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On Monday, Citi analysts reported that demand for box stocks in May was sluggish, with recycled linerboard prices under pressure from smaller producers. According to InvestingPro data, five analysts have recently revised their earnings expectations downward for major players like Packaging (NYSE:PKG) Corporation of America (PKG), which currently trades at a P/E ratio of 20.17. Despite market headwinds, PKG maintains strong financials with a healthy current ratio of 3.28. Boxmakers expressed concerns about soft demand trends, with some describing the market as "very loose" and lacking the expected seasonal uptick for the second quarter.
Demand in Mexico has reached its lowest point since the COVID-19 pandemic due to tariffs and recession risks. In North America, the picture remains uncertain, though InvestingPro analysis shows PKG achieving 9.47% revenue growth in the last twelve months. The South saw slight improvements in orders, driven by strength in e-commerce and food and beverage sectors, while the auto, consumer durables, and furniture sectors remained weak. The Northeast experienced strong demand in e-commerce and food and beverage, but manufacturing was soft. Gains reported by most box plants in May were attributed to new business rather than underlying demand.
The Midwest continues to experience soft demand, with e-commerce and food sectors up, but the auto sector down. One boxmaker cited significant price pressure, declining profits, and rising expenses, emphasizing the need for new business. In the West, declines in manufacturing have offset gains in agriculture, leading to softening demand.
Containerboard producers have shut down 2.2 million metric tons of supply year-to-date, and further closures may be necessary if demand weakens further. Despite closures, the industry is expected to consume the highest volume of old corrugated containers (OCC) since 2005, with an estimated increase of 1% year-over-year to 33 million metric tons in 2025.
In related news, President Trump announced on Friday a doubling of tariffs on steel and aluminum imports into the U.S., raising them to 50% from the previous 25%. The impact on packagers has been minimal, with domestic suppliers typically meeting their needs. Some companies, like CCK and BALL, have cited specific impacts from tariffs, while others, such as SLGN and SON, have noted minimal or modest effects. For detailed analysis of how these market dynamics affect packaging companies, including comprehensive Fair Value assessments and financial health scores, investors can access in-depth Pro Research Reports available on InvestingPro, covering over 1,400 US stocks.
In other recent news, Packaging Corporation of America (PCA) has seen its senior unsecured ratings upgraded by Moody’s from Baa2 to Baa1, with the outlook revised from positive to stable. Moody’s highlighted PCA’s consistent financial performance and conservative financial policy as key factors for the upgrade. Wells Fargo (NYSE:WFC), however, downgraded PCA’s stock rating from Overweight to Equal Weight, adjusting the price target to $180 from $205, citing concerns over market fundamentals and a balanced risk/reward profile. Analysts at Wells Fargo have also revised their earnings estimates for PCA, projecting an EPS of $9.55 for 2025 and $9.05 for 2026.
Truist Securities has expressed a positive outlook on containerboard pricing, which could benefit PCA, following the announcement of Georgia-Pacific’s Cedar Springs mill closure. This closure, alongside others in the industry, is expected to reduce North American capacity by approximately 5.5%, potentially supporting containerboard pricing. In addition, PCA has declared a regular quarterly dividend of $1.25 per share, payable on July 15, 2025, reaffirming its commitment to shareholder returns. These developments reflect PCA’s ongoing strategic and financial maneuvers in a fluctuating market environment.
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