Cardboard market to grow, emerging from ‘packaging recession’: BofA

Bank of America has expressed bullish optimism on the paper and forest products sector, with analysts raising their rating to Buy across the industry. This positive sentiment stems from an improved outlook and favorable industry trends. BofA Securities’ George Staphos joins Market Domination to share his opinion on the cardboard markets.

Staphos emphasizes the importance of the wholesale cardboard box market, saying, “80% of the economy moves through corrugated boxes.” He notes that since the second half of 2022, packaging markets have been in recession. However, after their survey, they noted “a very large increase in growth expectations for the next two quarters” among the independent box manufacturers surveyed.

Shares of packaging companies Greif (GEF), Graphic Packaging (GPK) and Packaging Corp. of America (PKG) in Monday’s session.

With growth expected to materialize, Staphos notes that it’s not “all black and white positive,” though he also sees continued growth thanks to e-commerce tailwinds.

For more expert insights and the latest market action, click here to watch this full episode of Market Domination.

This post was written by Angel Smith

Video transcript

Papers and products taking a bullish outlook on Wall Street.

Bank of America, raising its forecast across the sector and driving concern to buy, signed an upbeat outlook and ripple trends here with Moore’s B, a senior paper and packaging security analyst, George ST George, it’s good to see you.

So, uh, you cover a lot of interesting names, George, you know, you have some customers.

It looks a bit industrial.

You also cover these areas like the container board.

Uh, how wavy.

Um, maybe just start there, George.

What trends are you seeing in those areas?

Only in terms of the backward prices of growth?

Of course.

And first of all, thanks for having me.

It’s a pleasure to be here.

So why should anyone care about the corrugated box market?

Basically, 80% of the economy moves through corrugated boxes.

And even though the economy is improving, we’ve been through a packaging recession, while you’re rooting for other reasons.

Really?

As of the second half of 2022, we have been surveying independent box manufacturers to get a handle on packaging markets and publicly traded companies for the last 20 years.

And that data, both our survey and the data from the industry has been quite negative, really since the second half of ’22.

Even during the first quarter of this year, the vines were relatively flat, a very easy comparison.

Last year, first-quarter box shipments fell 8%.

The story continues

So this is your setup.

In our survey, we saw a very large increase in the expectation of growth for the next two quarters.

Of the independent box manufacturers that we survey, we went from a 0.6% growth outlook to over 3% which in my world is significant.

What’s more, what we’re hearing from respondents is an overwhelming sense that prices will continue to move higher.

This is largely driven by cost, by a lot of inflation, the cost structure, but still from the point of view that prices will continue to go higher.

And then also in some of the data that we look at, there are some encouraging things.

Not to say it’s all positive black and white.

But among other things, we saw a slight increase in the outlook for e-commerce for the survey, based on what we’re getting from an independent.

As a result, we raised our forecasts by 2 to 4% on prices and on earnings as well.

And we talked about the companies that are affected.

Uh, Packaging Corp is rated to buy.

It has been perhaps the best performing container shipping company over the past two decades.

But the griffin, uh, that’s part industrial packaging, part paperboard and inside their container board, they’re lagging behind.

They are down 20% year-to-date against the market.

Uh, we think the trends are improving.

We think there is 30% upside and hence the upside today.