Food service packaging producer Pactiv (NYSE:PTV) will report Q4 2006 financial results tomorrow, Jan. 23.

What analysts say:

  • Buy, sell, or waffle? There are 11 analysts covering Pactiv, with 10 of them boxed in with a hold rating. One free spirit says buy.
  • Revenues. Sales are forecast to rise 4% to $770.24 million.
  • Earnings. Earnings are expected to grow a hefty 30% to $0.39 per share.

What management says:
The maker of Hefty garbage bags has benefited recently from a reduction in raw materials costs like resins and polystyrene. Those lower costs have boosted profit margins, despite lackluster sales volume. Advertising costs have risen, however, as Pactiv seeks to compete against private-label brands that have been eating into its market.

Chairman and CEO Richard Wambold said, "While our markets are not supporting strong volume growth, we continue to focus on maintaining our market positions and improving the profitability of our product mix." Last quarter's huge benefit from foreign exchange gains, which accounted for 20% of profits from continuing operations, didn't hurt, either.

What management does:
Pactiv has been able to improve top- and bottom-line margins as the costs associated with its business have ameliorated. While product raw materials eased up, so did fuel costs, which the company can often circumvent by increasing productivity -- unless they're dramatically higher, as they have been. Pactiv's late-2005 restructuring left it a leaner, more focused business, but it still has to contend with generic labels moving into its market.

Margin %

09/05

12/05

03/06

06/06

09/06

Gross

26.1

26.2

27.2

28.8

29.8

Op.

11.6

11.2

12.2

13.7

14.1

Net

2.5

2.0

2.9

6.8

8.8
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
With 2006 being a turnaround year for Pactiv, the company did an admirable job of improving performance. But it's in a slow-growth industry, and it has a dearth of new products entering the consumer stream to propel it forward. Selling at a forward PE of 19 puts it at some of its highest historical valuations that growth prospects might find unsustainable: Its PEG ratio stands in excess of 2, suggesting it's very richly valued. Price increases that have stayed ahead of raw material costs, and a healthy exchange-rate benefit, have contributed to pushing Pactiv up. Are these results heavy-duty, or will we see them stretched thin like a garbage bag packed too full?

Competitors:

  • Clorox (NYSE:CLX)
  • Rexam (NASDAQ:REXMY)
  • Greif (NYSE:GEF)
  • Packaging Corp of America (NYSE:PKG)

Pactiv has earned a four-star rating from Motley Fool CAPS, the new investor intelligence community. You can add your voice to the new stock rating service by joining today. It's free!

Fool contributor Rich Duprey does not own any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.