Packaging Corporation of America

This is our first report on Packaging Corporation of America (PCA), one of the largest manufacturers of containerboard and corrugated packaging products in the United States. The company had a mixed quarter and failed to meet Wall Street expectations in terms of revenues but managed an earnings beat. It continues to receive good realizations from the implementation of the company’s previously announced increase in price across all product lines, corrugated prices, and domestic containerboard. The company is benefiting from its plants and mills through material usage initiatives and process efficiency optimization efforts. The containerboard mills operate in a cost-effective and efficient manner as they balanced their supply with current export and domestic demand. However, demand for the company’s packaging segment was below expectations in the quarter. Although PCA is experiencing high inflation within its converting and operating costs, its plants and mills continue to stay focused to deliver various cost reduction initiatives, capital benefits, optimization and integration enhancements, and efficiency improvements. Moreover, various issues and events like the hurricane in Florida last to have had a negative impact on the protein and agriculture markets. The sales volume was down mainly because of the scheduled outrage at PCA’s International Falls mill. The  management efforts revolved around implementing the company’s latest price increase and optimizing the cost structure, product mix, and inventory, delivering exceptional margins in the paper business. We initiate coverage on the stock of PCA with an ‘Underperform’ rating.