Forget International Paper (IP), buy these 3 packaging stocks for 2022 – December 24, 2021

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The year 2021 will end on a bitter note for International paper (IP Free report). Investors have previously applauded its decision to split up its Printing Papers segment, which will help the company take advantage of the growing demand for corrugated packaging. However, IP’s share price plunged rapidly amid weaker-than-expected third quarter 2021 results and unfavorable fourth quarter guidance. This is mainly due to supply chain issues and cost pressures. International Paper’s woes were not yet over, as a structural failure at its Prattville paper mill resulted in an unplanned outage. On December 1, the company again upped its cost forecast and said inflated costs and the impact of the Prattville paper mill outage would likely have an impact of $ 95 million to $ 105 million on profits. of the fourth trimester. This dealt a new blow in the course of its action.

International Paper’s overall journey in 2021 so far is not worth writing. Its shares have fallen 7.8% so far this year against its industry’s growth of 2.5% and the S&P 500 rally of 26.1%. Profit estimates for 2021 and 2022 have declined 12% and 16%, respectively, over the past 60 days. This indicates bearish feelings for the stock, as six estimates were down to none on the upside.

Image source: Zacks Investment Research

In such a scenario, it is prudent for short term investors to avoid this Zacks Rank # 4 (Sell) stock and instead focus on three packing stocks – Global Berry Group (BERY Free report), Greif, Inc. (FEM Free report) and Veritiv Corporation (VRTV Free report). These companies currently have a Zacks Rank # 1 (Strong Buy) and are expected to experience solid growth in 2022.

You can see The full list of today’s Zacks # 1 Rank stocks here.

Before we discuss these stocks, let’s take a detailed look at what has brought International Paper out of favor with investors this year.

Costs higher than expected in the third quarterQ .: On the third-quarter conference call, management pointed out that third-quarter input costs rose 46 cents per share, more than double than expected. Fiber and energy costs accounted for about 80% of this increase. Transportation costs remained high for both incoming and outgoing materials. In addition, due to labor market constraints, the company had to increase overtime and hire additional employees, resulting in increased labor costs, especially at its processing facilities.

Impact volumes of supply chain issues: The company said pervasive supply chain constraints limited its ability to take full advantage of the high level of demand across all channels, including boxes, sheets and crates.

Warm orientation for T4: On the third quarter conference call, the company said in the industrial packaging segment, maintenance outage expenses will increase by $ 3 million in the fourth quarter and input costs will increase by $ 50 million. dollars, mainly due to higher fiber and energy costs. In Global Cellulose Fibers, the volume will likely be $ 5 million lower, primarily due to continued port congestion. Maintenance shutdown expenses are expected to increase by $ 37 million and input costs are expected to increase by $ 15 million due to higher wood and energy costs.

Prattville blackout will result in loss of production: On November 6, the company announced that the Prattville, Alabama, paper mill was scheduled to shut down due to a failure of one of the mill’s storage tanks. The plant produces 1.1 million tonnes per year of linerboard. Operations have since resumed for the number 2 paper machine. However, the number 1 paper machine as well as the rest of the mill are expected to be fully operational early next year, with no clear timeline provided. International Paper did not quantify the anticipated production loss.

Hiking costs guide: On December 1, during a presentation at the Citi 2021 Basic Materials virtual conference, the management of International Paper said that the plant outage would likely impact the fourth quarter’s profits by $ 60-70 million. trimester. The company predicts that input costs will be $ 35 million higher than the previously mentioned figure due to higher prices for wood fiber and energy.

Although the company plans to file insurance claims, it’s unclear how much it might be able to recover. Additionally, given that the number 1 paper machine is unlikely to restart until early 2022, investors anticipate some impacts in the first quarter of 2022. As the company has struggled in recent quarters due to due to an insufficient stock of containerboard, this development could exacerbate the problem. It is perceived that International Paper will not be able to capitalize on the current strong demand, given the Prattville outage, existing supply chain issues and labor shortage.

3 solid packaging stocks set for a solid 2022

Greif: The Company’s Global Industrial Packaging segment has benefited from strong growth in intermediate bulk containers and large plastic drums in recent quarters, supported by strategic growth investments in the United States and the EMEA region, and the ongoing recovery in industrial end markets. The paper packaging segment benefited from large volumes in converting operations and higher selling prices. Strong demand, a focus on operational execution, and price increases to combat cost inflation will likely boost FY2022 results. Greif has achieved a lower interest rate level on its credit facility due to substantial debt repayments, which, in turn, will bolster its profits in the coming quarters. The acquisition of Caraustar, continued investments in business and restructuring activities will also contribute to growth. The stock has gained 22.1% so far this year.

Zacks’ consensus estimate for Greif’s earnings for fiscal 2022 suggests year-over-year growth of 11.4%. The consensus mark has risen 6% in the past 60 days. The company has an estimated long-term earnings growth rate of 10%. The world’s largest producer of industrial packaging products and services has a surprise profit of 16.8% on average over the past four quarters.

Veritiv: The third quarter of 2021 marked the company’s tenth consecutive quarter of year-over-year improvement in the adjusted EBITDA margin performance of its Packaging segment. In addition, he was instrumental in achieving overall record profits and adjusted EBITDA margin performance in the history of the company. Strong demand and the disciplined pass-through of supplier-induced inflationary price increases continue to drive sales growth in most of its segments. The expected benefits of the 2020 restructuring plan as well as business and supply chain productivity are expected to boost profits. The company’s net leverage ratio is at an all-time high at 1.5X, which is commendable. The company’s shares have jumped 467% so far this year. Its well-diversified packaging business, its focus on acquisitions in high-growth, high-margin industries, and its investments in technology and e-commerce are expected to drive long-term growth.

Zacks’ consensus estimate for Veritiv’s earnings for fiscal 2022 suggests year-over-year growth of 21%. The consensus mark has risen 27% in the past 60 days. Veritiv is a business-to-business provider of value-added packaging products and services, as well as print and publishing facilities, products and services solutions. The company has a surprise earnings over the last four quarters of 1,707% on average.

World bay: Demand in business, e-commerce, healthcare, food safety and wellness is expected to be strong for the business in the coming quarters. The Consumer Packaging – North America segment is likely to benefit from the strength of its consumer business in the food and beverage end markets. The Healthcare, Hygiene & Specialties segment should benefit from the strength of the final healthcare market and the recovery of the final construction market. Improving demand in the food and beverage and catering end markets will drive the Consumer Packaging – International segment. The Engineered Materials segment is expected to benefit from growing demand for its protective film and can liners product lines, as well as strength in e-commerce. Investments in the latest equipment technology, development of advantageous films and design for circularity are likely to improve its skills in the long run. The stock has gained 25% so far this year.

Zacks’ consensus estimate for Berry Global’s earnings for fiscal 2022 suggests year-over-year growth of 2.8%. The consensus mark has risen 18% in the past 60 days. The company manufactures and supplies nonwoven, flexible and rigid products to the consumer and industrial end markets. The company has a surprise earnings for the last four quarters of 16.5% on average.

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