Why Rock-Tenn Shares Plunged


Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of paperboard and packaging company Rock-Tenn (NYS: RKT) sank 10% today, after its quarterly results disappointed Wall Street.

So what: Rock-Tenn's fourth-quarter adjusted EPS managed to squeak past estimates, but a miss on the top line -- $2.35 billion versus the consensus of $2.43 billion -- is triggering concerns over its exposure to the weak domestic economy. In fact, year-over-year sales declined at each of the company's major segments -- corrugated packaging, consumer packaging, and recycling -- giving investors little optimism for a near-term turnaround.

Now what: While demand might be down, management expects to see some margin improvement in upcoming quarters. According to Chairman and CEO James Rubright:

During the fourth fiscal quarter, we implemented a $50 per ton increase in domestic containerboard and we are following that with price increases in boxes and sheets. We expect that by the end of the March quarter we will be realizing most of the anticipated benefit of those increases.

With the stock now trading at a cheapish forward P/E of nine, thanks to today's plunge, buying into that optimism might not be a bad move.

Interested in more info on Rock-Tenn?Add it to your watchlist.

The article Why Rock-Tenn Shares Plunged originally appeared on Fool.com.

Fool contributor Brian Pacampara has no positions in the stocks mentioned above. The Motley Fool owns shares of Rock-Tenn Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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