Packaging Corporation of America (PKG - Free Report) reported adjusted earnings per share (EPS) of $2.83 in third-quarter 2022, which came in-line with the Zacks Consensus Estimate. The bottom line improved 5% year over year and came above the company’s guidance of $2.80 per share.
The upside was primarily driven by higher prices and mix in both the Packaging and Paper segments, lower interest expenses, reduced share count as well as a lower tax rate. These gains were somewhat offset by elevated freight and logistics expenses, higher operating and converting costs as well as scheduled outage expenses. The company witnessed lower volumes in both segments.
Including special items (primarily for certain costs at the Jackson, AL mill for paper-to-containerboard conversion related activities) earnings in the reported quarter were $2.80 per share compared with the prior-year quarter’s $2.63 per share.
Operational Update
Sales in the third quarter rose 6% year over year to $2,126 million but missed the Zacks Consensus Estimate of $2,208 million.
The cost of products sold was up 8% year over year to $1,607 million in the second quarter. The gross profit inched up 1.5% year over year to $518 million.
Selling, general and administrative expenses amounted to $145 million, flat as compared with the prior-year quarter. The adjusted total segment operating income climbed 1.2% year over year to $364 million.
Segmental Performance
Packaging: Sales in the segment increased 6% year over year to $1,940 million in the third quarter of 2022. The segment’s adjusted operating profit amounted to $362 million in the reported quarter from the $371 million in the prior-year quarter.
Paper: The segment’s revenues were $165 million in the July-September quarter, up 10% year over year. The segment reported an adjusted operating profit of $27.4 million compared with the year-ago quarter’s $12.2 million.
Cash Position
Packaging Corp had a cash balance of around $794 million at the end of the third quarter of 2022, down from $1,849 million of cash held at the end of the prior-year quarter.
Guidance
The company expects the ongoing weakness in demand in the Packaging segment to continue in the fourth quarter of 2022. Packaging Corp stated that it will run the containerboard system accordingly, to match supply with demand.
In the fourth quarter, PKG plans to complete the scheduled annual maintenance outage at the Jackson, AL mill as well as the first phase of the containerboard conversion work on the No. 3 machine. Scheduled outage expenses will be higher, and the company expects operating costs, primarily labor and benefit expenses to be higher as well in the fourth quarter. Colder weather is expected to lead to higher energy costs.
PKG expects the box plants to have four fewer shipping days in the fourth quarter, and we also expect a seasonally less rich mix in corrugated products as well as lower average export containerboard prices. In the Paper segment, the company will continue to implement the price increase that took effect in September.
Volume is anticipated to be lower from the third quarter, which has been seasonally strong. Considering these factors, the company expects fourth-quarter 2022 earnings per share of around $2.22. In the fourth quarter of 2021, the company had reported adjusted earnings per share of $2.76 and earnings including special items of $2.28.
Price Performance
Image Source: Zacks Investment Research
Packaging Corp’s shares have declined 14.6% in the past year compared with the industry’s fall of 8.2%.
Zacks Rank and Stocks to Consider
Packaging Corporation currently carries a Zacks Rank #4 (Sell).
Some better-ranked stocks from the Industrial Products sector are Tenaris (TS - Free Report) , O-I Glass, Inc. (OI - Free Report) and Reliance Steel & Aluminum Co. (RS - Free Report) . While TS sports a Zacks Rank #1 (Strong Buy), OI and RS carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today's Zacks #1 Rank stocks here.
Tenaris delivered a trailing four-quarter earnings surprise of 34%, on average. The Zacks Consensus Estimate for the company for 2022 indicates a year-over-year growth of around 120%. The estimate has moved up 3% in the past 60 days. The TS stock has risen 29.5% in the past year.
O-I Glass has a trailing four-quarter earnings surprise of 17.4%, on average. The Zacks Consensus Estimate for OI’s 2022 earnings has moved north by 1% in the past 60 days. The estimate indicates year-over-year growth of 19.7%. In a year, OI has appreciated 20.4%.
Reliance Steel & Aluminum’s earnings surprise in the last four quarters was 13.4%, on average. It has an expected earnings growth rate of 27.9% for fiscal 2022. The earnings estimates have moved up 0.1% over the past 60 days. The RS stock has gained 22.8% in the past year.
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October 26, 2022 at 12:02AM
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Packaging Corp (PKG) Q3 Earnings In Line With Estimates, Up Y/Y - Zacks Investment Research
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