Packaging Corporation of America (NYSE: PKG) reported revenue that exceeded Wall Street expectations for the first quarter of fiscal 2025, with sales increasing 8.2% year over year to $2.14 billion. Its GAAP profit of $2.26 per share was 2% higher than analysts’ consensus estimate.
Is Now a Good Time to Buy Packaging Corporation of America?
Packaging Corporation of America (PKG) Q1 2025 Highlights:
Revenue: $2.14 billion, vs. $2.11 billion (up 8.2% year-over-year, 1.5% ahead of estimates)
GAAP EPS: $2.26, vs. $2.22 (2% ahead)
Adjusted EBITDA: $421.1 million, vs. $415.3 million (19.7% margin, 1.4% ahead)
Q2 2025 GAAP EPS median forecast of $2.41, 6.6% below analyst expectations
Operating margin: 13.1%, up from 9.9% a year ago
Volumes increased 7.6% year-over-year, flat with a year ago
Mark W., Chairman and CEO, said: Commenting on the results, Kowlzan said, “We started the year with record first quarter revenue. In the Packaging business, we executed well on our previously announced price increases. Despite a mid-quarter pullback in carton demand due to uncertainty surrounding global trade tensions, carton demand remained strong and exceeded very strong levels in the prior year period. With operational excellence and planned mill outages, we achieved record containerboard production in the first quarter, met market demand, and reached target inventory levels at the end of the quarter. The Paper business continued to deliver impressive margins, with volumes and prices slightly above initial expectations. Across the company, we continued to emphasize operating efficiencies, cost reduction initiatives, and capital project execution, which helped minimize persistent inflation across much of our cost structure.”
Company Overview
Founded in 1959, Packaging Corporation of America (NYSE: PKG) produces containerboard and corrugated packaging products as well as display and packaging protection products.
Industrial Packaging
Industrial Packaging companies build competitive advantages through economies of scale, which provide them with procurement and capital investment advantages that are difficult and costly to replicate. Environmentally friendly packaging and energy conservation and emission reduction are driving consumer preferences and innovation in recent years. For example, plastics are no longer as popular as they once were. Although plastics have become an integral part of consumer products ranging from beer to toothpaste to laundry detergent, these companies are still affected by macroeconomic conditions, especially consumer health and willingness to spend.
Sales Growth
A company’s long-term sales performance is an indicator of its overall quality. Any business may perform well in one or two quarters, but the best ones are able to grow continuously over the long term. Packaging Corporation of America’s sales have grown at a compound annual rate of only 4.3% over the past five years, which is lower than our expectations for the industrial sector, so we can only use it as a rough starting point for analysis.
StockStory values long-term growth the most, but in the industrial sector, a five-year historical perspective can miss cycles, industry trends, or how a company takes advantage of catalysts such as winning new contracts or successful product lines. Packaging Corporation of America’s recent results indicate that its demand has slowed, as its annualized revenue growth rate over the past two years has been only 1.4%, which is below the five-year trend level.
Packaging Corporation of America also reported its sales, reaching 1.25 million units in the latest quarter. Over the past two years, Packaging Corporation of America has grown its sales volume by an average of 8.5% per year. As this growth rate is higher than its revenue growth, we can see that the company’s average selling price has declined.
For the quarter, Packaging Corporation of America reported revenue growth of 8.2% year-over-year, and its revenue of $2.14 billion was 1.5% higher than Wall Street’s expectations.
Looking ahead, sell-side analysts expect the company’s revenue to grow by 4.5% over the next 12 months. Although this forecast suggests that its new products and services will stimulate revenue performance, it is still lower than the industry average.
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Operating Margin
Packaging Corporation of America has been an efficient company over the past five years. It is one of the more profitable companies in the industrial sector, with an average operating margin of 14.3%. This performance is particularly impressive because of its low gross margin. Gross margin depends mainly on product sales and requires large adjustments to achieve effective growth. Companies have greater control over operating margins, and if operating margins remain high despite low gross margins, it indicates that their operations are well managed.
Looking at the earnings trend, Packaging Corporation of America’s operating margin has increased by 2.7 percentage points over the past five years, thanks to the sales growth that has given it operating leverage. The company’s expansion is impressive considering that most of its industrial packaging peers have seen a sharp decline in margins.
In the first quarter, Packaging Corporation of America’s operating margin was 13.1%, an increase of 3.2 percentage points year-on-year. This increase is encouraging, and since its operating margin has increased more than its gross margin, we can infer that the company is more efficient in its expenses such as marketing, R&D, and administration.
Earnings per Share
Revenue trends explain a company’s historical growth, but long-term changes in earnings per share (EPS) indicate the profitability of that growth – for example, a company can overstate its sales by overspending on advertising and promotions.
Packaging Corporation of America’s earnings per share (EPS) have grown at an unspectacular CAGR of just 6.9% over the past five years. Thankfully, though, this performance is better than its 4.3% annualized revenue growth, suggesting that its earnings per share have improved as the company’s business has expanded.
Digging deeper into the nuances of Packaging Corporation of America’s earnings allows us to better understand its performance. As we mentioned earlier, Packaging Corporation of America’s operating margin has grown by 2.7 percentage points over the past five years. In addition, its share count has decreased by 5%. This is a positive sign for shareholders, as improved profitability and share buybacks drive growth in earnings per share (relative to revenue growth).
As with revenue, we analyze EPS over the most recent period because it can provide insight into emerging themes or developments in the business.
For Packaging Corporation of America, the 4.2% decline in annual EPS over the two-year period indicates continued poor performance. These results are terrible by any measure.
Packaging Corporation of America reported first quarter EPS of $2.26, up from $1.63 in the same period last year. The report was 2% higher than analyst expectations. We also like to analyze the expected EPS growth against the consensus Wall Street analyst expectations, but data is insufficient at this time.
Key Takeaways from Packaging Corporation of America’s First Quarter Results
We were pleased to see that Packaging Corporation of America beat analyst expectations for the quarter. We were also pleased to see that its revenue, EPS, and EBITDA all beat Wall Street expectations. On the other hand, its EPS guidance for the next quarter was significantly lower than expected. Overall, we believe that the results were still solid this quarter with room for upside in some key areas. This expectation seems to have driven the stock price higher, and its stock price fell 8.1% to $171.30 immediately after the results were released.
Is Packaging Corporation of America an attractive investment opportunity right now? When making your decision, be sure to consider its valuation, business characteristics, and the most recent quarter’s results.
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