Packaging Corp (PKG) Rides On E-commerce Boom Amid Cost Woes

On Jul 15, we issued an updated research report on Packaging Corporation of America (NYSE:PKG) . The company is poised to gain from solid demand for both of its segments and the e-commerce boom which will spur demand for boxes. However, the company’s results will be affected by annual maintenance outages.

Higher Maintenance Outage & Lower Prices to Impact Q2 Earnings

The company expects second-quarter 2019 earnings of around $2.05 per share, reflecting year-over-year decline of 1%. While seasonally higher containerboard and corrugated products shipments, reduced energy costs, recycled fiber prices and lower effective tax rate will bolster earnings, softer prices will affect results. Further, in the Paper segment, scheduled outage costs will be higher due to annual shutdown at the International Falls mill. Nonetheless, the company anticipates higher freight, repairs, and certain fixed costs as well as higher share-based compensation costs across its segments owing to the accounting treatment of restricted stock.

The Zacks Consensus Estimate for current-year earnings is pinned at $8.10, reflecting 0.87% year-over-year growth. The Zacks Consensus Estimate for revenues is currently pegged at $1.80 billion, calling for 1.56% year-over-year growth.

E-commerce Boom to Aid Performance

Packaging Corporation is projected to benefit from the e-commerce boom, which will spur demand in boxes. These days, customers find a lot of different channels to sell through, including e-commerce. The company has a wide base of consumers and anticipates its business to grow in the near term.

Investment for Future Growth

The company maintains a balanced approach toward capital allocation to profitably grow the company, as well as maximize returns for its shareholders. It ended first-quarter 2019 with $442 million of cash. Packaging Corporation anticipates capital spending for the ongoing year to be $390-$410 million, with roughly 35-40% earmarked for strategic capital projects, including organic growth, cost reduction, and efficiency projects. Further, share repurchases will bolster earnings.

Packaging Corporation of America Price and Consensus