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Berry Global Announces Redemption of Senior Notes Due 2022

Zacks Equity Research

Berry Global Group, Inc.’s BERY business unit, Berry Global, Inc. recently decided to redeem Second Priority Senior Secured Notes (“notes”) per the terms of the indenture binding the notes. The notes considered for redemption comprise $100 million of total principal amount of its 6.00% notes due 2022.

The redemption price of the notes has been set at 101.500% of the total principal amount, along with any accrued and unpaid interest. The redemption date has been set as Dec 9, 2019. The company anticipates $300 million worth of total principal amount of notes to remain outstanding subsequent to the redemption. Notably, it plans to utilize cash on hand for funding the redemption.

We believe that Berry Global’s latest decision to redeem notes will enable it to lower its debt burden.

Notably, the company’s balance sheet is highly leveraged. It had long-term debt of approximately $5,468 million at the end of third-quarter fiscal 2019 (ended Jun 29, 2019). Also, net interest expenses in the quarter were $71 million, up about 6% year over year. If unchecked, high-debt levels can increase the company's financial obligations and prove detrimental to its profitability.

Escalating cost of sales has been a major cause of concern for Berry Global. In the last five fiscal years (2014-2018), the company's cost of goods sold increased roughly 9% (CAGR). Increased expenses (on account of higher raw material, transportation and manufacturing costs) have been escalating its aggregate costs, of late. We believe that further rise in costs might prove detrimental to Berry Global's margins in the quarters ahead.

Moreover, the company is exposed to geopolitical risks and headwinds arising from unfavorable movements in foreign currencies. For instance, in the second and the third quarter of fiscal 2019, forex woes had an adverse impact of 1.1% and 0.8% on sales growth, respectively.

In the past three months, this Zacks Rank #4 (Sell) stock has declined 1.6% against the industry’s growth of 0.2%.

Stocks to Consider

Some better-ranked stocks from the Zacks Industrial Products sector are AZZ Inc. AZZ, Brady Corporation BRC and Dover Corporation DOV. All these companies carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

AZZ delivered average positive earnings surprise of 2.12% in the trailing four quarters.

Brady pulled off average positive earnings surprise of 9.68% in the trailing four quarters.

Dover delivered average positive earnings surprise of 6.70% in the trailing four quarters.

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