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A month has passed since Packaging Corp’s last earnings report. (PKG – Free report). Stocks rose about 7.1% during that time, outperforming the S&P 500.
Will the recent positive trend continue until its next results release, or Packaging Corp. should he undergo a recoil? Before we dive into how investors and analysts have reacted in recent times, let’s take a look at the latest earnings report to better understand the important factors.
Packaging Corp’s best second quarter earnings and sales estimates, up year on year
Packaging Corp reported adjusted second quarter 2021 earnings per share of $ 2.17, beating Zacks’ consensus estimate of $ 1.75. Net income improved 57% year-on-year.
This increase is mainly due to the increase in volumes, prices and mix in the Packaging segment. The Paper segment saw an improvement in volumes year over year, which was partially offset by lower prices and mix. Operating costs, annual downtime, freight and logistics costs, conversion costs and depreciation charges were higher year over year and margins somewhat shaken.
Including one-time items, earnings for the reported quarter were $ 2.17 per share compared to 59 cents per share in the prior year quarter.
Operational update
Second-quarter sales climbed 22% year-on-year to $ 1,880 million. The top line topped Zacks’ consensus estimate of $ 1,809 million.
Cost of goods sold increased 18% year over year to $ 1,431 million in the second quarter. Gross profit jumped 38% year-over-year to $ 449 million. Selling, general and administrative expenses were $ 146 million, compared to $ 136 million in the prior year quarter. Segment adjusted total operating income increased 49% year-over-year to $ 294 million.
Segment performances
Packaging: Segment sales increased 22% year-on-year to $ 1,719 million in the second quarter of 2021. Segment adjusted operating income was $ 314 million in the quarter, from $ 224 million of dollars in the quarter of the previous year.
Paper: In the quarter under review, revenue for this segment was $ 142 million, indicating a 15% year-over-year improvement. The segment reported adjusted operating income of $ 5.4 million compared to a loss of $ 5.7 million for the prior year quarter.
Cash position
The company had a cash balance of $ 1,124 million at the end of the second quarter of 2021, compared to $ 976 million in cash held at the end of the previous year’s quarter.
Outlook
Packaging Corporation expects earnings per share to be about $ 2.37 per share in the third quarter of 2021. Forecast shows year-over-year growth of 51%. According to the company, this will be facilitated by strong demand for containerboard and corrugated products in the packaging segment. An additional day for carton shipments will contribute to segment results in the quarter. For the Paper segment, the company anticipates stable volumes due to a scheduled maintenance shutdown at the Jackson plant. Annual shutdown costs are expected to be lower with a shutdown planned in the third quarter compared to the four plant shutdowns in the second quarter.
Higher operating costs, as well as escalating freight and logistics costs remain headwinds. Energy costs will increase due to higher seasonal use, and wood costs in southern mills are expected to increase, due to wet weather, low stocks and high demand. Nonetheless, the company will continue to implement the price increase actions offered in both segments to combat cost inflation.
How have the estimates evolved since then?
Over the past month, investors have seen an upward trend in revised estimates. The consensus estimate has changed by 12.81% due to these changes.
VGM scores
Currently, Packaging Corp. has an average growth score of C, but its Momentum score is doing much better with an A. Tracing a somewhat similar path, the stock received a B rating on the value side, which places it in the second quintile for this investment strategy.
Overall, the stock has an overall VGM score of B. If you’re not focusing on a strategy, this score is the one you should be interested in.
Outlook
Estimates have trended higher for the stock, and the magnitude of these revisions looks promising. Notably, Packaging Corp. has a Zacks Rank # 3 (Hold). We expect the stock to come back online in the coming months.
