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Packaging Corp. (PKG) Down 0.9% Since Last Earnings Report: Can It Rebound?

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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 0.9% in that time frame, outperforming 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's Q2 Earnings as Expected, Increase Y/Y

Packaging Corporation delivered adjusted earnings per share of $2.04 in second-quarter 2019, in line with the Zacks Consensus Estimate. The reported figure declined 2% year over year. Earnings came in below management’s guidance of $2.05 per share. Earnings declined due to higher operating and converting costs, lower volume in Paper segment and higher annual outage expenses. However, these were partly offset by higher volume in the Packaging segment, favorable price and mix, elevated prices in the Paper segment and lower conversion costs in the Wallula mill.

Operational Update

Sales for the April-June quarter went down to $1.76 billion from the prior-year quarter’s $1.77 billion. The reported figure, however, lagged the Zacks Consensus Estimate of $1.79 billion.

Cost of products sold edged down 1.1% year over year to $1.33 billion in the reported quarter. Gross profit inched up around 1.7% to $428 million from the $420.6 million witnessed in the prior-year quarter. Selling, general and administrative expenses flared up 4.3% to $143.7 million from the $137.7 million incurred in the year-ago quarter.

Segmental Performance

Packaging: Sales in this segment went up to $1,504.6 million from $1,496.2 million in the year-earlier period. Segmental income, excluding special items, came in at $264 million for the June-end quarter compared with $279 million witnessed in the comparable period last year.

Printing Papers: This segment’s revenues slipped 5.2% year over year to $237.8 million in the quarter due to discontinuation of the paper business in the Wallula Mill. Segmental income, excluding special items, increased to approximately $38.8 million from the $24.4 million recorded in the year-earlier period.

Cash Position

At the end of the second quarter, the company had a cash balance of $569.4 million compared with $199.6 million recorded at the end of the prior-year quarter.

Outlook

Packaging Corporation anticipates seasonally higher containerboard and corrugated products shipments in third-quarter 2019. Seasonally stronger volume is expected in the Paper segment. Moreover, operating and maintenance outage costs will likely drop. Considering these, the company now projects earnings per share of $1.91 for the ongoing quarter.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -7.6% due to these changes.

VGM Scores

Currently, Packaging Corp. has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Charting a somewhat similar path, 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 downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Packaging Corp. has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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