PKG - Packaging stock dips as CEO warns of growth softening despite Q2 beat

Packaging Corporation of America ( NYSE: PKG ) stock fell ~5% on July 26 after CEO Mark Kowlzan warned of growth softening in corrugated products in Q3 due to impact from broad-based inflation and interest rate increases.

The company's Q2 non-GAAP EPS rose +48.85% to $3.23, while net sales grew +19% Y/Y to ~$2.24B. Both items beating analysts' estimates.

"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," said Kowlzan in the company's July 25 earnings release.

Sales from Packaging segment in Q2 rose +20.27% Y/Y to ~$2.07B, while sales from Paper business grew +5.27% Y/Y to $149.8M. Corporate and Other segment generated $20.6M in sales, compared to $19.1M in Q2 2021.

Outlook :

"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. We expect continued inflation in most all of our operating and converting costs to be the primary driver of our third quarter results," commented Kowlzan.

According to Kowlzan the company expects earnings of $2.80 per share.

Kowlzan noted that in the Paper segment, the company will continue to implement previously announced price increases, and has notified customers of an additional $60 per ton price raise on all paper grades, effective with shipments starting Sept. 6.

"Higher gas, purchased electricity, and chemical prices along with higher labor costs are expected to be the key areas during the quarter. Continued rail service challenges along with rail fuel surcharges that typically lag diesel fuel prices by 30-60 days should also result in higher freight and logistics expenses," noted Kowlzan.

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