October 12, 2009 - Pactiv Corp. (PTV-NYSE) engages in the manufacture and sale of consumer and food service/food packaging products in the United States and internationally. The company operates in two segments, Consumer Products and Foodservice/Food Packaging.

The Foodservice/Food Packaging segment manufactures foam, clear plastic, aluminum, pressed-paperboard, and molded fiberpackaging products. Its customers include foodservice distributors, restaurants, and other institutional foodservice outlets, as well as food processors and grocery chains.

Pactiv Corporation sells its products through a direct sales force, and a network of brokers and manufacturers' representatives. It was formerly known as Tenneco Packaging, Inc. and changed its name to Pactiv Corporation in November 1999. The company was founded in 1965 and is headquartered in Lake Forest, Illinois.

Pactiv Corp.'s earnings slipped in 2008, going to $1.75 after making $1.84 in 2007. But analysts see a strong improvement for 2009, with a consensus estimate from 9 analysts at $2.43, then tapering a little to $2.39 for 2010 (the range among the analysts is $2.20 to $2.55). For the third quarter, estimates are for 51 cents a share, up from 39 cents last year in the third period. The announcement will be on October 21. The company will hold a conference call on October 22, available through its Web site. For the fourth quarter, expect 50 cents a share, down slightly from the 53 cents of the fourth in 2008.

For the first half of the year, earnings were noticeably higher due to restructuring by management, improved productivity, lower logistics and utility costs, and lower resin costs, a key ingredient for most of Pactiv's products. Its cost-of-goods sold decreased by 20% in the period, more than compensating for the 5% decline in sales. Going forward, analysts expect resin prices to rise as the economy improves over the next 6 to 9 months.

One of the liabilities the company has is an almost $1 billion deficit in its pension plan. It has been cut recently by almost $250 million but underfunding remains an issue.

The stock price has been extremely volatile this year, diving to $10.62 on March 9, then reaching a 52-week high on October 8 at $27.24. It reached an all-time high of $36.90 in 2007, then slowly faded until cracking in March of this year.

More numbers: Market Cap is $3.55 billion. Price to Book is 4.16 with book value at $6.47. For the last 12 months Operating margin was 16.81% while Profit margin was 8.9%. Return on Equity was a remarkable 28%. There's plenty of cash in the bank at $227 million, making $1.72 a share in cash. Total debt is $1.35 billion or 61% of capital. Current ratio is 2.13.

Some of the valuations are high at $27 a share; one is Price to Book, and the high debt component is noteworthy. But the P/E ratio is relatively cheap when compared to the growth rate of earnings for the next year. Also, the return on equity is extremely attractive. The company has been active in acquisitions over the last couple of years as it moves to diversify its product lines beyond the Hefty brand which is the market leader but produces lower profit margins than other offerings.

This is a stock that investors will want to spend time with to see if it fits their investing criteria. But remember it carries volatility with it.

- Company Web site: www.pactiv.com

- Ted Allrich