A month has gone by since the last earnings report for Packaging Corp. (PKG). Shares have lost about 0.6% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Packaging Corp. due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its latest earnings report in order to get a better handle on the important catalysts.
Packaging Corp. Q1 Earnings Beat Estimates on Pricing and Mix
Packaging Corporation posted adjusted earnings of $2.40 per share in the first quarter of 2026, up 3.9% from $2.31 a year ago. The result beat the Zacks Consensus Estimate of $2.17 by 10.6%.
Net sales rose 10.6% year over year to $2.37 billion but missed the consensus mark of $2.41 billion by 1.9%. Favorable pricing and mix, along with lower fiber costs, supported adjusted results, though special items weighed on reported profitability. Lower-than-expected earnings from the recently acquired Greif business also impacted sales. The Grief operations generated a loss of 6 cents per share during the quarter.
PKG’s Segmental Performance
PKG’s Packaging segment remained the primary growth engine. Segment sales increased 11.1% year over year to $2.19 billion in the quarter, reflecting stronger top-line momentum relative to the consolidated growth rate. Adjusted operating profit for the segment was $316.5 million compared with $284 million in the prior-year quarter.
The Paper segment delivered more modest expansion, with sales of $159.9 million compared with $154.2 million a year ago. Adjusted operating profit for the segment was $33 million compared with $36 million in the prior year quarter.
Packaging Corp. Margin Pressures Hit Reported Profit
Despite the double-digit sales increase, profitability metrics showed mixed movement on a reported basis. Gross profit was $453 million compared with $455 million in the prior-year quarter, while cost of sales climbed to $1.91 billion year-over-year from $1.69 billion. The gross margin came in at 19.1% in the first quarter of 2026 compared with 21.2% in the prior year quarter.
Below the gross line, selling, general and administrative expenses rose to $180.3 million from $161.4 million, while other expenses, net, increased to $21.3 million from $13.0 million.
PKG’s Special Items Lift Adjusted Comparisons
A key swing factor between reported and adjusted performance was special items recorded during the quarter. Special items totaled $44.3 million after tax.
The largest item was $53.3 million of charges tied to the announced discontinuation of the No. 2 machine and kraft pulping facilities at the Wallula, WA, containerboard mill. PKG recorded $3.4 million of acquisition and integration-related costs and $2.9 million of facilities closure and other costs, which together added to the gap between reported and adjusted earnings.
Packaging Corp Cash Position Declines as Spending Rises
Cash, cash equivalents and marketable debt securities ended the quarter at $615.5 million, down from $914.4 million at the end of the prior-year quarter.
Capital spending rose to $164.7 million from $148.1 million in the year-ago period. Meanwhile, diluted weighted average shares outstanding were 89.1 million versus 89.6 million a year earlier, providing a small offset to per-share comparisons.
PKG’s Outlook
PKG expects strong demand in the Packaging segment in the second quarter, with higher corrugated volumes supported by an extra shipping day and seasonal improvement. Prices for containerboard and corrugated products should rise due to earlier announced increases and a better product mix.
Production at packaging mills will be slightly higher, though maintenance-related costs will increase. In the Paper segment, the company expects volumes to stay flat, but prices to increase.
The company expects second-quarter adjusted earnings to be around $2.33 per share.
How Have Estimates Been Moving Since Then?
Since the earnings release, investors have witnessed a downward trend in fresh estimates.
The consensus estimate has shifted -10.71% due to these changes.
VGM Scores
Currently, Packaging Corp. has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Packaging Corp. has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
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Packaging Corporation of America (PKG): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).