Let's Wrap It in Style!
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“Marketing is not a battle of products, it’s a battle of perceptions.” Those three seconds are exceedingly important when you consider that more than 70% of purchasing decisions are made at the shelf. Add to this the fact that supermarkets can contain on average 40,000 packs to choose from, then that pack has got to work hard.
The global packaging material and machinery industry generates $500 billion yearly, accounting for between 1% and 2% of gross domestic product in industrialized nations, according to the World Packaging Organization.
Graphic Packaging International
Graphic Packaging International (NYSE: GPK) is a leading provider of paperboard packaging solutions to multinational food, beverage, and other consumer products companies like Kraft Foods, Anheuser-Busch Companies, General Mills, SABMiller plc., Molson Coors Brewing Company, Coca-Cola, and Pepsi. The company generates revenue from two segments: Paperboard & Containerboard Packaging.
On October 25, 2012, Graphic Packaging reported Q3 earnings of 11 cents per share. Q3 Net Sales increased 2.9% versus the prior year period. Graphic Packaging is currently trading at a forward P/E of 17.25 multiples, a 5% discount to the peer group average of 18.25. Gross profit improved 22% year over year to $188 million with gross margin expanding 270 basis points to 17%. Adjusted operating profit increased 20% to $93 million. Adjusted EBITDA was $170 million, up 12% year over year.
A few days back Graphic Packaging announced it would repurchase $300 million worth of stock. The announcement was concurrent with an offering by current stakeholders who are selling 16.5 million shares. The buyback is equal to 48.4 million shares based on a stock price of $6.20, noted analysts at Goldman Sachs. The bank raised its price target on Graphic Packaging to $6.85 from $6.75 to reflect the lower share count. Goldman Sachs has a Buy rating on Graphic Packaging. This buyback is positive news for the shares due to the fact that it will improve the company’s liquidity as it raises the overhang from the increased float.
GPK recently acquired A&R Carton Holding B.V. Beer and Beverage Packaging business thereby giving itself a solid base for expanding into the European markets. A&R has a solid reputation as an innovative beverage packaging supplier and the combination allows them to better serve their global beverage customers with a broader base of new products and services. So with the company already having acquired Contego Packaging Holdings and now A&R Carton's Beer and Beverage Packaging, it will create a $600 million business in Europe alone with giving it a manufacturing arena in the continent similar to that in the U.S. Thus GPK now stands at being one of Europe’s largest folding carton packaging businesses with more than $16 million of synergies expected over the next two years which will bear a positive outcome for earnings.
International Paper Co.
International Paper Co. (NYSE: IP) is an essential player in the packaging and paper industry. International Paper reported third quarter 2012 net earnings from continuing operations attributable to common shareholders totaling $223 million ($0.51 per share), compared with net earnings of $118 million ($0.27 per share) in the second quarter of 2012 and $468 million ($1.08 per share) in the third quarter of 2011. IP is a company with strong financials having healthy cash flow, not to forget the strong dividend yield of 3.2%. So even in consolidating times, the dividends keep your pockets ringing! Due to its consistent restructuring efforts, International Paper is now achieving better capital returns with the potential for additional increases.
The company has a huge share in the international paper market which will play a key role in helping the company reach above average performance consistently. The company has consistently taken steps to improve the operating costs and increase revenues on the existing operations like its Recovery boiler project at Mogi Guacu in Brazil has been targeted to generate $60 million in savings. The restructuring in xpedx is targeting $130 million in increased profits.
IP recently became the full owner of the Turkish corrugated packaging company Olmuksa. The Turkish corrugated market is the seventh largest in Europe and International Paper expects a continued average growth rate of more than 5 percent annually.
With an expected EPS growth of 35.7% for FY13, strong measures to reduce operating costs and attractive dividends, IP definitely is a safe pick.
As the economy grows driven by increased industrial production and international trade, the packaging industry benefits from increased demand. Moreover, with an increasing population, rising income levels, changing food habits and increased penetration of organized retail, the preference for branded products is also expanding. So Graphic Packaging and international Paper might just be the right package which will not only protect, but also boost your portfolio.
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