Packaging Corporation of America (PKG)

Packaging Corporation of America (NYSE:PKG) met Wall Street’s revenue expectations in Q3 CY2025, with sales up 6% year on year to $2.31 billion. Its GAAP profit of $2.51 per share was 11.5% below analysts’ consensus estimates.

Company Overview

Founded in 1959, Packaging Corporation of America (NYSE: PKG) produces containerboard and corrugated packaging products as well as displays and package protection.

Industrial packaging companies have built competitive advantages from economies of scale that lead to advantaged purchasing and capital investments that are difficult and expensive to replicate. Recently, eco-friendly packaging and conservation are driving customers preferences and innovation. For example, plastic is not as desirable a material as it once was. Despite being integral to consumer goods ranging from beer to toothpaste to laundry detergent, these companies are still at the whim of the macro, especially consumer health and consumer willingness to spend.

Competitors in the packaging industry include Crown Holdings (NYSE:CCK), Ardagh Group (NYSE:ARD), and Silgan Holdings (NASDAQ:SLGN)

Examining a company’s long-term performance can provide clues about its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Regrettably, Packaging Corporation of America’s sales grew at a tepid 5.7% compounded annual growth rate over the last five years. This fell short of our benchmark for the industrials sector and is a poor baseline for our analysis.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Packaging Corporation of America’s annualized revenue growth of 5.8% over the last two years aligns with its five-year trend, suggesting its demand was consistently weak.

We can better understand the company’s revenue dynamics by analyzing its number of units sold, which reached 1.26 million in the latest quarter. Over the last two years, Packaging Corporation of America’s units sold averaged 8.7% year-on-year growth. Because this number is better than its revenue growth, we can see the company’s average selling price decreased.

This quarter, Packaging Corporation of America grew its revenue by 6% year on year, and its $2.31 billion of revenue was in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 15.4% over the next 12 months, an improvement versus the last two years. This projection is eye-popping and implies its newer products and services will fuel better top-line performance.

Packaging Corporation of America has bad unit economics for an industrials company, giving it less room to reinvest and develop new offerings. As you can see below, it averaged a 22.7% gross margin over the last five years. Said differently, Packaging Corporation of America had to pay a chunky $77.27 to its suppliers for every $100 in revenue.

In Q3, Packaging Corporation of America produced a 21.8% gross profit margin, marking a 1.3 percentage point decrease from 23.1% in the same quarter last year. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting its input costs (such as raw materials and manufacturing expenses) have been stable and it isn’t under pressure to lower prices.

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Packaging Corporation of America’s operating margin has been trending up over the last 12 months and averaged 14.6% over the last five years. On top of that, its profitability was top-notch for an industrials business, showing it’s an well-run company with an efficient cost structure. This result was particularly impressive because of its low gross margin, which is mostly a factor of what it sells and takes huge shifts to move meaningfully. Companies have more control over their operating margins, and it’s a show of well-managed operations if they’re high when gross margins are low.

Looking at the trend in its profitability, Packaging Corporation of America’s operating margin might fluctuated slightly but has generally stayed the same over the last five years. We like to see margin expansion, but we’re still happy with Packaging Corporation of America’s performance considering most Industrial Packaging companies saw their margins plummet.

In Q3, Packaging Corporation of America generated an operating margin profit margin of 14%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Packaging Corporation of America’s EPS grew at a spectacular 14.7% compounded annual growth rate over the last five years, higher than its 5.7% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

We can take a deeper look into Packaging Corporation of America’s earnings to better understand the drivers of its performance. A five-year view shows that Packaging Corporation of America has repurchased its stock, shrinking its share count by 5.1%. This tells us its EPS outperformed its revenue not because of increased operational efficiency but financial engineering, as buybacks boost per share earnings.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For Packaging Corporation of America, its two-year annual EPS growth of 6.7% was lower than its five-year trend. We hope its growth can accelerate in the future.

In Q3, Packaging Corporation of America reported EPS of $2.51, down from $2.64 in the same quarter last year. This print missed analysts’ estimates, but we care more about long-term EPS growth than short-term movements. Over the next 12 months, Wall Street expects Packaging Corporation of America’s full-year EPS of $9.90 to grow 17.2%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Packaging Corporation of America has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 7.7% over the last five years, slightly better than the broader industrials sector.

Taking a step back, we can see that Packaging Corporation of America’s margin expanded by 1.2 percentage points during that time. This shows the company is heading in the right direction, and we can see it became a less capital-intensive business because its free cash flow profitability rose while its operating profitability was flat.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Although Packaging Corporation of America hasn’t been the highest-quality company lately, it historically found a few growth initiatives that worked out well. Its five-year average ROIC was 17%, impressive for an industrials business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. On average, Packaging Corporation of America’s ROIC decreased by 3.7 percentage points annually over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Packaging Corporation of America reported $0 of cash and $0 of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $1.81 billion of EBITDA over the last 12 months, we view Packaging Corporation of America’s 0.0× net-debt-to-EBITDA ratio as safe. We also see its $57 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We struggled to find many positives in these results. Its EPS missed and its EPS guidance for next quarter fell short of Wall Street’s estimates. Overall, this quarter could have been better. The stock traded down 7.1% to $194 immediately following the results.

Updated: December 3, 2025 at 11:12 PM EST

When considering an investment in Packaging Corporation of America, investors should account for its valuation and business qualities as well as what’s happened in the latest quarter.

Packaging Corporation of America isn’t a terrible business, but it doesn’t pass our quality test. To kick things off, its revenue growth was uninspiring over the last five years. And while its spectacular EPS growth over the last five years shows its profits are trickling down to shareholders, the downside is its diminishing returns show management's prior bets haven't worked out. On top of that, its low gross margins indicate some combination of competitive pressures and high production costs.

Packaging Corporation of America’s P/E ratio based on the next 12 months is 17.9x. While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're pretty confident there are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $224.70 on the company (compared to the current share price of $197.62).