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Taking a Look at Berry Plastics

- By Mrinalini Chaudhuri

Berry Plastics Group Inc. (BERY), a leading provider of value-added plastic consumer packaging, recently reported first-quarter 2017 results. During the quarter, the company achieved record operating EBITDA. The Health, Hygiene, and Specialties division contributed to this performance. The Engineered Materials division also did well. The company reaffirmed its projected cash flow from operations.


First-quarter performance

Net income during the quarter was $51 million or 40 cents per diluted share, an increase from $4 million or three cents per diluted share in the prior-year quarter.

Adjusted net income during the quarter was over 50 cents per diluted share, an increase of 40% from 35 per diluted share in the comparable quarter the year before.

Operating income for the quarter increased 70% to $146 million from $86 million in the prior-year quarter.

Operating EBITDA, which was a company record, was $277 million or 18.4% of net sales, an increase from $276 million or 17.1% of net sales the year before.

Cash flow from operations for the year ended December 2016 was $809 million. Adjusted free cash flow for the previous year was $492 million.

Net sales during the quarter decreased to $1.5 million from $1.6 million in the prior-year quarter.

Segment performance

The Health, Hygiene and Specialties segment's net sales decreased to $570 million from $600 million in the prior-year quarter.

Operating income during the quarter increased to $59 million from $13 million in the prior-year quarter.

Consumer Packaging segment's net sales decreased to $549 million from $604 million in first-quarter 2016.

Operating income witnessed a modest decrease to $34 million from $39 million in the prior-year quarter.

The Engineered Materials segment's net sales decreased to $383 million from $408 million.

Operating income increased to $53 million from $34 million in the comparable quarter of 2016.

Expectations for 2017

Range

Projected cash flow from operations

To be around $925 million

Adjusted free cash flow

To be around $550 million

Cash interest expense

To be around $275 million



Focus

  • Reducing leverage ratio to below 4 on or before the end of fiscal 2017.
  • Expanding global business.
  • Grow in the emerging market regions of Asia and South America.
  • Creating innovative products in strong, stable and consumer-centric end markets.



Conclusion

The company is growing through strategic acquisitions. According to the company's website, it completed the purchase of AEP Industries Inc. (AEPI), a leading manufacturer of flexible plastics packaging in North America, issuing 6.5 million common shares and paying $297 million in exchange for all of AEP's outstanding shares and equity awards. It paid an additional $164 million to settle AEP's debt.

Management believes the engineered materials division is going to be positively impacted by this acquisition. It expected to benefit the other segments as well. The balance sheet looks strong. The total debt minus cash and equivalents at the end of the December 2016 was $5.4 million.

2016 was a good year for Berry Plastics as it delivered strong financial results. During the year, the company had record revenue and operating EBITDA. It ended the year with revenue of $6.5 billion. The company is currently focusing on strengthening the balance sheet. The fourth quarter was not great in terms of revenue, but the company demonstrated tremendous growth in revenue and earnings in the last six years. It is expanding its geographic footprint The company is better positioned to deliver in the future and adding it to your portfolio may reap great returns.

Disclosure: I do not hold any position in the company.

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This article first appeared on GuruFocus.