Packaging Corporation (PKG) Q4 Earnings Beat, Sales Miss

Packaging Corporation of America (NYSE:PKG) delivered adjusted earnings per share of $2.17 in fourth-quarter 2018, surpassing the Zacks Consensus Estimate of $2.15. The reported figure also surged 39% year over year. Earnings were above management’s guidance of $2.15 per share. Results aided by better prices and mix in Packaging and Paper segments, as well as lower tax rate and lower mill indirect costs, partly offset by lower-than-expected volume in the Packaging segment as well as higher operating costs and freight expense.

Including one-time items, earnings were $2.16 per share compared with $2.84 earned in the year-ago quarter.

2018 Results

Packaging Corporation reported adjusted earnings per share of $8.03 in 2018, up 33.4% from $6.02 in the prior year. Earnings beat the Zacks Consensus Estimate of $8.02. Including one-time items, the bottom line was at $7.80, up 10.3% from $7.07 recorded in 2017.

Sales increased 8.8% year over year to $7.01 billion from $6.44 billion in 2017. The top line slightly missed the Zacks Consensus Estimate of $7.04 billion.

Operational Update

Sales for the fourth quarter were $1.75 billion, up 4% from $1.68 billion in the year-earlier quarter. The reported figure lagged the Zacks Consensus Estimate of $1.78 billion.

Cost of products sold rose 0.62% year over year to $1,321.2 million in the fourth quarter. Gross profit increased around 14.5% to $425.4 million from $371.4 million witnessed in the prior-year quarter. Selling, general and administrative expenses declined 2.6% to $129.7 million from $133.1 million incurred in the year-ago quarter.

Packaging Corporation of America Price, Consensus and EPS Surprise

Segmental Performance

Packaging: Sales from this segment went up to $1,504.3 million from $1,397.3 million in the prior-year period. Segmental income, excluding special items, came in at $266.7 million in the fourth quarter compared with $258.8 million in the comparable period of the last year.

Printing Papers: This segment’s revenues were $227.4 million in the reported quarter (ended in December), down from $267.5 million witnessed in the year-ago quarter due to discontinuation of the paper business at the Wallula Mill. Segmental income, excluding special items, increased to $42 million in the fourth quarter from $9.6 million in the year-earlier period.

Cash Position

At the end of the fourth quarter, the company had a cash balance of $361.5 million compared with $216.9 million at the end of the prior-year quarter.

Outlook

Packaging Corporation projects earnings per share of around $1.97 for first-quarter 2019. It anticipates solid demand in the Packaging segment. The Paper Segment is expected to benefit from strong market conditions. Nonetheless, the company expects higher benefits and labor costs, along with wage pressure and other timing-related expenses, during the first quarter. It anticipates chemical and material costs inflation during the quarter. Packaging Corporation expects higher wood costs and energy usage during first-quarter 2019 due to seasonally colder weather.

Share Price Performance

Over the past year, Packaging Corporation’s stock has depreciated 25.3%, wider than the 14.4% decline witnessed by the industry.

Zacks Rank & Stocks to Consider

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

Some better-ranked stocks in the Industrial Products sector are Axon Enterprise, Inc (NASDAQ:AAXN) , Bemis Company, Inc (NYSE:BMS) and EnerSys (NYSE:ENS) . While Axon and Bemis flaunts a Zacks Rank #1 (Strong Buy), EnerSys carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Axon has an expected earnings growth rate of 14.5% for 2019. The company’s shares have rallied 85.3% in the past year.

Bemis has an expected earnings growth rate of 7.4% for 2019. The stock has gained 3% in a year’s time.

EnerSys has an expected earnings growth rate of 9.5% for 2019. Its shares have climbed 19.9% in the past year.

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