On Oct 3, Zacks Investment Research downgraded Crown Holdings, Inc. (CCK) to a Zacks Rank #5 (Strong Sell)
Why the Downgrade?
Both share prices and earnings estimates have undergone sharp downward revisions following its announcement of third quarter fiscal 2013 guidance on Sep 24. Since that date, shares of the packaging company have fallen 4%.
Crown Holdings reduced its earnings per share guidance to a range of $1.05 to $1.10, citing weaker-than-expected demand in European food cans and North American beverage can markets. Crown Holdings had earlier guided earnings in the range of $1.15 to $1.25 a share. Compared to the prior-year quarter’s earnings of $1.00, the updated guidance represents growth of 5% to 10%.
Crown Holdings has decided to cut around 300 jobs or approximately 3% of its workforce in its European operations, which is expected to generate annual cost savings of approximately $25 million. In this connection, Crown Holdings will record a pre-tax restructuring charge of approximately $32 million or $29 million after tax with a per share effect of 21 cents in the third quarter.
Both the North American beverage can and the European food markets being mature markets have been witnessing declining volumes in recent years due to lower consumer spending. In mature markets, the company needs to continuously strive to improve its operations through disciplined pricing, cost control and careful capital allocation. The company needs to monitor capacity, and wherever necessary, shut down plants or reduce headcount to cut down costs to remain profitable.
Crown Holdings is scheduled to release its third quarter earnings results after the closing bell on Oct 16, 2013. Given the tepid outlook, the Zacks Consensus Estimate for fiscal 2013 has declined 2% to $3.10 a share in the past 7 days, while that for fiscal 2014 went down 1% over the same timeframe to $3.57.
Other Stocks to Consider
Not all stocks are performing as poorly as Crown Holdings. Stocks worth considering include Sonoco Products Co. (SON), KapStone Paper and Packaging Corporation (KS) and Orchids Paper Products Company (TIS), all carrying a Zacks Rank #2 (Buy)