Tomahawk, WI 9/16/2013 (BasicsMedia) – Industry out performer, Packaging Corp of America (NYSE:PKG), is involved in manufacturing and sales of container board and corrugated packaging products, including conventional shipping containers, alongside wax coated and meat boxes for consumers and industry clients., Packaging Corp – the fourth largest packaging industry player is one of the second highest dividend yield company with annualized yield of around 3% when compared with its peers. At its current price above $54.55, the stock is trading close to its 52-week high of $55.79 with market capitalization of $5.35 billion.

The stock has outperformed the packaging sector by delivering over 60% returns on its share price compared to industry average of 36% during the trailing twelve months. Despite the stock is rallying close to its 52-week high, there is still some upside expected – given its improving profitability, relatively sound financial health, and capital refinancing to accelerate investment in  high return projects. In addition to this, Packaging Corp is one of the well positioned industry player with lowest cost mill systems in North America coupled with favorable industry pricing dynamics undoubtedly aided to its growth prospects.

Paper-Bound Financial Strength

The 2Q13 results beat the street expectations given the stellar financial and operational performance of the company. Company reported its net income at $64.5 million ($0.66 per share) and $130 million ($1.33 per share) for the 2Q13 and 1H13, significantly up from $45.2 million ($0.46 per share) and $88 million ($0.91 per share) during 2Q12 and 1H12. The net income improved almost 47% during 1H13 compared to 1H12. The earnings per share during the 2Q13 increased to $0.71 beating the consensus analysts’ estimate of $0.63 per share. The earnings per share increased almost 45% during 2Q13 compared to $0.49 during 2Q12.

Net sales jumped 12% during 1H13 and 2Q13 at $1.56 billion and $800 million compared to 1H12 and 2Q12 where it was $1.38 billion and $712 million respectively.

The Growth Drivers

Packaging Corp reported exceptional quarterly results with record earnings largely fueled by higher volume production of corrugated products, higher prices for containerboard and corrugated products even in export markets, lower than anticipated cost and strong demand in domestic as well as export markets.

The company also reported over 5% increase in corrugated products shipments per work day alongside setting a new quarterly record for tons produced per operating day.

However given the annual mill maintenance year over year production of containerboard was down by 9,000 tons.

Accelerating Investment in High Return Projects

The company reported $370 million cash on hand for the quarter ended June 30, 2013. Given the sound cash in hand and anticipated higher cash flow during 2H13 the company management has decided to accelerate higher return capital projects worth $25 million during 2H13. Earlier guidance was to initiate such projects from FY14. These projects would be on corrugated products plants to add the capacity for serving the demand of anticipated growth.

Positive Outlook for 2H13

Much in line with the street estimates, Packaging Corp projects its earnings for 3Q13 at $0.88 per share. The earnings growth is anticipated based on the expected increase in mill production, sales volume, corrugated products prices and lower mill operating cost. The company doesn’t have any planned annual outages during 3Q13 and during 4Q13 there is only one planned outage scheduled in October.

The company aims to continue invest more capital in box plants – the strategy which has paid well till the time.

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