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Berry Global's (BERY) Prospects a Silver Lining, Risks Stay

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Berry Global Group, Inc. BERY is likely to gain from its presence in diversified end markets that allows it to nullify risks associated with a single market. Strength across BERY’s end markets, including food, beverage, healthcare and pharmaceutical, and others, is likely to drive its performance in the quarters ahead. Also, its robust product portfolio and organic growth investments are likely to be beneficial in the coming quarters.

BERY follows a balanced capital-allocation strategy, which enables it to utilize the cash flow for acquisitions and repayment of debt. Berry Global’s acquired business of RPC Group (July 2019) boosted its growth opportunities in the recycled packaging and plastic industry. Also, BERY repaid long-term debt of $3,496 million and $9 million in fiscal 2021 and in the first six months of fiscal 2022, respectively.

Berry Global is also poised to gain from its growth investments. Its investments in latest equipment technologies and design for circularity continue to enhance its competency. Recently, BERY also started constructing a second manufacturing facility and a Global Healthcare Center  in Sira, Bangalore. Upon completion, the facility will enhance its research and development expertise and boost production in several major healthcare sectors.

Berry Global believes in rewarding its shareholders handsomely through share repurchases. BERY announced a share repurchase program worth 1 billion in February 2022. BERY bought back $350 million worth of shares in the first half of fiscal 2022. BERY had shares worth $700 million left to repurchase from its previously-announced $1-billion share buyback plan exiting the second quarter of fiscal 2022.

However, Berry Global is witnessing the adverse impacts of escalating costs and operating expenses. BERY’s cost of sales increased 16.6% in second-quarter fiscal 2022 on a year-over-year basis. Headwinds from inflation in raw material, and other costs and challenges related to labor and supply-chain constraints are expected to persist in the near term, which might affect is margins and profitability.

BERY’s global presence exposes it to various environmental laws and regulations in the countries where it operates. The entity also remains vulnerable to foreign-currency and geopolitical issues. Forex woes hampered sales by $64 million year over year in the fiscal second quarter. Berry Global’s overseas business may take a hit from a stronger U.S. dollar in the quarters ahead.

Zacks Investment Research
Zacks Investment Research

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In the past three months, this currently Zacks Rank #3 (Hold) stock has dipped 12.4% compared with the industry’s decline of 2.3%.

Zacks Rank & Stocks to Consider

Some better-ranked companies from the industrial products sector are discussed below.

Applied Industrial Technologies, Inc. AIT presently sports a Zacks Rank #1. AIT delivered a trailing four-quarter earnings surprise of 25.4%, on average. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

AIT’s earnings estimates have increased 5.9% for fiscal 2022 (ending June 2022) in the past 60 days. Its shares have rallied 4.9% in the past three months.

Roper Technologies, Inc. ROP presently has a Zacks Rank #2 (Buy). Its earnings surprise in the last four quarters was 2%, on average.

In the past 60 days, ROP’s earnings estimates have increased 1.1% for 2022. The stock has declined 6.1% in the past three months.

Ferguson plc FERG is presently Zacks #2 Ranked. FERG’s earnings surprise in the last four quarters was 14.2%, on average.

In the past 60 days, the stock’s earnings estimates have increased 2.8% for fiscal 2022 (ending July 2022). The same has declined 22.4% in the past three months.

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Applied Industrial Technologies, Inc. (AIT) : Free Stock Analysis Report
Berry Global Group, Inc. (BERY) : Free Stock Analysis Report
Wolseley PLC (FERG) : Free Stock Analysis Report
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