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Stock Strategist Industry Reports

More Buybacks on the Way in the Packaging Industry

With fewer M&A opportunities, we think industry buyback activity will increase through 2017.

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Between 2005 and 2012, the 12 U.S. packaging firms we cover-- AptarGroup (ATR),  Ball (BLL),  Bemis (BMS),  Crown Holdings (CCK),  International Paper (IP),  MeadWestvaco (MWV),  Owens-Illinois (OI),  Packaging Corporation of America (PKG),  Rock-Tenn (RKT),  Sealed Air (SEE),  Silgan Holdings (SLGN), and  Sonoco Products (SON)--repurchased a cumulative $9.3 billion of their own stock versus paying out $8.3 billion in cash dividends and spending $10.1 billion on net acquisitions. As such, buybacks play an important role in packaging companies' capital-allocation decisions. Our research shows that the industry's approach to buybacks varies considerably by company, and only a few companies have a record of retiring a meaningful number of shares and consistently buying back stock at attractive prices. In the coming years, we expect less merger and acquisition activity in the domestic packaging industry along with steady free cash flow generation, which should support continued use of buybacks as a means of returning shareholder cash.

The Rise in Repurchases
In 1982, the enactment of Securities and Exchange Commission Rule 10b-18 provided companies with a safe harbor from potential lawsuits relating to the large-scale repurchase of their own stock as long as certain conditions were met. Since then, and especially over the past 15 years, share repurchases (also known as buybacks) have become an increasingly important tool for U.S.-based companies to return cash to shareholders.

Todd Wenning does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.