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Why Is Packaging Corp. (PKG) Up 0.1% Since Last Earnings Report?

It has been about a month since the last earnings report for Packaging Corp. (PKG). Shares have added about 0.1% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Packaging Corp. due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Packaging Corp's Earnings & Sales Trump Estimates in Q1

Packaging Corporation of America reported adjusted earnings per share of $1.50 in first-quarter 2020, surpassing the Zacks Consensus Estimate of $1.20. Earnings also came in ahead of management’s guidance of $1.20 per share. However, the reported figure fell 24.2% year over year.

This decline resulted from lower prices and mix in the Packaging and Paper segments, dismal volumes in the Paper segment, as well as elevated annual outage expenses, depreciation expenses and other costs. These negatives were, however, partly offset by higher volumes in the Packaging segment, lower operating and converting costs, lower freight and logistics expenses, soft interest expense as well as non-operating pension expense.

Including one-time items, earnings in the reported quarter came in at $1.49 compared with the prior-year quarter’s $1.97.

Operational Update

Sales for the March-end quarter edged down 1.54% to $1,709 million from the prior-year quarter’s $1,734 million. The reported figure, however, beat the Zacks Consensus Estimate of $1,651 million.

Cost of products sold was up 2.4% year over year to $1,344 million in the first quarter. Gross profit went down 13.3% to $365 million from the $421.4 million witnessed in the prior-year period. Selling, general and administrative expenses rose 4.3% to $146 million from the $140 million incurred in the year-ago quarter. Adjusted total segment operating income declined 24% year over year to $210.3 million.

Segmental Performance

Packaging: Sales in this segment went down to $1,468 million from the $1,478 million recorded in the year-earlier period. Segmental income, excluding special items, came in at $201 million in the quarter compared with the $250 million witnessed in the prior-year period.

Printing Papers: This segment’s revenues slid 9.3% year over year to $217.4 million in the quarter. Adjusted segment income declined to around $33 million from the $46 million reported in the year-earlier period.

Cash Position

The company had a cash balance of $764 million in the March-end quarter compared with the $442 million recorded in the prior-year quarter.

Outlook

The company has not issued any guidance for the second quarter given the uncertainty related to the coronavirus pandemic and its impact on the global economy. Demand surge in the Packaging business places it well for the ongoing quarter. Moreover, the company will continue to provide cost-effective, sustainable, and renewable products amid the current turbulent situation.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -8.25% due to these changes.

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VGM Scores

Currently, Packaging Corp. has a nice Growth Score of B, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Packaging Corp. has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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