Packaging Corp Earnings: Moderating Containerboard Demand Raises Near-Term Uncertainty

Packaging Corp of America reported underwhelming first-quarter results as a favorable mix in packaging was more than offset by a double-digit decline in volume. The packaging business continues to struggle as consumer spending slows amid heighted economic uncertainty. That said, Packaging Corp's small paper business posted strong results for the quarter, benefiting from its previously announced price increases and a much smaller decline in volume. Despite cost management initiatives, rising operating costs continued to weigh on the firm, with consolidated operating margins contracting 300 basis points from a year ago to 13.7%. We expect some improvement in operating costs during the year, but Packaging Corp faces an uphill battle as demand remains constrained. We've decreased our fair value estimate to $108 per share from $110 due to a decrease in our near-term revenue and profitability forecast.