Perhaps the dullest industry on the planet is the packaging business. It gets no respect and hardly anybody follows it, but if you're looking to outperform the S&P 500 over a long period, it's probably one of the best. Many companies in the industry either have reported or will report earnings this week. Virtually all the companies in the industry have outperformed the S&P 500 over the last five years.
Think about it: Everything comes in a package. The industry is huge. Sonoco Products (SON) estimates the worldwide packaging industry is growing at just 3.3% per year and will be a $760 billion business by 2014. The fastest growing part of the business is flexible and rigid plastic containers, which make up approximately 58% of industry sales and grow between 3.5% and 6% a year. Flexible wrap for candy bars and snacks, cans for beverages and plastic jugs for laundry detergent are some of the fastest growing packaging types. The emerging markets are driving the industry's growth. As Eastern Europe, South America and the Far East get wealthier, they can afford to buy soup in a cup, potato chips in a cardboard tube or lunchmeat in a ready-to-serve container. Welcome to the club.
Of the companies I follow, Sonoco is the worst-performing stock over the last five years. In fact, this morning the company reported revenue fell 3% in the first quarter to $1.18 billion vs. the $1.21 billion consensus. Lower packaging volumes and higher expenses hurt revenue as a series of repair outages took their toll on the quarter.
Crown Holdings (CCK) reported Wednesday and had better results. Revenue grew 1.3% year-over-year to $1.97 billion, slightly shy of the $2.02 billion consensus. Global beverage can volume rose 6%, mostly driven by strong consumption trends in Brazil and Asia. The European beverage can business rose 4%, offset by lower volumes of food containers. For the year, it looks like CCK will be able to hit guidance of $8.9 billion in revenue and $3.27 per share.
Ball Corp. (BLL) is the worldwide leader in beverage cans and reports earnings next week. Strong global consumption trends should help Ball to beat the Street estimate of $2.09 billion in revenue and earnings of $0.65 per share. Ball also competes in the aerospace industry, which helps smooth out its earnings. For the full year, Ball is expected to report $9 billion in revenue, up 3.5% year-over-year and earnings per share of $3.32.
The other company I follow is Silgan Holdings (SLGN), which operates in three segments: rigid plastic "shelf stable" food packaging, metal containers and vacuum closures for food containers. Silgan reports next week and I expect the company to hit previous guidance of $810 million in revenue and $0.47 per share. For the year, I expect Silgan to grow revenue 4.5% to $3.7 billion and post earnings per share of $3.09.
It's very hard to trade these names, after all, there isn't much growth and the products aren't very exciting. (None of the companies will beat the street estimate by $0.10 a share!) But as Eastern Europe, Latin America and the Far East are able to afford products we take for granted, the packaging industry goes along for the ride. Shelf-stable convenience foods, dishwashing detergent, household cleaners and increasing canned beverage consumption are increasing worldwide, and that is a long-term positive for the industry.
