Packaging Corporation's Buyouts Aid Growth Amid Rising Costs
Zacks Investment Research | Dec 26, 2017 08:59PM ET
On Dec 26, we issued an updated research report on Packaging Corporation of America (NYSE:PKG) . The company is poised to gain from the Sacramento Container acquisition, growth in e-commerce and progress in the DeRidder mill. However, higher annual outage costs are expected to affect results.
Sacramento Container Acquisition to Propel Growth
Earlier this October, Packaging Corporation acquired the assets of Sacramento Container. This buyout is likely to boost Packaging Corporation’s operations both geographically and strategically. Further, the customer-focused employees and strong management teams of Sacramento Container, Northern Sheets and Central California Sheets are in sync with Packaging Corporation’s growth strategy.
Growth in e-commerce to Boost Results
e-commerce is an important part of Packaging Corporation’s business. The company anticipates increase in demand for boxes, which is generally driven by e-commerce growth. These days customers find a lot of different channels to sell through, including e-commerce. The company has a wide base of customers. Hence, it expects to grow along with them through its e-commerce segment.
Progress in DeRidder mill
Packaging Corporation’s year-over-year production in 2017 has been benefiting from the projects of the DeRidder mill improvements on both DeRidder No. 1 and DeRidder No. 3. The company’s other mills also continue to gain from continued attention on improving the mills’ efficiencies. Thus, it estimates total production to be up probably 150,000 tons in 2017 over the prior year.
Higher Outage Costs to Hurt Earnings
Packaging Corporation reaffirmed total property damage and business interruption losses, including capital cost related to the DeRidder incident, in the range of $20-$25 million for 2017. Also, the company’s planned annual maintenance outages for the balance of the year remain unchanged from the previous guidance.
It estimates outage costs to be 12 cents per share in the fourth quarter, higher than the third quarter, due to scheduled annual maintenance work at two containerboard mills and two paper mills. Considering these, Packaging Corporation projects fourth-quarter earnings of $1.50 per share.
Share Price Performance
Packaging Corporation has outperformed its Zacks Investment Research
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