Packaging Corporation of America (NYSE: PKG) missed Wall Street’s revenue expectations in Q2 CY2025 as sales rose 4.6% year on year to $2.17 billion. Its non-GAAP profit of $2.48 per share was 1.5% above analysts’ consensus estimates.

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Commenting on reported results, Mark W. Kowlzan, Chairman and CEO, said, “We operated very well during the quarter, delivering strong earnings and cash flows as well as higher margins in the Packaging segment. Pricing in the Packaging segment was consistent with expectations as we fully realized our earlier announced price increases. Despite cautious ordering patterns from customers, corrugated products volume was solid and steady throughout the quarter, with per day shipments exceeding the second quarter of 2024 and the first quarter of 2025. As expected, export containerboard sales were lower. We ran our containerboard mills to meet demand and drew down inventory to end at targeted levels. The Paper segment delivered another profitable quarter with strong margin performance, as we realized our earlier price increases. We continued to successfully manage costs across all of our operations, executing our capital projects and efficiency initiatives, which have helped offset inflation.”

Company Overview

Founded in 1959, Packaging Corporation of America (NYSE: PKG) produces containerboard and corrugated packaging products as well as displays and package protection.

Revenue Growth

A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Unfortunately, Packaging Corporation of America’s 5.2% annualized revenue growth over the last five years was tepid. This was below our standard for the industrials sector and is a rough starting point for our analysis.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Packaging Corporation of America’s recent performance shows its demand has slowed as its annualized revenue growth of 3.7% over the last two years was below its five-year trend. We also note many other Industrial Packaging businesses have faced declining sales because of cyclical headwinds. While Packaging Corporation of America grew slower than we’d like, it did do better than its peers.

We can better understand the company’s revenue dynamics by analyzing its number of units sold, which reached 1.2 million in the latest quarter. Over the last two years, Packaging Corporation of America’s units sold averaged 9.1% year-on-year growth. Because this number is better than its revenue growth, we can see the company’s average selling price decreased.

This quarter, Packaging Corporation of America’s revenue grew by 4.6% year on year to $2.17 billion, falling short of Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 6.4% over the next 12 months. While this projection implies its newer products and services will fuel better top-line performance, it is still below average for the sector.

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Operating Margin

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Packaging Corporation of America has been an efficient company over the last five years. It was one of the more profitable businesses in the industrials sector, boasting an average operating margin of 14.6%. This result was particularly impressive because of its low gross margin, which is mostly a factor of what it sells and takes huge shifts to move meaningfully. Companies have more control over their operating margins, and it’s a show of well-managed operations if they’re high when gross margins are low.

Looking at the trend in its profitability, Packaging Corporation of America’s operating margin rose by 1.3 percentage points over the last five years, as its sales growth gave it operating leverage. Its expansion was impressive, especially when considering the cycle turned in the wrong direction and most of its Industrial Packaging peers observed plummeting revenue and margins.

This quarter, Packaging Corporation of America generated an operating margin profit margin of 15.4%, up 2.1 percentage points year on year. The increase was encouraging, and because its operating margin rose more than its gross margin, we can infer it was more efficient with expenses such as marketing, R&D, and administrative overhead.

Earnings Per Share

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Packaging Corporation of America’s EPS grew at a decent 8.8% compounded annual growth rate over the last five years, higher than its 5.2% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

We can take a deeper look into Packaging Corporation of America’s earnings quality to better understand the drivers of its performance. As we mentioned earlier, Packaging Corporation of America’s operating margin expanded by 1.3 percentage points over the last five years. On top of that, its share count shrank by 5%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Packaging Corporation of America, its two-year annual EPS growth of 1.1% was lower than its five-year trend. We hope its growth can accelerate in the future.

In Q2, Packaging Corporation of America reported EPS at $2.48, up from $2.20 in the same quarter last year. This print beat analysts’ estimates by 1.5%. Over the next 12 months, Wall Street expects Packaging Corporation of America’s full-year EPS of $9.91 to grow 8.3%.

Key Takeaways from Packaging Corporation of America’s Q2 Results

It was good to see Packaging Corporation of America narrowly top analysts’ EBITDA expectations this quarter. On the other hand, its sales volume missed and its revenue fell slightly short of Wall Street’s estimates. Overall, this was a softer quarter. The stock remained flat at $207.88 immediately following the results.

Big picture, is Packaging Corporation of America a buy here and now? We think that the latest quarter is only one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.