Boxing Up Profits for 50 Years


Timothy Lutts Image Timothy Lutts Publisher, Cabot Heritage Corporation

This may not be the sexiest business in the world, but it's earnings statement would certainly make you look twice, notes Timothy Lutts of Cabot Stock of the Month.

Our latest recommendation is a company that makes what is perhaps the most prosaic product possible: cardboard. Yet, it's just beginning a new, major uptrend.

Packaging Corporation of America (PKG) was created in 1959. In the decades since, it’s added many more companies to its stable through acquisition. It’s been swallowed up by Tenneco and spit out again.

Today the company boasts four containerboard mills (in Georgia, Michigan, Tennessee, and Wisconsin), and more than 70 manufacturing locations spread across the US.

Its primary products are corrugated containers and retail packaging and displays, all made to order and printed on the company’s own presses. Exports account for just 10% of revenues, so this is mainly a domestic story—and it’s a simple story.

The first part is growth. Over the past decade, Packaging Corp. has not only succeeded in turning a profit every year, it’s also succeeded in growing revenues in every year but one, 2009.

Given the ups and downs in this industry, that revenue record tells you the company is well managed. And looking forward, the picture is particularly attractive because the company is just beginning what looks to be a powerful turnaround.

The third-quarter report, released two weeks ago, revealed that while revenues inched up 8%, earnings gained 28%! The main reason for the jump was a price hike.