Packaging Corp (PKG) Gains from E-Commerce Demand Amid High Costs – May 30, 2024

American packaging company (PKG – Free Report) benefits from strong e-commerce growth, which continues to support packaging demand. Stable demand for food, beverages, medicines and other consumer products bodes well for the Packaging segment.

However, higher labor costs and planned annual plant shutdowns will hurt performance in 2024. The decline in reported reference prices that occurred in late 2023, with export prices relatively unchanged, will impact margins.

E-commerce demand to help growth: Packaging Corp stands to benefit from strong growth in its e-commerce business, which continues to support packaging demand.

The Packaging Segment generates approximately 91% of the company’s revenues. Packaging is essential in the distribution of food, beverages and pharmaceutical products. The Packaging Segment will continue to reflect stable demand for packaging for meat, fruits and vegetables, processed foods, beverages, pharmaceuticals and other consumer products.

Solid segment performance: In the first quarter of 2024, corrugated board sales volume increased by 40,000 tons compared to the first quarter of 2023. The company’s order backlog and corrugated board remained strong in the quarter.

In the packaging segment, it expects total shipments of corrugated products to increase in 2024 due to continued strong demand. In the Paper segment, the company expects that the improved product range will result in a slight increase in prices. These favorable factors are expected to improve the company’s performance in the coming quarters.

Acquisitions to drive growth: In December 2021, the company acquired the entire assets of Advanced Packaging Corporation in a non-cash transaction. The company acquired a full-service, 500,000-square-foot corrugated manufacturing plant located in Grand Rapids, Michigan. The transaction supported Packaging Corp’s focus on enhancing its containerboard portfolio through organic box volume growth and strategic box plant acquisitions.

After the buyout, the company’s corrugated board integration increased by almost 80,000 tons. This increased mill efficiency and box plant operations.

Low corrugated volume and high costs create misfortunes

Despite the reopening of Machine 2 at the Wallula plant, the company expects corrugated volume to be lower in 2024 than in the previous year due to downtime caused by an upgrade to Machine 3 at the company’s Jackson Mill and a scheduled maintenance outage at the plant in Counce, TN.

While prices and mix are expected to be slightly higher following the implementation of the company’s announced price increases in January, this will be largely offset by the decline in reported reference prices that occurred in late 2023, with export prices relatively unchanged.

Labor costs and some indirect costs are expected to remain elevated. Operating and conversion costs are expected to increase.

Due to these factors, Packaging Corp forecasts Q2 2024 EPS of $2.07, representing a decline of 10% year-over-year

Price performance

PKG shares gained 49.1% last year compared to the industry’s growth of 19.7%.

Zacks Rank and Stocks to Consider

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

Some of the better-ranked companies in the industrial products sector include Intellicheck limited liability company (IDN), Applied industrial technologies (CLUMP – Free Report) i ACCO Brands company (ACCO – Free Report). IDN is currently sporting a Zacks Rank #1 (Strong Buy), while AIT and ACCO are sporting a Zacks Rank #2 (Buy). You can see complete list of today’s Zacks #1 ranked stocks here.

The Zacks Consensus Estimate estimates Intellicheck’s 2024 earnings at 2 cents per share. Consensus earnings estimates for 2024 have remained unchanged over the past 60 days. The company surprises with average profits for the last four quarters of 28.9%. IDN stock has gained 13.7% over the past three months.

Applied Industrial reports an average trailing four-quarter earnings surprise of 8.2%. The Zacks Consensus Estimate for AIT’s 2024 earnings is projected at $9.62 per share, representing year-over-year growth of 9.9%. Over the last 60 days, estimates have moved northward by 2%. The company’s shares have gained 60.1% over the past three months.

The Zacks Consensus Estimate estimates ACCO Brands’ fiscal 2024 earnings at $1.07 per share. Consensus earnings estimates for 2024 have remained unchanged over the past 60 days. The company surprises with average profits for the last four quarters of 25.9%. ACCO shares have gained 1.5% over the last three months.

Research chief names ‘best choice to double down’

From thousands of stocks, five Zacks experts have selected their favorite stock to skyrocket 100% or more in the coming months. Of these five, research director Sheraz Mian picks the one who has the most explosive upside of all.

The company targets millennials and Gen Z, and generated nearly $1 billion in revenue last quarter alone. The recent pullback makes now the perfect time to jump to the next level. Of course, not all of our elite picks are winners, but this one has the potential to significantly outperform prior Zacks Rank stocks that have doubled compared to Nano-X Imaging, which is up 129.6% in just over 9 months.

Free: See our top products and 4 runners-up