RockTenn Company (RKT), the packaging manufacturer, reported record earnings in the first quarter as the recent acquisition of Southern Container is paying off. The stock is cheap. RKT is trading at just 7.2x forward earnings.

Company Description

RockTenn manufactures packaging products, bleached and recycled paperboard and merchandising displays. The company has over 200 facilities located in 26 states, Canada, Mexico, Chile and Argentina.

Record First Quarter 2009 Earnings

On Jan 27, RockTenn reported fiscal first quarter 2009 earnings that easily beat analysts estimates by 18.52%. Adjusted earnings per share rose 88% to a record 96 cents compared to 51 cents a year ago. Analysts expected just 81 cents.

Sales jumped 18% to $703.1 million from $596.3 million mainly due to the acquisition of Southern Container which pushed up sales in the Corrugated Packaging segment. Corrugated Packaging segment net sales climbed to $141.8 million from $61.4 million in the first quarter of 2008.

The Paperboard segment was also strong. Bleached paperboard tons shipped increased 8% to 86,338 but market pulp tons shipped declined 2% to 20,705 tons. The average selling price for all paperboard and containerboard grades jumped $11 per ton on a sequential quarter basis even though there were lower market pulp selling prices.

Smaller segments, Merchandising Displays and Specialty Paperboard Products, saw sales decline from a year ago.

“RockTenn’s record adjusted earnings (up 88% over the prior year quarter) result from the resiliency of our food and consumer nondurables focused end markets, the very low cost positions we have achieved in our core businesses, and the continued success of our 2008 acquisition of Southern Container,” said Chairman and Chief Executive Officer James A. Rubright.

“Although our December quarter is our seasonally weakest sales quarter, lower costs for recycled fiber and energy more than offset the effect of lower sales enabling us to increase adjusted earnings 7% over the immediately preceding quarter,” he added.

Second Quarter Outlook

The company expects lower demand to continue in its fiscal second quarter but is betting on lower costs for recycled fiber and for energy to offset the lower sales volume.

RockTenn is scheduled to report fiscal second quarter 2009 earnings on Apr 27.

Consensus Estimates Rise

Given the record earnings in the first quarter, covering analysts have been bullish about the second quarter and the rest of fiscal 2009.

Second quarter consensus estimates are up 5 cents to 97 cents in the last 60 days. 2009 full year estimates gained 11 cents to $3.67 in the last 2 months.

Analysts expect year over year earnings growth in 2009 of 43.23%.

Value Fundamentals

RockTenn is a Zacks #1 Rank (strong buy) stock. RKT has surprised on earnings 2 out of the last 4 quarters.

It has a forward P/E of just 7.2 and its price-to-book is 1.59. The company has a solid 5-year return on equity (ROE) of 10.08%.

RKT also pays a dividend, with a current yield of 1.60%.

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