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Packaging Corporation of America (PKG - Free Report) reported second-quarter 2017 adjusted earnings of $1.52 per share, beating the Zacks Consensus Estimate of $1.48 and also increasing 22% year over year.
Higher prices and mix, sales volumes and production volumes in the Packaging segment, lower annual maintenance outage costs and lower taxes along with a partial insurance recovery related to the DeRidder Mill incident drove the year-over-year improvement. These were partially offset by higher costs for energy, fiber, labor and chemicals, higher freight, interest, depreciation and other expenses and lower Paper segment prices and mix.
Including one-time items, earnings came in at $1.52 per share compared with $1.23 per share in the year-ago quarter.
Operational Update
Net sales for the quarter were $1,584 million, up 11.8% from $1,417.4 million in the year-ago quarter, and beat the Zacks Consensus Estimate of $1,544 million.
Cost of products sold increased 11% year over year to $1,219 million in the quarter. Gross profit increased 14.7% to $365 million from $320 million in the prior-year quarter. Gross margin expanded 40 basis points (bps) to 23% in the quarter. Selling, general and administrative expenses increased 13% to $130 million from $115 million in the year-ago quarter. Operating income rose 14% year over year to $234 million.
Packaging Corporation of America Price, Consensus and EPS Surprise
Packaging: Sales from this segment increased to $1,311.5 million from $1,091.4 million in the prior-year period. Segment EBITDA, excluding special items, was $303.2 million in the reported quarter compared with $267 million in the prior-year quarter. Containerboard production was 947,000 tons, while containerboard inventory down 25,000 tons compared with year-end 2015 levels.
Printing Papers: Sales from this segment were $253.7 million in the reported quarter versus $266.8 million in the year-earlier quarter. Segment EBITDA, excluding special items, for the quarter jumped to $43.1 million from $38.7 million a year ago. Price and mix as well as sales volumes were lower than second-quarter 2016 and first-quarter 2017.
Cash Position
At the end of the reported quarter, the company had cash balance of $321 million compared with $214 million at the end of the prior-year quarter.
Moving Forward
The company expects to realize the impact of its previously announced packaging segment price increases in the third quarter. Volume for higher containerboard and corrugated products shipments will be higher due to strong demand. White paper sales volumes are likely to be seasonally higher while price and mix will dip. Packaging Corporation also anticipates continued price inflation in recycled fiber and certain chemicals, higher freight costs and a higher tax rate. Third-quarter earnings is projected at $1.68 per share. However, this does not include any potential additional costs or anticipated recoveries related to the Deridder Mill insurance claim.
Share Price Performance
In the last one year, Packaging Corporation has outperformed the industry with respect to price performance. The stock gained 51.8%, while the industry rose 13.5%.
Zacks Rank & Key Picks
Packaging Corporation currently carries a Zacks Rank #3 (Hold).
AGCO has an average positive earnings surprise of 40.39% in the trailing four quarters. Terex generated an outstanding average positive earnings surprise of 122.61% in the past four quarters, while Apogee has an average positive earnings surprise of 3.41% in the last four quarters.
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Packaging Corporation (PKG) Q2 Earnings & Revenue Beat
Packaging Corporation of America (PKG - Free Report) reported second-quarter 2017 adjusted earnings of $1.52 per share, beating the Zacks Consensus Estimate of $1.48 and also increasing 22% year over year.
Higher prices and mix, sales volumes and production volumes in the Packaging segment, lower annual maintenance outage costs and lower taxes along with a partial insurance recovery related to the DeRidder Mill incident drove the year-over-year improvement. These were partially offset by higher costs for energy, fiber, labor and chemicals, higher freight, interest, depreciation and other expenses and lower Paper segment prices and mix.
Including one-time items, earnings came in at $1.52 per share compared with $1.23 per share in the year-ago quarter.
Operational Update
Net sales for the quarter were $1,584 million, up 11.8% from $1,417.4 million in the year-ago quarter, and beat the Zacks Consensus Estimate of $1,544 million.
Cost of products sold increased 11% year over year to $1,219 million in the quarter. Gross profit increased 14.7% to $365 million from $320 million in the prior-year quarter. Gross margin expanded 40 basis points (bps) to 23% in the quarter. Selling, general and administrative expenses increased 13% to $130 million from $115 million in the year-ago quarter. Operating income rose 14% year over year to $234 million.
Packaging Corporation of America Price, Consensus and EPS Surprise
Packaging Corporation of America Price, Consensus and EPS Surprise | Packaging Corporation of America Quote
Segment Performance
Packaging: Sales from this segment increased to $1,311.5 million from $1,091.4 million in the prior-year period. Segment EBITDA, excluding special items, was $303.2 million in the reported quarter compared with $267 million in the prior-year quarter. Containerboard production was 947,000 tons, while containerboard inventory down 25,000 tons compared with year-end 2015 levels.
Printing Papers: Sales from this segment were $253.7 million in the reported quarter versus $266.8 million in the year-earlier quarter. Segment EBITDA, excluding special items, for the quarter jumped to $43.1 million from $38.7 million a year ago. Price and mix as well as sales volumes were lower than second-quarter 2016 and first-quarter 2017.
Cash Position
At the end of the reported quarter, the company had cash balance of $321 million compared with $214 million at the end of the prior-year quarter.
Moving Forward
The company expects to realize the impact of its previously announced packaging segment price increases in the third quarter. Volume for higher containerboard and corrugated products shipments will be higher due to strong demand. White paper sales volumes are likely to be seasonally higher while price and mix will dip. Packaging Corporation also anticipates continued price inflation in recycled fiber and certain chemicals, higher freight costs and a higher tax rate. Third-quarter earnings is projected at $1.68 per share. However, this does not include any potential additional costs or anticipated recoveries related to the Deridder Mill insurance claim.
Share Price Performance
In the last one year, Packaging Corporation has outperformed the industry with respect to price performance. The stock gained 51.8%, while the industry rose 13.5%.
Zacks Rank & Key Picks
Packaging Corporation currently carries a Zacks Rank #3 (Hold).
Better-ranked stocks worth considering in the same sector are AGCO Corporation (AGCO - Free Report) , Terex Corporation (TEX - Free Report) and Apogee Enterprise, Inc. (APOG - Free Report) . All the three stocks flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
AGCO has an average positive earnings surprise of 40.39% in the trailing four quarters. Terex generated an outstanding average positive earnings surprise of 122.61% in the past four quarters, while Apogee has an average positive earnings surprise of 3.41% in the last four quarters.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>