Yahoo Finance Packaging Corporation of America's (NYSE:PKG) Q2: Beats On Revenue
Packaging Corporation of America (NYSE:PKG) announced better-than-expected results in Q2 CY2024, with revenue up 6.3% year on year to $2.08 billion. It made a GAAP profit of $2.21 per share, down from its profit of $2.24 per share in the same quarter last year.
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Packaging Corporation of America (PKG) Q2 CY2024 Highlights:
Revenue: $2.08 billion vs analyst estimates of $2.02 billion (2.5% beat)
EPS: $2.21 vs analyst estimates of $2.15 (2.9% beat)
Gross Margin (GAAP): 21.1%, down from 22.9% in the same quarter last year
Market Capitalization: $17.24 billion
Commenting on reported results, Mark W. Kowlzan, Chairman and CEO, said, “results for the quarter reflect our strong market conditions in the Packaging segment. This drove a new all-time containerboard production record in order to service corrugated products and containerboard demand which grew stronger each month, ending with a new corrugated shipments-per-day record for the month of June. We were also able to build some inventory ahead of what we expect to be a busy second half of the year. Packaging segment prices and mix moved higher from first quarter levels as we continue to implement our announced price increases. Paper segment prices and mix as well as volume came in as expected, and the scheduled outage at our International Falls mill was managed very well. Results also reflect our constant focus on minimizing inflationary cost increases through efficiency and usage initiatives and capital project benefits throughout our mills and converting facilities.”
Founded in 1959, Packaging Corporation of America (NYSE: PKG) produces containerboard and corrugated packaging products, also offering displays and protective packaging solutions.
Industrial Packaging
Industrial packaging companies have built competitive advantages from economies of scale that lead to advantaged purchasing and capital investments that are difficult and expensive to replicate. Recently, eco-friendly packaging and conservation are driving customers preferences and innovation. For example, plastic is not as desirable a material as it once was. Despite being integral to consumer goods ranging from beer to toothpaste to laundry detergent, these companies are still at the whim of the macro, especially consumer health and consumer willingness to spend.
Sales Growth
Reviewing a company's long-term performance can reveal insights into its business quality. Any business can have short-term success, but a top-tier one tends to sustain growth for years. Regrettably, Packaging Corporation of America's sales grew at a weak 2.4% compounded annual growth rate over the last five years. This shows it failed to expand in any major way and is a rough starting point for our analysis.
Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Packaging Corporation of America's history shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 2.9% annually. Packaging Corporation of America isn't alone in its struggles as the Industrial Packaging industry experienced a cyclical downturn, with many similar businesses seeing lower sales at this time.
This quarter, Packaging Corporation of America reported solid year-on-year revenue growth of 6.3%, and its $2.08 billion of revenue outperformed Wall Street's estimates by 2.5%. Looking ahead, Wall Street expects sales to grow 7.7% over the next 12 months, an acceleration from this quarter.
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Operating Margin
Operating margin is an important measure of profitability. It’s the portion of revenue left after accounting for all core expenses–everything from the cost of goods sold to advertising and wages. Operating margin is also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.
Packaging Corporation of America has been an optimally-run company over the last five years. It was one of the more profitable businesses in the industrials sector, boasting an average operating margin of 14.2%. This was particularly impressive because of its low gross margin, which is mostly a factor of what it sells and takes huge shifts to move meaningfully. Companies have more control over their operating margins, and it's a show of strength if they're high when gross margins are low.
Analyzing the trend in its profitability, Packaging Corporation of America's annual operating margin might have seen some fluctuations but has generally stayed the same over the last five years, highlighting the long-term consistency of its business.
This quarter, Packaging Corporation of America generated an operating profit margin of 13.3%, down 1.3 percentage points year on year. Since Packaging Corporation of America's gross margin decreased more than its operating margin, we can assume its recent inefficiencies were driven more by weaker leverage on its cost of sales rather than increased general expenses like sales, marketing, and administrative overhead.
EPS
We track the long-term growth in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company's growth was profitable.
Packaging Corporation of America's flat EPS over the last five years was below its 2.4% annualized revenue growth. However, its operating margin didn't change during this timeframe, telling us non-fundamental factors affected its ultimate earnings.
Like with revenue, we also analyze EPS over a more recent period because it can give insight into an emerging theme or development for the business. For Packaging Corporation of America, its two-year annual EPS declines of 14.1% show its recent history was to blame for its underperformance over the last five years. These results were bad no matter how you slice the data.
In Q2, Packaging Corporation of America reported EPS at $2.21, down from $2.24 in the same quarter last year. Despite falling year on year, this print beat analysts' estimates by 2.9%. Over the next 12 months, Wall Street expects Packaging Corporation of America to grow its earnings. Analysts are projecting its EPS of $7.98 in the last year to climb by 19.4% to $9.52.
Key Takeaways from Packaging Corporation of America's Q2 Results
We enjoyed seeing Packaging Corporation of America exceed analysts' revenue expectations this quarter. We were also glad its EPS outperformed Wall Street's estimates. Overall, we think this was a strong quarter that should satisfy shareholders. The stock remained flat at $194.55 immediately following the results.
Packaging Corporation of America may have had a good quarter, but does that mean you should invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.
