Despite the current macroeconomic challenges, the industrial packaging industry is well-positioned for growth thanks to growing industrial and manufacturing activities, rising demand for sustainable packaging, and the requirement for durable packaging to safeguard products during shipping. The rising demand for reliable packaging solutions will drive the industrial packaging industry’s growth.
Amid this backdrop, it could be wise to buy fundamentally strong industrial stocks Smurfit Kappa Group Plc (SMFKY), Veritiv Corporation (VRTV), and Karat Packaging Inc. (KRT).
Before diving deeper into the fundamentals of these stocks, let’s discuss why the industrial packaging industry is likely to grow.
The industrial packaging industry faced the challenges of high inflation, rising labor and raw material costs, declining consumer spending, and supply chain challenges over the past year. However, with inflation easing and job growth remaining strong, consumer spending is expected to remain stable in the near term.
Stability in consumer spending bodes well for the packaging industry. As global trade continues to flourish along with the rapid growth in e-commerce, the demand for the industrial packaging industry is expected to remain robust.
In addition, there has been an increasing demand for packaged food driven by modern lifestyles and changing eating habits. Packaged food offers extended shelf life and enhanced safety.
Moreover, with strict government regulations limiting the use of plastic, the industrial packaging industry is developing innovative sustainable packaging solutions. This is expected to boost the growth prospects of the industry.
The industrial packaging market is estimated to grow at a CAGR of 5% to reach $80.88 billion in 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 12.2% higher than the 11.51% 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 ($3.26 billion). The company’s EBITDA increased 12.6% year-over-year to €579 million ($629.56 million).
Its operating profit before exceptional items rose 17% year-over-year to €412 million ($447.98 million). Additionally, its return on capital employed came in at 21.6%, compared to 16.8% in the prior-year quarter.
For fiscal 2024, SMFKY’s EPS and revenue are expected to increase 5.5% and 0.4% year-over-year to $3.49 and $12.87 billion. Over the past nine months, the stock has gained 15.8% to close the last trading session at $33.70.
SMFKY’s strong fundamentals are reflected in its POWR Ratings. The stock 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. To see SMFKY’s Growth, Momentum, and Sentiment rating, click here.
Veritiv Corporation (VRTV)
VRTV operates as a business-to-business provider of value-added packaging products and services, facility solutions, and print-based products and services in the United States and internationally. It operates through Packaging, Facility Solutions, and Print segments.
In terms of the trailing-12-month levered FCF margin, VRTV’s 6.30% is 20.2% higher than the 5.24% industry average. Likewise, its 17.84% trailing-12-month Return on Total Capital is 154.2% higher than the 7.02% industry average. Furthermore, the stock’s 3x trailing-12-month asset turnover ratio is 275.7% higher than the 0.80x industry average.
For the fiscal first quarter ended March 31, 2023, VRTV’s net sales came in at $1.51 billion. Its operating income rose 8.8% year-over-year to $94.90 million. The company’s net cash provided by operating activities came in at $70.90 million, compared to net cash used for operating activities of $5.90 million in the prior-year period.
Its net income and EPS came in at $68.70 million and $5, respectively. Additionally, its adjusted EBITDA came in at $103.80 million.
VRTV surpassed the consensus EPS estimates in three of the trailing four quarters. Over the past year, the stock has gained 19.7% to close the last trading session at $125.32.
VRTV’s POWR Ratings are consistent with this positive outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has an A grade for Value and a B for Quality. It is ranked #3 in the same industry. Click here to see VRTV’s ratings for Growth, Momentum, Stability, and Sentiment.
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 foodservice 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 92.3% higher than the 5.24% industry average. Likewise, its 32.89% trailing-12-month gross profit margin is 10.2% higher than the 29.83% industry average. Furthermore, its1.61x trailing-12-month asset turnover ratio is 101.6% higher than the 0.80x 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.
Street expects KRT’s EPS and revenue for the quarter ending September 30, 2023, to increase 18.2% and 20.6% year-over-year to $0.39 and $132.62 million, respectively. Over the past three months, the stock has gained 43.2% to close the last trading session at $18.09.
KRT’s promising outlook is reflected in its POWR Ratings. The stock 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 of 22 stocks in the Industrial – Packaging industry. For additional ratings for Growth and Value, click here.
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SMFKY shares were unchanged in premarket trading Thursday. Year-to-date, SMFKY has declined -7.22%, versus a 15.79% 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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