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Packaging Corp Evaluates Hurricane Impact on Louisiana Mill

Packaging Corporation of America PKG had ramped down its DeRidder containerboard mill operations before the arrival of Hurricane Laura. On Aug 27, the storm made landfall approximately 100 miles south of the company’s containerboard mill in Louisiana.  Notably, the storm did not make any significant property damages to the mill.

The mill’s two paper machines and other ancillary equipment operations were suspended as electric supply was out of service for approximately 11 days. On Sep 7, power supply was restored and the mill resumed full operations. The mill’s production was down for approximately 12 days, with a total impact of 40,000 tons. The company is currently evaluating the impact the storm might have on the previously-announced scheduled outage planned in the fourth quarter. During the second-quarter earnings call, the company had stated that it expects scheduled outage costs at its mills to impact bottom-line performance in the current year.

Packaging Corporation did not provide any financial guidance for the third quarter given the uncertainty regarding the duration and impact of the coronavirus pandemic, and the timing of global recovery. The company might have to shut down or suspend operations as per government mandates, or if there are any cases reported in its facilities. Its supply chain might also be affected. In these cases, Packaging Corporation’s performance would be affected.

Packaging Corporation discontinued the production of uncoated free sheet and coated one-side grades at the Wallula, WA mill, and converted the No. 3 machine into a virgin kraft linerboard machine with an annual capacity of 400,000 tons. The conversion resulted in production of lighter-weight high-performance linerboard grades, which will assist the company in optimizing the entire containerboard system platform, and reduce its logistics and freight costs. This move will help improve its profitability and margins in the paper segment.

However, paper consumption in schools, offices and businesses has been impacted due to the pandemic, straining paper demand. To balance the supply of Boise Paper products with demand, Packaging Corporation has, thus, announced plans to temporarily idle both paper machines and the sheet-converting operation at its Jackson Mill in Jackson, AL for the months of May and June. This move will reduce paper production by approximately 70,000 tons. Also, the paper segment continues to bear the brunt of bleak uncoated freesheet market.

Price Performance

The stock has lost 1.2% over the past year, as against the industry’s growth of 5.6%.

 

Zacks Rank & Stocks to Consider

Packaging Corporation currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the Industrial Products sector include Astec Industries, Inc. ASTE, Silgan Holdings, Inc. SLGN, and SiteOne Landscape Supply, Inc. SITE. While Astec sports a Zacks Rank #1(Strong Buy), Silgan and SiteOne carries a Zacks Rank of 2 (Buy), currently. You can see the complete list of today's Zacks #1 Rank stocks here.

Astec has an estimated earnings growth rate of 13.5% for the ongoing year. The company’s shares have rallied 68.5% in a year’s time.

Silgan has a projected earnings growth rate of 28.7% for 2020. The company’s shares have appreciated 32.9% over the past year.

SiteOne Landscape has an expected earnings growth rate of 15.4% for the current year. The stock has surged 61.6% over the past year.

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