A month has gone by since the last earnings report for Berry Global (BERY). Shares have lost about 11.9% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Berry Global due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Berry Global Q2 Earnings and Sales Miss Estimates
Berry Global reported weaker-than-expected results for second-quarter fiscal 2019 (ended Mar 30, 2019), with a negative earnings surprise of 14.3%.
The company’s adjusted earnings were 84 cents per share, flat year over year. However, the bottom line missed the Zacks Consensus Estimate of 98 cents.
Berry Global’s net sales were $1,950 million, reflecting year-over-year decline of 0.9%. The fall was primarily attributable to 3.7% decline in organic sales and 1.1% negative impact from unfavorable movements in foreign currencies, partially offset by 3.9% gain from acquired assets.
The company reports revenues under the following segments — Consumer Packaging, Health, Hygiene & Specialties, and Engineered Materials. A brief snapshot of the segmental sales is provided below:
Consumer Packaging’s sales were roughly $639 million, reflecting year-over-year growth of 6%. The rise was primarily driven by volume improvement and increased selling prices. It accounted for 32.8% of the reported quarter’s net sales.
Revenues generated from Health, Hygiene & Specialties amounted to $683 million, decreasing 3%. The fall was attributable to organic sales decline and unfavorable movements in foreign currencies. It accounted for 35% of the reported quarter’s net sales.
Revenues from Engineered Materials declined 4% year over year to $628 million. Notably, the fall was due to decline in organic sales owing to customer destocking and supply disruption. It accounted for 32.2% of the reported quarter’s net sales.
In the reported quarter, Berry Global’s cost of goods sold decreased 1.1% to $1,578 million. It represented 80.9% of net sales versus 81.1% in the year-ago quarter. Selling, general and administrative expenses grew 1% to $143 million, and represented 7.3% of net sales.
Adjusted operating income in the quarter under review increased 1.8% year over year to $229 million. Moreover, adjusted operating margin improved 30 basis points to 11.7%. Interest expense was flat at $66 million.
Balance Sheet & Cash Flow
Exiting second-quarter fiscal 2019, Berry Global’s cash and cash equivalents were $353 million, up 21.3% from $291 million recorded in the year-ago quarter. Current and long-term debt decreased 2% to $5,727 million from Sep 29, 2018.
In the first six months of fiscal 2019, the company generated net cash of $331 million from operating activities, reflecting increase of 16.1% from the year-ago period. Capital invested for the purchasing of property, plant and equipment totaled $167 million versus $184 million in the year-ago quarter. Adjusted free cash flow in the reported quarter was $78 million, up from $42 million.
During the quarter under review, the company repurchased shares worth $18 million. Exiting the quarter, the company had $393 million of buyback authorization outstanding.
For fiscal 2019 (ending September 2019), Berry Global reaffirmed cash flow projections. It predicts adjusted free cash flow of approximately $670 million, with cash flow from operations of $1,036 million and capital expenditure of approximately $350 million.
Interest expenses in the fiscal year are predicted to be $270 million while taxes are estimated to be $150 million. Moreover, capital will be used for making acquisitions, investing in organic growth opportunities and buying back shares.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -6.55% due to these changes.
Currently, Berry Global has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. It's no surprise Berry Global has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.
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