Rock-Tenn Company (RKT) Will Surprise You With Gains This Year

In May of 2011, Rock-Tenn finalized their acquisition of a company called Smurfit-Stone Container Corporation, a company twice the size of Rock-Tenn, by raising more than $1.1B in debt. In doing so, they tripled their revenue.  2011 was a transitional year for Rock-Tenn and with the complex process of such an acquisition and the integration of these two companies, the company encountered higher operational and employee restructuring/new-hire costs. However, these costs have decreased and will continue to do so as they achieve full integration.  The debt raised is costing Rock-Tenn an extra $44 million a year in interest charges.  This increases the leverage of the company and makes execution vital.  I believe the $100 million increase in earnings year over year more than covers this cost.

Rock-Tenn Company (NYSE:RKT) has beaten earnings estimates the past 3 quarters and 6 out of the last 8. Their most recent earnings surprise was +9.8%. Since their first dividend payment of 0.03/share in May of 1994, they have consistently increased their dividend payments. In May of 2013, they again increased their dividend payment by 33% from $0.90/share to $1.20/share.  Competitor Clearwater Paper Corp (NYSE:CLW) missed on earnings last week, a sign that Rock-Tenn’s success is not just industry based.  They are strong executors.

I believe that Rock-Tenn has positioned itself for further gains and profitability. Rock-Tenn has demonstrated their ability to grow their business while increasing investor value, and I believe that they are committed and able to continue growing even further.

The article Rock-Tenn Will Surprise You With Gains This Year originally appeared on Fool.com and is written by Hunter Orr.

Hunter Orr has no position in any stocks mentioned. The Motley Fool owns shares of Rock-Tenn Company. Hunter is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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