A month has gone by since the last earnings report for Berry Global (BERY). Shares have added about 12.9% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Berry Global due for a pullback? 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 Beat Estimates, Revenues Miss
Berry Global reported mixed second-quarter fiscal 2020 (ended Mar 28, 2020) results, wherein earnings surpassed the Zacks Consensus Estimate but revenues lagged the same.
In the fiscal second quarter, the company’s adjusted earnings of $1.19 per share were higher than 84 cents reported a year ago. However, the bottom line beat the Zacks Consensus Estimate of $1.07 by 11.2%.
Berry Global’s net sales were $2,975 million, reflecting a year-over-year increase of 52.6%. The improvement was driven by gains from acquired assets and 2% growth in organic volumes, partially offset by a decline in selling prices. However, the top line lagged the consensus estimate of $3,064 million by 2.9%.
The company reports results under four segments — Consumer Packaging–International, Consumer Packaging–North America, Health, Hygiene & Specialties, and Engineered Materials. A brief snapshot of fiscal second-quarter segmental sales is provided below:
Consumer Packaging–International’s sales were $1,095 million compared with $50 million in the year-ago quarter. The increase was driven by significant contribution of net sales from the RPC acquisition. It accounted for 36.8% of the quarter’s net sales.
Consumer Packaging–North America’s sales were $706 million, up 10.5% year over year. The increase was attributable to gains from acquired assets, partially offset by lower selling prices. It accounted for 23.7% of the quarter’s net sales.
Revenues generated from Health, Hygiene & Specialties amounted to $576 million, down 10.3% year over year. The fall was primarily attributable to divesture of the SFL business and lower selling prices. It accounted for 19.4% of the quarter’s net sales.
Revenues from Engineered Materials declined 3.4% year over year to $598 million. The fall was due to lower selling prices, partially offset by 2% growth in base volume. It accounted for 20.1% of the quarter’s net sales.
In the fiscal second quarter, Berry Global’s cost of goods sold increased 51.5% to $2,391 million. It represented 80.4% of net sales compared with 80.9% in the year-ago quarter. Selling, general and administrative expenses rose 42.7% to $204 million, and represented 6.9% of net sales.
Adjusted operating income in the quarter increased 45% to $332 million. In addition, adjusted operating margin came in at 11.1%, down 60 basis points year over year. Interest expenses were $111 million, up 68.2% year over year.
Balance Sheet & Cash Flow
Exiting second-quarter fiscal 2020, Berry Global’s cash and cash equivalents were $953 million, down from $750 million recorded a year ago. Current and long-term debt decreased 2.2% to $11,115 million from Dec 28, 2019.
In the first six months of fiscal 2020, the company generated net cash of $533 million from operating activities, reflecting an increase of 61% from the year-ago period.
In the quarter, capital invested for the purchasing of property, plant and equipment totaled $115 million, up from $92 million. Free cash flow in the reported quarter was $200 million, up from $78 million reported in the year-ago quarter.
For fiscal 2020 (ending September 2020), Berry Global predicts free cash flow of more than $800 million, with cash flow from operations of a minimum of $1,400 million and capital expenditure of $600 million. Moreover, interest expenses for fiscal 2020 are predicted to be $430 million, while taxes are estimated to be $150 million. In addition, working capital, restructuring and other costs are anticipated to be $50 million.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month.
At this time, Berry Global has a great Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Charting a somewhat similar path, 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 these revisions indicates a downward shift. 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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