One of these days, I'm gonna learn the lesson: Make the trade and then write about it.
While I've been nervously optimistic on Rock-Tenn (NYSE:RKT) for a little while now, I thought that the market's reaction to a negative earnings report from this paperboard and packaging company back in January might be an interesting opportunity for risk-tolerant value hounds.
So far, at least, so good. The stock has moved up about 25% from that point, and the company seems to be in better shape. Then again, if a few things continue to go the company's way, who's to say that there might not be some more opportunity here?
Revenue in the recently announced quarter was up about 34% from the year-ago level and up about 8% sequentially. Likewise, operating and net profits were meaningfully better on both annual and sequential comparisons. In looking at the company's paperboard business, volumes were up about 9% sequentially, pricing was up slightly, and the company reported capacity utilization of 96%.
Certainly helping matters has been the one-two punch of improving pricing and lower energy costs. Natural gas costs were quite a bit lower this quarter than in the immediately preceding quarter, and present-day pricing is pretty attractive for the company. What's more, finished good pricing is looking better -- the company saw higher prices this quarter (up a bit sequentially, and up 11% year over year) and just announced a further $40-per-ton increase on coated recycled paperboard.
I've spoken favorably about other paper and packing companies in the past, and that seems to be panning out a bit. Packaging plays like Packaging Corp (NYSE:PKG) and Smurfitt-Stone (Nadsaq: SSCC) have done well, as have paper companies like Abitibi (NYSE:ABY) and UPM-Kymenne (NYSE:UPM).
And I think there's still more room to run for some of these. Rock-Tenn isn't the safest idea out there, but if pricing on finished goods and natural gas stays in its favor and a deal with Procter & Gamble's (NYSE:PG) Gillette business pays off, better earnings here aren't out of the question.
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
