A month has gone by since the last earnings report for Packaging Corp. (PKG). Shares have lost about 1.1% 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 Corporation reported adjusted earnings per share (EPS) of $2.47 in the fourth quarter of 2024, which missed the Zacks Consensus Estimate of $2.51 by a margin of 2%. The bottom line matched PKG’s guidance and grew 16% year over year.
The upside was driven by higher prices and mix and improved volume in both segments as well as lower freight and logistics expenses. However, these gains were somewhat offset by an increase in operating costs, scheduled maintenance outage expenses, depreciation expenses and other expenses.
Including special items for closure and other costs related to corrugated products facilities, earnings in the quarter were $2.45 per share compared with the prior-year quarter’s $2.10.
Sales & Margins Improve Y/Y in Q4
Sales in the fourth quarter rose 10.7% year over year to $2.15 billion due to higher volumes and price/mix in both segments. The top line beat the Zacks Consensus Estimate of $2.13 billion.
The cost of products sold rose 9.7% year over year to $1.68 billion. Gross profit grew 14.5% year over year to $469.7 million. Selling, general and administrative expenses totaled $147 million compared with the prior-year quarter’s $143 million.
Packaging Corp. reported an adjusted operating income of $303.9 million, which marked a 14.5% year-over-year increase from $265.3 million in the fourth quarter of 2023.
Segmental Performances
Packaging: Sales in this segment increased 11.2% year over year to $1.98 billion on improved volumes and price/mix. Total corrugated product shipments grew 9.1% year over year. Containerboard production was 1,310,000 tons and containerboard inventory was up 54,000 tons compared with the year-ago quarter. The corrugated products plants delivered record fourth-quarter total shipments and all-time record shipments per day.
Adjusted operating profit was $299 million compared with $265 million in the prior-year quarter.
Paper: The segment’s revenues were $151.5 million in the October-December quarter, up 5% year over year. Sales volume rose 5% from the fourth quarter of 2023 and price/mix also improved year over year. The segment reported an adjusted operating profit of $35 million compared with the year-ago quarter’s $31 million.
Fiscal 2024 Performance
PKG’s adjusted EPS for 2024 was $9.04, which fell short of the Zacks Consensus Estimate of $9.08. Including one-time items, EPS was $8.93 compared with $8.48 in 2023. Sales for the full year were $8.38 million, which reflected a 7% year-over-year increase. The top line beat the consensus estimate of $8.37 billion.
Cash Flow Updates
The company ended 2024 with a cash balance of $0.85 billion compared with $1.2 billion at the end of 2023.
Q1 Outlook
Packaging Corp. projects first-quarter 2025 EPS of $2.21. Compared with the EPS of $1.72 in the first quarter of 2024, this indicates growth of 28.5%
For the Packaging segment, volumes in the corrugated products plants are expected to reach record levels for total shipments and shipments per day. However, containerboard volume will be lower due to two fewer operating days and scheduled maintenance outages at Counce, TN and Valdosta, GA mills. Domestic prices will be higher with an improved product mix together with PKG’s previously announced price increases. Export prices are expected to be stable.
For the Paper segment, the company anticipates a slightly lower volume with two fewer mill operating days. Prices and mix will be fairly flat.
Barring recycled fiber prices, Packaging Corp. expects price inflation across most direct, indirect and fixed operating and converting costs along with a higher cost mix of mill operations. Wood, energy and chemical costs will also spike due to the unusually cold seasonal weather. Labor and benefits costs will also increase owing to timing-related items such as annual increases, the restart of payroll taxes and share-based compensation expenses. Additionally, first-quarter rail rate increases at three of its mills will impact freight and logistics expenses and PKG also expects higher depreciation expenses. Scheduled outage expenses are expected to be slightly lower and a decreased corporate tax rate will provide some respite.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
The consensus estimate has shifted -9.3% due to these changes.
VGM Scores
Currently, Packaging Corp. has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. However, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. 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 #5 (Strong Sell). We expect a below average return from the stock in the next few months.
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