corrugated products in the fourth quarter. The company has increased price of containerboard by $50 per ton effective Oct 1, as well as raised price of its corrugated products. It expects a lower mix in white paper due to colder weather. Considering these items, it expects fourth-quarter earnings to be $1.15 per share.

Packaging Corporation currently carries a Zacks Rank #2 (Buy). Some other favorably ranked stocks in the industry include UFP Technologies, Inc. (UFPT - Free Report) , Social Reality, Inc. (SRAX - Free Report) and Acacia Research Corporation (ACTG - Free Report) . Acacia Research carries the same Zacks Rank as Packaging Corporation, whereas UFP Technologies and Social Reality both sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Acacia Research  has a modest earnings record, beating estimates once in the four trailing quarters, with an average positive surprise of 92.86%. The company’s share price has increased by approximately 39.86% year to date.

Social Reality has a dismal earnings record, missing estimates once by a dramatic margin in the four trailing quarters, with an average negative surprise of 11.11%.

UFP Technologies has a forward PE of 20.2x. The company’s share price has increased by approximately 11.25% year to date.

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