A month has gone by since the last earnings report for Berry Global (BERY). Shares have lost about 17.7% 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 Q1 Earnings Top Estimates, Revenues Miss
Berry Global reported mixed first-quarter fiscal 2020 (ended Dec 28, 2019) results, wherein earnings surpassed the Zacks Consensus Estimate but revenues lagged the same.
In the fiscal first quarter, the company’s adjusted earnings of 56 cents per share were lower than 77 cents reported a year ago. However, the bottom line beat the Zacks Consensus Estimate of 54 cents by 3.7%.
Berry Global’s net sales were $2,816 million, reflecting year-over-year increase of 42.8%. The improvement was driven by gains from acquired assets and strength in its North American consumer packaging business, partially offset by decline in selling prices. However, the top line lagged the consensus estimate of $2,965 million by 5%.
In July 2019, the company restructured its business under the segments namely Consumer Packaging–International, Consumer Packaging–North America, Health, Hygiene & Specialties, and Engineered Materials. A brief snapshot of fiscal first-quarter segmental sales is provided below:
Consumer Packaging–International’s sales were $1,010 million compared with $51 million in the year-ago quarter. The increase was driven by significant contribution of net sales from the RPC acquisition. It accounted for 35.9% of the quarter’s net sales.
Consumer Packaging–North America’s sales were $680 million, up 13.1% year over year. The increase was attributable to gains from acquired assets and 3% of organic volume growth. It accounted for 24.1% of the quarter’s net sales.
Revenues generated from Health, Hygiene & Specialties amounted to $541 million, down 17.9%. The fall was primarily attributable to divesture of SFL business and lower selling prices. It accounted for 19.2% of the quarter’s net sales.
Revenues from Engineered Materials declined 11.5% year over year to $585 million. The fall was due to 3% decline in base volume and lower selling prices. It accounted for 20.8% of the quarter’s net sales.
In the fiscal first quarter, Berry Global’s cost of goods sold increased 42.1% to $2,296 million. It represented 81.5% of net sales compared with 81.9% in the year-ago quarter. Selling, general and administrative expenses rose 84.7% to $229 million, and represented 8.1% of net sales.
Adjusted operating income in the quarter increased 21% to $242 million. In addition, adjusted operating margin came in at 8.6%, down 150 basis points year over year. Interest expenses were $118 million, up 84.4%.
Balance Sheet & Cash Flow
Exiting first-quarter fiscal 2020, Berry Global’s cash and cash equivalents were $673 million, up from $293 million recorded a year ago. Current and long-term debt decreased 1.1% to $11,236 million from Sep 28, 2019.
In the first three months of fiscal 2020, the company generated net cash of $218 million from operating activities, reflecting increase of 35.4% from the year-ago period. Capital invested for the purchasing of property, plant and equipment totaled $148 million, up from $75 million.
Free cash flow in the reported quarter was $70 million, flat on a year-over-year basis.
For fiscal 2020 (ending September 2020), Berry Global predicts free cash flow of $800 million, with cash flow from operations of $1,400 million and capital expenditure of $600 million. Moreover, interest expenses for fiscal 2020 are predicted to be $500 million while taxes are estimated to be $160 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review.
At this time, Berry Global has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. 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 these revisions has been net zero. Notably, Berry Global has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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