Packaging Corporation of America Is Ready to Ship Profits

Packaging Corporation of America (PKG -0.43%) recently announced fourth-quarter and full-year results for fiscal 2013. The record results for the company indicate the continued success of management's long-term growth plans and illustrate why Packaging Corporation remains a better growth investment than competitors like MeadWestvaco (WRK -0.61%) and Rock-Tenn Company (NYSE: RKT).

Perhaps most importantly, Packaging Corporation's impressive performance in the fourth quarter was due in large part to the company's 2013 acquisition of smaller rival Boise. This added growth from Boise highlights just how substantial the acquisition could be for Packaging Corporation in the future.

PCA mill, the company produces over 2.6 million tons of corrugated materials per year

Record earnings
Packaging Corporation reported record net fourth-quarter income of $277 million, or $2.33 per diluted share. With items excluded, net income was $101 million, or $1.04 per diluted share. This result compares favorably to 2012's comparable-quarter result of $59 million net income, or $0.61 per diluted share, and represents EPS growth of 70.49%.

On a revenue basis, the company reported $1.26 billion in sales for the fourth quarter, up a staggering 76.39% from last year's comparable-quarter sales of $737 million. 

Chief executive officer Mark W. Kowlzan explained, "We finished 2013 with another outstanding quarter, achieving all-time record earnings from improved prices, strong corrugated products volume, and productive and efficient mill operations." 

These results came in significantly above the consensus estimates. On average, analysts expected Packaging Corporation to achieve $0.89 in diluted earnings per share on $1.06 billion in sales. Accordingly, in pre-market trading the following day shares of Packaging Corporation were up over 5%, representing an all-time high price at the open. 

The Boise effect
As mentioned before, a large portion of Packaging Corporation's growth in the fourth quarter was driven by the acquisition of Boise, an Idaho-based producer of corrugated and linerboard products. In September, Packaging Corporation announced that it would buy its smaller competitor in a deal worth just under $2 billion in cash, which included Boise's $714 million in outstanding debt. 

Nearly half of the company's quarterly, year-over-year $0.43 EPS improvement was a result of the inclusion of the Boise business. Packaging Corporation achieved a $0.23 EPS improvement as a result of improved price, mix, and volume. However, just a partial quarter of Boise's business added an additional $0.20 EPS improvement in the quarter.

CEO Kowlzan explained, "The integration of Boise's operations with PCA is well under way, and we are finding additional synergy opportunities as the process continues."

Industry-leading growth
Not surprisingly, the addition of the Boise business has created an industry-leading growth company in Packaging Corporation of America. The company, which is now the fourth-largest producer of containerboard and corrugated products in the nation,  is projected to lead competitors like MeadWestvaco and Rock-Tenn by a wide margin for the most part. 

*The Rock-Tenn fiscal year ends in September.

Aside from MeadWestvaco's massive projected increase in EPS for 2014, which is a combined result of favorable year-over-year comparisons as well as drastically improving mill capacity at the company's Brazilian operations and a successful margin improvement plan, Packaging Corporation is expected to lead its competitors significantly. Especially impressive is the company's revenue growth estimate for 2014, a direct result of the Boise acquisition.

Also impressive is Packaging Corporation's current valuation. The company's future 12-month P/E multiple of 13.38 is significantly cheaper than MeadWestvaco's 16.91 multiple and only slightly more expensive than Rock-Tenn's 11.49 multiple. This means that investors do not have to pay much of a premium for industry-leading growth at the moment. 

Packaged for growth
On the heels of a very solid earnings report, Packaging Corporation of America seems poised for a very impressive 2014. Most importantly, preliminary results from the company's first partial quarter indicate that the Boise addition was a strong one. Accordingly, Packaging Corporation remains a great consideration for cheap, long-term growth.