News

Packaging Corporation of America PKG has been gaining from strong growth in e-commerce activities that continue to support packaging demand. Stable demand for food, beverages, medication and other consumer products bodes well for the Packaging segment.

However, higher labor costs and planned annual outages mills will dent its results in 2024. The fall in reported benchmark pricing that took place late in 2023, with export prices remaining relatively unchanged, will impact margins.

Demand in E-Commerce to Aid Growth: Packaging Corp stands to gain from strong growth in e-commerce activities that continue to support packaging demand.

The Packaging segment accounts for around 91% of the company’s revenues. Packaging products are essential for distributing food, beverage and pharmaceutical products. The Packaging segment will continue to reflect stable packaging demand for meat, fruit and vegetables, processed food, beverages, medicine, and other consumer products.

Solid Segmental Performance: In the first quarter of 2024, the sales volume of containerboard increased 40,000 tons from the first quarter of 2023. The company's order backlog and containerboard remained strong in the quarter.

In the Packaging segment, it anticipates increased total corrugated product shipments in 2024 due to ongoing robust demand. In the Paper segment, the company expects an improved mix to move prices slightly higher. These tailwinds are expected to boost its performance in the upcoming quarters.

Acquisitions to Boost Growth: In December 2021, the company acquired all assets of Advanced Packaging Corporation in a cash-free transaction. The company acquired a full-line 500,000-square-foot corrugated products facility located in Grand Rapids, MI. The deal supported Packaging Corp’s focus on enhancing its containerboard portfolio through organic box volume growth and strategic box plant acquisitions.

Following the buyout, the company’s containerboard integration increased by almost 80,000 tons. This enhanced its mill capacity and box plant operations.

Low Containerboard Volume & High Costs to Act as Woes

Despite the reopening of the No. 2 machine at the Wallula Mill, the company expects containerboard volume to be lower in 2024 than the prior year due to downtime caused by the conversion of the No. 3 machine at the company's Jackson Mill and a scheduled maintenance outage at its Counce, TN-based mill.

Even though pricing and mix are anticipated to be slightly higher following the implementation of the company's stated January price hikes, this will be largely offset by a fall in reported benchmark pricing that took place late in 2023, with export prices remaining relatively unchanged.

Labor costs and certain indirect costs are expected to remain elevated. Operating and converting costs are anticipated to increase.

Due to these factors, Packaging Corp projects a second-quarter 2024 EPS of $2.07, indicating a year-over-year dip of 10%

Price Performance

PKG shares have gained 49.1% in the past year compared with the industry’s growth of 19.7%.

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Zacks Rank & Stocks to Consider

Packaging Corp currently has a Zacks Rank #3 (Hold).

Some better-ranked stocks from the Industrial Products sector are Intellicheck, Inc. (IDN ), Applied Industrial Technologies AIT and ACCO Brands Corporation ACCO. IDN currently sports a Zacks Rank #1 (Strong Buy), and AIT and ACCO carry a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Intellicheck’s 2024 earnings is pegged at 2 cents per share. The consensus estimate for 2024 earnings has been unchanged in the past 60 days. The company has a trailing four-quarter average earnings surprise of 28.9%. IDN shares have gained 13.7% in the past three months.

Applied Industrial has an average trailing four-quarter earnings surprise of 8.2%. The Zacks Consensus Estimate for AIT’s 2024 earnings is pinned at $9.62 per share, which indicates year-over-year growth of 9.9%. Estimates have moved north by 2% in the past 60 days. The company’s shares have gained 60.1% in the past three months.

The Zacks Consensus Estimate for ACCO Brands’ 2024 earnings is pegged at $1.07 per share. The consensus estimate for 2024 earnings has been unchanged in the past 60 days. The company has a trailing four-quarter average earnings surprise of 25.9%. ACCO shares have gained 1.5% in the past three months.

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