Since last year, the packaging industry has been under pressure as slowing consumer spending due to macroeconomic challenges, such as high inflation and rising interest rates, impacted demand. However, the packaging industry is expected to grow significantly thanks to increasing demand in end markets like e-commerce, food delivery, and healthcare.
Therefore, it could be wise to buy fundamentally strong packing stocks Smurfit Kappa Group Plc (SMFKY), Greif, Inc. (GEF), and Karat Packaging Inc. (KRT).
Before diving deeper into the fundamentals of these stocks, let’s discuss what’s shaping the industry's prospects.
Over the past year, the packaging industry battled headwinds like high inflation, rising labor and raw material costs, declining consumer spending, and supply chain issues. However, with inflation easing and the continued strength of the job market, consumer spending is anticipated to remain stable in the near future. This is expected to boost demand for packaging.
A significant driver of the packaging industry's growth is the popularity of flexible packaging, especially in the food sector. With new packaging solutions, traditional rigid packaging formats like metal cans and glass jars are being replaced by high-barrier films, and retort stand-up pouches will drive the industry’s growth.
Apart from flexible packaging, the industry’s growth will be driven by the rising demand for eco-friendly packaging. The global packaging market is expected to grow at a CAGR of 3.9% to reach $1.33 trillion by 2028.
Let's take a closer look at the fundamentals of the featured stocks.
Smurfit Kappa Group Plc (SMFKY)
Headquartered in Dublin, Ireland, SMFKY manufactures, distributes, and sells containerboard, corrugated containers, and other paper-based packaging products in the Americas and Europe. The company offers e-commerce, retail, consumer, industrial, bottle, protective, heavy-duty, hexacomb, and various punnet packaging products.
In terms of the trailing-12-month EBIT margin, SMFKY’s 12.91% is 12% higher than the 11.53% industry average. Likewise, its 31.71% trailing-12-month gross profit margin is 11.7% higher than the 28.39% industry average. Furthermore, the stock’s 1.06x trailing-12-month asset turnover ratio is 42.2% higher than the 0.74x industry average.
SMFKY’s total revenue for the first quarter ended March 31, 2023, came in at €3 billion ($3.33 billion). The company’s EBITDA increased 12.6% year-over-year to €579 million ($644.77 million). Its operating profit before exceptional items rose 17% year-over-year to €412 million ($458.80 million). Additionally, its return on capital employed came in at 21.6%, compared to 16.8% in the prior-year quarter.
Analysts expect SMFKY’s EPS and revenue for fiscal 2024 to increase 5.5% and 0.4% year-over-year to $3.49 and $12.99 billion, respectively. Over the past nine months, the stock has gained 21.1% to close the last trading session at $38.13.
SMFKY’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Value, Stability, and Quality. Within the B-rated Industrial – Packaging industry, it is ranked #2 out of 22 stocks. Click here to see SMFKY’s Growth, Momentum, and Sentiment ratings.
Greif, Inc. (GEF)
GEF engages in the production and sale of industrial packaging products and services worldwide. It operates through three segments: Global Industrial Packaging, Paper Packaging & Services, and Land Management.
On April 3, 2023, GEF announced that it had completed a $145 million all-cash acquisition, increasing its ownership in Centurion Container LLC from 9% to 80%. This move expands GEF’s presence in North America and enhances Centurion's offering of reusable packaging solutions.
GEF’s President and Chief Executive Officer, Ole Rosgaard, said, "We are excited to take a majority stake in this business as it aligns with our strategy, is immediately margin-accretive, and directly supports our third Build to Last mission of Protecting our Future through investments in the circular economy."
In terms of the trailing-12-month levered FCF margin, GEF’s 7.77% is 118.6% higher than the 3.55% industry average. Likewise, its 9.63% trailing-12-month Return on Total Capital is 58.3% higher than the 6.08% industry average. Furthermore, the stock’s 0.99x trailing-12-month asset turnover ratio is 32.7% higher than the 0.74x industry average.
For the fiscal second quarter ended April 30, 2023, GEF’s net sales came in at $1.31 billion. The company’s gross profit came in at $311.80 million. Its net income attributable to the company came in at $111.20 million. Its EPS for class A and class B common stock came in at $1.90 and $2.88, respectively.
Its net cash provided by operating activities rose 51.4% year-over-year to $210.80 million. Additionally, its total adjusted EBITDA came in at $228.60 million.
Street expects GEF’s revenue for fiscal 2024 to increase 2.4% year-over-year to $5.51 billion. Over the past nine months, the stock has gained 15.6% to close the last trading session at $73.34.
GEF’s POWR Ratings are consistent with this positive outlook. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has a B grade for Sentiment and Quality. It is ranked #3 in the same industry. Click here to see GEF’s Growth, Value, Momentum, and Stability ratings.
Karat Packaging Inc. (KRT)
KRT manufactures and distributes single-use disposable products in plastic, paper, biopolymer-based, and other compostable forms used in various restaurant and food service settings. It provides food and take-out containers, bags, tableware, cups, lids, cutlery, straws, specialty beverage ingredients, equipment, gloves, and other products under the Karat Earth brand.
In terms of the trailing-12-month levered FCF margin, KRT’s 10.09% is 92% higher than the 5.25% industry average. Likewise, its 32.89% trailing-12-month gross profit is 10.2% higher than the 29.83% industry average. Furthermore, the stock’s 1.61x trailing-12-month asset turnover ratio is 102.8% higher than the 0.79x industry average.
KRT’s net sales for the first quarter ended March 31, 2023, came in at $95.80 million. Its gross profit increased 11.2% year-over-year to $38.14 million. The company’s net income attributable to KRT rose 35.1% year-over-year to $9 million. In addition, the adjusted EPS and EBITDA increased 27.8% and 17.6% year-over-year to $0.46 and $15.25 million, respectively.
For the quarter ending September 30, 2023, KRT’s EPS and revenue are expected to increase 18.2% and 20.6% year-over-year to $0.39 and $132.62 million, respectively. Over the past nine months, the stock has gained 41.4% to close the last trading session at $19.
KRT’s promising outlook is reflected in its POWR Ratings. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It has an A grade for Momentum and Sentiment and a B for Stability and Quality. It is ranked first in the Industrial – Packaging industry. To see KRT’s ratings for Growth and Value, click here.
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SMFKY shares were trading at $37.88 per share on Friday afternoon, down $0.25 (-0.66%). Year-to-date, SMFKY has gained 4.28%, versus a 19.36% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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