Packaging Corporation of America (PKG), the leading manufacturer of containerboard and packaging products in the U.S., recently notified that it has closed a public offering of 3.90% senior notes with principal amount $400 million, due to mature in 2022. The company has also declared that it has started a process to redeem its 5.75% senior notes worth $400 million, due to mature on August 1, 2013. Furthermore, July 26, 2012, has been fixed by Packaging Corp. for redemption of the notes. Total redemption cost is anticipated to be $432 million, including $21 million of redemption premium and accumulated and unpaid interest of $11 million.
As per the conditions governing the 5.75% senior notes, the redemption premium is scheduled to be computed on July 23, 2012. The net proceeds from the company's completed senior notes offering along with its cash balances shall be used to redeem 5.75% senior notes.
Packaging Corp. is likely to incur post-tax charges of 2 cents and 14 cents per share in the second quarter and third quarter of fiscal 2012, respectively, due to the debt offering and redemption of the notes.
Earlier, Packaging Corp.reported financial results for the first quarter of 2012 on April 17, 2012. We observed a quarterly hike of around 4% in net interest expense to reach $9.7 million whereas long-term debt surged almost 1.5% from the previous quarter to reach $805 million at the end of the first quarter of 2012.
The company pertains to an industry where ominous competition is prevalent. It should stay cautious of big players such as AptarGroup, Inc. (ATR), Sonoco Products Co. (SON) and AEP Industries Inc. (AEPI) as it traverses through 2012.
The Zacks Consensus Estimate for second-quarter 2012 is 46 cents while $1.89 for fiscal year 2012. In the short run, Packaging Corp.bears a Zacks #3 Rank, which translates into a short-term 'Hold' rating. Additionally, we currently maintain a long-term 'Neutral' recommendation on the stock.
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