Is Packaging Corp Starting to Fray with Weak Trends?

What’s happening: Packaging Corporation of America is all set to release its financial results for the first quarter after the closing bell on Monday, April 27.

What happened: Packaging Corp was up against challenging macro trends in the first quarter. During these three months, industrial production contracted at its steepest pace since the second quarter of 2009, with widespread factory closures.

Owing to the COVID-19 related lockdowns, the downward momentum in Packaging Corp’s performance may continue. On the other hand, the Lake Forest, Illinois-based company had held up remarkably well during the previous 2008 financial crisis and investors are hoping to see signs of the same during this pandemic crisis.

Estimates for the quarter: Despite a marginal decline in revenues, the company’s earnings are expected to have taken a severe thrashing.

• Revenues are expected to come in at $1.65 billion, representing a 4.8% decline from the same quarter last year.
• Earnings are likely to plummet almost 40% to $1.20 per share in the first quarter.

Why it matters: Packaging Corp announced the temporary closure of its operations at Jackson, AL mill following a massive decline in demand for paper as various schools and offices remain closed due to the coronavirus-led restrictions.

Soft prices and lower containerboard sales during the quarter are expected to negatively impact the packaging division’s performance. The cold weather is expected to have lifted energy and wood costs, resulting in an increase in overall operating costs in the quarter, exerting pressure on profits.

On the positive side, the company provides packaging products for essential commodities like processed foods, beverages and pharma products, which are all witnessing a surge in demand.

How the shares have responded so far: Investors are cautiously approaching the company’s quarterly results. Packaging Corp’s shares have lost more than 5% over the past five trading days. The stock declined by 0.2% yesterday. However, the company’s shares have gained around 8% over the past month.

What to watch: With an increase in online shopping due to stay-at-home orders, Packaging Corp is expected to witness a rise in demand for packing boxes. Investors await details from management around the coronavirus impact on its business. Markets are also keen to know the company’s outlook for the year.

Investors will likely focus on US stocks today, as markets logged their first weekly losses in the past three weeks.

Context: US stocks closed higher on Friday, as investors assessed economic reports and mixed earnings from companies. Signs of some stability in crude prices provided support.

Details: Last week started with a record drop in oil prices, pushing the WTI to a negative territory for the first time in history. Crude stabilised over the past few sessions, providing some relief to markets, but fears over the extent of an economic recession following the coronavirus outbreak kept investors on edge during the week.

President Donald Trump signed the $484 billion coronavirus relief package on Friday, providing funding to various small businesses in the country.

Investor concerns were also fuelled by disappointing economic reports on Friday, showing a 14.4% decline in US durable goods orders in March. The final reading on the University of Michigan’s consumer sentiment dipped to 71.8 in April, from 89.1 in March.

The Dow rose 1.1% to close at 23,775.27 on Friday but closed the week lower by 1.9%. The S&P 500 rose 1.4% to 2,836.74, while the Nasdaq 100 settled higher by 1.7% to finish at 8,634.52.

Shares of American Express rose around 1% after the credit card company reported upbeat first-quarter profits, although missing revenue expectations. Verizon Communications’ stock edged higher by 0.6% after the company posted an earnings beat.

In commodities, oil rose for the third consecutive session on Friday, but closed sharply lower for the week. WTI crude for June delivery rose 2.7% to close at $16.94 per barrel, while booking a weekly decline of 32%. Gold futures slipped 0.6% to settle at $1,735.60 an ounce in the previous session but notched a weekly rise of 2%.

What to watch: Investors continue to track the daily coronavirus numbers, with the global number of cases exceeding 2,972,310. The number of positive COVID-19 cases in the US has surpassed 965,910 with around 54,870 deaths.

US stocks are expected to continue the positive momentum from Friday, with the stock futures pointing towards a higher start today. The US economic calendar is light today, with the country only releasing the Dallas Fed manufacturing index, which is expected to have tanked to a reading of -70 in March, from 1.2 in the previous month.

Other Markets: European indices were trading higher at 9:00a.m. GMT, with the FTSE 100, STOXX Europe 600 and French 40 up by 1.7%, 1.6% and 1.9%, respectively.

Mexico’s unemployment rate, Russia’s retail sales, business confidence, corporate profits, real wage growth and gross domestic product as well as Canada’s foreign stock investment.