Packaging Corp (PKG) Q4 Earnings & Sales Top, Improve Y/Y

Packaging Corporation of America (NYSE:PKG) reported fourth-quarter 2017 adjusted earnings of $1.56 per share, up 27% year over year. Earnings per share came in above management’s guidance of $1.50 as well as beat the Zacks Consensus Estimate of $1.51.

Including one-time items, earnings came in at $2.84 per share compared with $1.17 per share reported in the year-ago quarter.

Operational Update

Net sales for the quarter were $1.68 billion, up 13% from $1.47 billion recorded in the year-ago quarter. Sales also beat the Zacks Consensus Estimate of $1.62 billion.

Cost of products sold increased 14.2% year over year to $1.31 billion in the quarter. Gross profit jumped 13.6% to $371.7 million from $327 million witnessed in the prior-year quarter. Gross margin remained flat year over year at 22% in the quarter. Selling, general and administrative expenses escalated 7% to $133.7 million from $125 million incurred in the year-ago quarter. Operating income surged 30.6% year over year to $252 million.

Segment Performance

Packaging: Sales from this segment went up to $1.4 billion from $1.2 billion reported in the prior-year period. Segment EBITDA, excluding special items, was $340 million in the reported quarter compared with $259 million in the year-earlier quarter. Containerboard production totaled 1,006,000 tons, while containerboard inventory was up 38,000 tons compared to fourth-quarter 2016.

Printing Papers: Sales from this segment came in at $267.5 million in the reported quarter, up from $253.8 million recorded in the year-earlier quarter. Segment EBITDA, excluding special items, for the quarter declined to $26 million from $50 million reported a year ago.

Cash Position

At the end of the reported quarter, the company had cash balance of $216.9 million compared with $239.3 million at the end of the prior-year quarter.

2017 Performance

Packaging Corporation reported adjusted earnings per share of $6.03 in 2017, up 23% from $4.88 per share recorded in the prior year. Earnings outpaced the Zacks Consensus Estimate of $5.99. Including one-time items, the bottom line came in at $7.07, improving 48.8% from $4.75 recorded in 2016.

Revenues grew 11.5% year over year to $6.4 billion from $5.8 billion recorded in 2016. Revenues came in line with the Zacks Consensus Estimate.

2018 Outlook

Packaging Corporation expects demand in Packaging segment to remain strong in the first quarter of 2018, while containerboard volumes will be lower due to scheduled outages at three mills. In the Paper segment, it will continue to implement the recently-announced price increases. The company also expects that recycled fiber prices will remain fairly flat. However, higher wood and energy costs due to seasonally colder weather, along with elevated prices for certain key chemicals, remain headwinds.

Packaging Corporation also anticipates that its results in 2018 will be hurt by the prevalent higher freight costs as well as higher labor costs. Considering these, the company has guided first-quarter earnings of $1.52 per share.

Share Price Performance

Over the past year, Packaging Corporation has outperformed the industry with respect to price performance. The stock has gained 35.3%, while the industry has recorded growth of 13.6%.

Zacks Rank & Key Picks

Packaging Corporation currently carries a Zacks Rank #3 (Hold).

Better-ranked stocks in the same sector include AptarGroup, Inc. (NYSE:ATR) , Berry Global Group, Inc. (NYSE:BERY) and Graphic Packaging Holding Company (NYSE:GPK) . All three stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

AptarGroup has a long-term earnings growth rate of 8.5%. Its shares have gained 6.3%, over the past six months.

Berry Global Group has a long-term earnings growth rate of 20%. The company’s shares have rallied 4.3% during the same time frame.

Graphic Packaging Holding has a long-term earnings growth rate of 5%. The stock has appreciated 24.4% in six months’ time.

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