PKG's Earnings Surge, Misses Est. - Analyst Blog

By Zacks | October 16, 2012 AAA

Packaging Corporation of America (PKG) reported net income from continuing operations (excluding post-tax debt refinancing charges) of $53 million or 55 cents per share in the third quarter of 2012 versus a net income of $48 million or 49 cents per share in the second quarter of 2012, and a net income of $43 million or 43 cents per share in the year-earlier quarter.  The rise in earnings was primarily led by increased volume of containerboards and corrugated products during the quarter. Additionally, the company also benefited from minimized energy, recycled fiber and chemical costs neutralizing the increased expense for labor and benefits. Although the company's earnings surpassed management's expectations, it missed the Zacks Consensus Estimate of 56 cents per share for the quarter.

GAAP EPS reported by the company was 41 cents per share compared to 42 cents per share in the previous year quarter and 46 cents per share in the last quarter.

Revenues

Net sales came to $723 million, up 8% year over year and 1.5% sequentially, beating the Zacks Consensus Estimate of $720 million.

Corrugated products' shipments surged 5.7% year over year. Outside sales of containerboards increased from the year-earlier quarter. The production of Containerboard jumped 20,000 tons year over year to 670,000 tons while its inventories were 9,000 tons at the end of the quarter.

Margins

Gross profit in the quarter was $162.6 million, up 18.1% from the year-ago quarter. Gross margin came in at 22.5% in the third quarter of 2012 versus 20.5% in the year-ago quarter and 22.2% in the previous quarter. Selling and administrative expenses amounted to $51.5 million, up 5.3% from the previous year quarter.

Management stated that the company's performance was impressive during the quarter. In addition, the quarter witnessed high demand for Packaging Corp's containerboard and corrugated products and record production during the quarter.

Outlook

The company has raised the price of its domestic containerboard and it is also in the process of increasing the corrugated products price, which is expected to be completed in the upcoming quarter. Considering this price rise, management anticipates that earnings per share for the fourth quarter of 2012 will be roughly 61 cents. However, earnings during the quarter are likely to be adversely affected by high cost accruing from cold weather.

Our Recommendation

Packaging Corporation currently has a Zacks Rank #1, which implies a short-term (1-3 months) 'Strong Buy' rating on the stock.

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