PKG - Packaging Corporation of America stock slides amid inflation impacts

The specter of inflation hung over an otherwise positive earnings release from Packaging Corporation of America ( NYSE: PKG ) on Tuesday.

The Lake Forest, Illinois-based manufacturing company posted strong beats on top and bottom lines for the second quarter. Alongside a 19.1% jump in revenue to $2.24B, non-GAAP EPS of $3.23 reflected a rapid acceleration from $2.17 in the year prior. Management credited higher prices as the primary driver of the bottom line acceleration.

“We had great execution of our previously announced price increases in both the Packaging and Paper segments,” CEO Mark W. Kowlzan said. “Demand in our Packaging segment was solid with corrugated demand flat with last year’s record second quarter, which was up almost 10% versus the prior year, along with demand out of our containerboard mills generating new second quarter production and sales volume records.”

However, Kowlzan also warned on inventory and inflation issues that could temper confidence in the road ahead. Indeed, these conditions caused the company to forecast sequential deceleration in third quarter EPS figures.

“With economic conditions continuing to be negatively impacted by broad-based inflation and aggressive interest rate increases, we see corrugated products growth as softening in the quarter but demand still-firm as certain end markets work through their current supply of inventory,” he said on Tuesday. “We expect continued inflation in most all of our operating and converting costs to be the primary driver of our third quarter results. Higher gas, purchased electricity, and chemical prices along with higher labor costs are expected to be the key areas during the quarter.”

He added that rail service surcharges and scheduled outage costs only stand to exacerbate cost concerns into the coming quarters. As such, third quarter earnings per share were projected to hit $2.80 per share.

Shares of the containerboard and corrugated packaging products producer fell over 5% in Tuesday’s trading.

Read more on why Wells Fargo sees the stock as a good defensive pick amid market turmoil .

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