Packaging Corporation of America (NYSE: PKG) has reported upbeat results for the first quarter of 2022. Earnings in the quarter surpassed the consensus estimate by 7.9%, and sales exceeded the same by 2.9%.
Shares of this $15.2-billion company inched up 0.7% on Monday, closing the trading session at $162.29.
Packaging Corporation manufactures container products. It has headquarters in Lake Forest, IL.
Financial Highlights
Packaging Corporation’s adjusted earnings were 2.72 per share in the second quarter, higher than the consensus estimate of $2.52 per share. On a year-over-year basis, the bottom line increased 53.7% driven by healthy revenue generation, offset by higher costs and expenses.
Revenues in the quarter totaled $2.1 billion, above the Street consensus estimate of $2.04 billion. The top line grew 18.2% from the year-ago quarter driven by healthy sales growth in the Packaging segment.
In the quarter, the Packaging segment’s sales were $1.96 billion, up 21% year-over-year. The impact of this segment’s sales growth was offset by a 6.7% fall in the Paper segment’s sales to $0.15 billion, and a 3.2% decline in Corporate and Other sales to $18.4 million.
Costs of sales increased 14.2% year-over-year to $1.6 billion, and gross profit grew 32.1% to $533.2 million. Selling, general and administrative expenses at $161.1 million represented an increase of 11.21%.
Adjusted operating margin expanded 340 basis points (bps) year-over-year to 16.8%. Adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) margin in the quarter increased by 300 bps to 21.9% in the quarter.
Exiting the first quarter, the company’s cash, cash equivalents, and marketable debt securities were $778.4 million, down 31.3% year-over-year. Capital spending in the quarter was $226.4 million, up from $85.1 million in the year-ago quarter.
Projections & Management Comments
For the second quarter of 2022, Packaging Corporation anticipates earnings to be $2.83 per share.
The Chairman and CEO of Packaging Corporation of America, Mark W. Kowlzan, anticipates that the company will benefit from healthy demand and price increases in the Packaging segment. Scheduled outages in the Paper segment will be concerning.
He added that “continued inflation with freight and logistics expenses” as well as operating costs will impact results.
Analysts’ Take
Four days ago, George Staphos of BofA Securities maintained a Buy rating on Packaging Corporation while increasing the price target to $185 (13.99% upside potential) from $165.
Another analyst, Kyle White of Deutsche Bank, reiterated a Buy rating on the company but raised the price target to $158 (2.64% downside potential) from $141.
The analysts are cautiously optimistic about Packaging Corporation’s growth prospects and have a Moderate Buy consensus rating based on three Buys and six Holds. Packaging Corporation’s price forecast is $164, suggesting 1.05% upside potential from current levels. Over the past year, shares of Packaging Corporation have grown 13.4%.
Crowd Wisdom
Per the TipRanks Crowd Wisdom tool, investors’ sentiments are presently Very Positive for Packaging Corporation. In the last 30 days, portfolios having exposure to PKG stock have increased 10.2%.
Conclusion
The U.S. packaging industry is anticipated to grow 2.94% CAGR from 2022 to 2027 as revealed in the Packaging Industry in the United States – Growth, Trends, COVID-19 Impact, and Forecasts (2022 – 2027) report.
Packaging Corporation is expected to benefit from healthy industry fundaments in the years ahead. However, costs inflation is concerning for the company in the near term.
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