Rock-Tenn Company (RKT) reported a 2% year-over-year decline in its fourth-quarter fiscal 2014 (ended Sep 30, 2014) earnings to $1.31 per share. However, the reported figure came way ahead of the Zacks Consensus Estimate of $1.06 as well the company’s guidance range of $1.00 to $1.10 per share.
Including restructuring and other costs as well as pension lump sum settlement expenses, earnings per share in fiscal fourth-quarter 2014 went down 12% to $1.06 from $1.20 in the prior-year quarter.
Total revenue increased 5% year over year to $2.61 billion, surpassing the Zacks Consensus Estimate of $2.54 billion. The improvement was due to the Tacoma Mill acquisition and display acquisitions completed in fiscal 2014.
Operating Performance
On a year-over-year basis, cost of goods sold went up 6% to $2.04 million. Gross profit increased 3% year over year to $569 million. Gross margin contracted 50 basis points (bps) to 21.8%.
Selling, general and administrative expenses remained flat with the prior-year quarter at $250 million. Segment income increased 3% year over year to $340 million. Operating margin contracted 30 basis points to 13%. Productivity improvements and income from the acquisitions were partially offset by increased commodity and other costs across the business.
Segmental Performance
Corrugated Packaging: Net sales in the segment rose 5% year over year to $1.82 billion in the quarter primarily driven by the Tacoma Mill acquisition. Operating income went up 5% year over year to $248 million. Higher volumes from the acquisition and productivity improvements were partially offset by the impact of increased export volumes on average selling prices and higher commodity and other costs.
Consumer Packaging: The segment’s net sales went up 6% year over year to $525 million due to higher selling prices as well as volumes. Operating income rose 8% to $72 million from $67 million in the year-ago quarter. Higher selling prices were partially offset by the impact of higher commodity costs and other items.
Merchandising Displays Segment: The segment reported sales of $229 million, up 24% from the year-ago quarter due to higher volumes and the impact of two display acquisitions. Operating income dipped 34% year over year to $15 million as costs associated with supporting new business offset the benefit from higher volumes.
Recycling: Net sales in the segment declined 22% year over year to $88 million due to lower volumes and recovered fiber prices as a result of weak global markets and collection facility closures. The segment reported operating income of $4 million, down 13% compared with $4.6 million in the year-ago quarter as the impact of lower volumes and market conditions were partially offset by the impact of cost structure improvements.
Financial Position
Rock-Tenn ended fiscal 2014 with cash and cash equivalents of $33 million, down from $36 million as of fiscal 2013-end. Long-term debt was $2.85 billion as of Sep 30, 2014, compared with $2.84 billion as of Sep 30, 2013. The debt-to-capitalization ratio was 41% as of Sep 30, 2014 compared with 40% as of Sep 30, 2013.
Cash flow from operating activities during the year was $1.15 billion compared with $1.03 billion in the prior year. During the year, Rock-Tenn returned approximately $337 million to its shareholders- $101 million as dividends and $236 million through share repurchases.
Shipment
Shipments at the Corrugated Packaging segment of 2,075,000 tons increased around 8% from the year-ago quarter. The Consumer Packaging segment’s shipments increased about 1.4% year over year to 409,000 tons.
Fiscal 2014 Performance
Rock-Tenn’s fiscal 2014 earnings increased 3% year over year to $3.76 per share, beating the Zacks Consensus Estimate of $3.51. Including one-time items, earnings per share stood at $3.29, down 34% from $4.98 in the prior fiscal. Total revenues increased 4% year over year to $9.89 billion, surpassing the Zacks Consensus Estimate of $9.82 billion.
Our Take
The company will benefit from the Tacoma acquisition, investments and momentum in the Merchandising Displays segment. The company’s strong balance sheet and cash flow will also help in returning capital to shareholders through dividends and stock repurchases.
Norcross, GA-based Rock-Tenn is one of the major integrated manufacturers of corrugated and consumer packaging as well as recycling solutions in North America. It operates in the U.S., Canada, Mexico, Chile, Argentina and China.
Currently, Rock-Tenn has a Zacks Rank #3 (Hold). Other stocks with a favorable Zacks Rank in the paper and packaging industry include Mercer International Inc. (MERC) and Fibria Celulose SA (FBR). While Mercer International holds a Zacks Rank #1 (Strong Buy), Fibria Celulose carries a Zacks Rank #2 (Buy).
Domtar Corporation (UFS) reported adjusted earnings per share of 94 cents for the third quarter of 2014 compared with earnings of 63 cents per share in the prior-year quarter. Earnings surpassed the Zacks Consensus Estimate of 81 cents.
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