Goldman Sachs Comments On Rock-Tenn Company Earnings Miss

RockTenn RKT reported FY2Q11 EPS of $1.04, well below Goldman Sachs' estimate of $1.34 and $1.25 for consensus. The downside to Goldman's EPS estimates was primarily driven by weaker margins, particularly in Consumer Packaging, as total revenues exceeded forecasts by 5%. RKT reiterated its FY2011 EBITDA outlook of $530-$540 million despite the somewhat weaker-than-expected FY2Q11 results. Goldman is reducing its FY2011-2013 EPS estimates for Rock-Tenn to reflect the FY2Q11 EPS shortfall and lower margin expectations in consumer packaging as a result of recent cost inflation. Its new FY2011-2013 EPS estimates are $5.00/$6.00/$6.05, down from $5.50/$6.35/$6.45. Goldman's estimates do not reflect the pending announced acquisition of Smurfit- Stone by RKT. Goldman Sachs also trims its PT for Rock-Tenn to $73 reflecting reduced FY2012 estimates. The PT is based on FY2012 cash EPS and EBITDA forecasts of $7.75 and $581 mn and forward multiples of 9.5X and 6.5X, respectively. Goldman retains its Buy rating on RKT given its low cost position, strong fundamentals in paperboard, and free cash generation. Goldman Sachs has a $73 PT and Buy rating on RKT Rock-Tenn closed Wednesday at $68.35