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Packaging Corporation (PKG) Beats on Q2 Earnings & Revenues

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Packaging Corporation of America (PKG - Free Report) delivered second-quarter 2018 adjusted earnings of $2.08 per share, surpassing the Zacks Consensus Estimate of $1.97. The figure also surged 37% year over year.
 
Including one-time items, earnings came in at $1.97 per share compared with $1.52 per share reported in the year-ago quarter.
 
Operational Update
 
Net sales for the quarter came in at $1.8 billion, up 12% from the $1.6 billion recorded in the year-ago quarter. The reported figure also beat the Zacks Consensus Estimate of $1.7 billion.
 
Cost of products sold rose 10% year over year to $1.3 billion in the quarter. Gross profit jumped 15% to $420 million from $364 million witnessed in the prior-year quarter. Gross margin expanded 80 basis points (bps) year over year to 23.8% in the quarter. Selling, general and administrative expenses escalated 6% to $138 million from $130 million incurred in the year-ago quarter. Adjusted operating income advanced 21% year over year to $283 million.
 
Packaging Corporation of America Price, Consensus and EPS Surprise
Packaging: Sales from this segment went up to $1.5 billion from $1.3 billion reported in the prior-year period. Segment income, excluding special items, came in at $279 million in the second quarter compared with $227 million in the prior-year quarter.
 
Printing Papers: Sales from this segment came in at $251 million in the reported quarter, down from $254 million reported in the year-ago quarter. Segment income, excluding special items, for the quarter declined to $24million from $27 million reported in the prior-year period.
 
Cash Position
 
At the end of the second quarter, the company had cash balance of $200 million compared with $321 million at the end of the prior-year quarter.
 
Outlook
 
The company expects third-quarter earnings at around $2.14 per share. It anticipates strong demand in the Packaging segment. However, corrugated products shipments will have one less shipping day during the quarter. The company will continue to implement price increases through the quarter.  Notably, the majority was implemented in the second quarter.
 
In the Paper segment, volumes will be lower than normal during the seasonally stronger period as the company manages its already tight inventory levels around the scheduled outage at the Jackson Mill. It expects lower operating costs related to the No. 3 machine at the Wallula Mill as the first phase of the conversion from paper to linerboard is now over. Further, the segment will benefit from paper price hike.
 
However, persisting inflation in majority of operating costs, including slightly higher recycled fiber prices and incremental wage pressure with a tighter labor market will remain headwinds. The company also anticipates increased freight and logistics expenses, higher scheduled maintenance outage costs, as well as a slightly higher tax rate.
 
Share Price Performance
 
 
Over the past year, Packaging Corporation has outperformed the industry with respect to price performance. The stock has gained 2.4%, while the industry recorded growth of around 3.6%.
 
Zacks Rank & Key Picks
 
Packaging Corporation carries a Zacks Rank #3 (Hold).
 
Better-ranked stocks in the same industry include Chart Industries, Inc. (GTLS - Free Report) , W.W. Grainger, Inc. (GWW - Free Report) and Capstone Turbine Corporation (CPST - Free Report) . Chart Industries and Grainger sport a Zacks Rank #1 (Strong buy), while Capstone Turbine carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
 
Chart Industries has a long-term earnings growth rate of 26.9%. The company’s shares have appreciated 132% over the past year.
 
Grainger has a long-term earnings growth rate of 12.5%. Its shares have rallied 104% in the past year.
 
Capstone Turbine has a long-term earnings growth rate of 25%. The stock has gained around 130% in a year’s time.
 
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