A month has gone by since the last earnings report for Berry Global (BERY). Shares have added about 2.4% in that time frame, underperforming 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 the most recent earnings report in order to get a better handle on the important catalysts.
Berry Global Q4 Earnings Top Estimates, Revenues Miss
Berry Global reported mixed results for fourth-quarter fiscal 2019 (ended Sep 28, 2019), wherein its earnings surpassed the Zacks Consensus Estimate but revenues lagged the same.
In the fiscal fourth quarter, the company’s adjusted earnings of 90 cents per share were flat on a year-over-year basis. Notably, the bottom line beat the Zacks Consensus Estimate of 74 cents by 21.6%.
For fiscal 2019, the company’s adjusted earnings came in at $3.41 per share, up 1.2% year over year.
Berry Global’s net sales were $3,019 million, reflecting year-over-year increase of about 47%. The improvement was driven by gain from acquired assets, partially offset by decline in selling prices and lower base volumes of 2%. Notably, the top line lagged the Zacks Consensus Estimate of $3,128 million by 3.5%.
For fiscal 2019, the top line came in at $8,878 million, up 12.8% year over year.
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 the segmental sales is provided below:
Consumer Packaging–International’s sales were $1,077 million, compared with $53 million in the year-ago quarter. The increase was driven by a significant contribution from the RPC acquisition. It accounted for 35.7% of the quarter’s net sales.
Consumer Packaging–North America’s sales were $744 million, up 14.8% year over year. The increase was attributable to gain from acquired assets and 2% of base volume improvement. It accounted for 24.6% of the quarter’s net sales.
Revenues generated from Health, Hygiene & Specialties amounted to $570 million, down16.2%. The fall was attributable to 3% decline in base volume due to softness in North American baby care market, lower selling prices as well as unfavorable movements in foreign currencies. It accounted for 18.9% of the quarter’s net sales.
Revenues from Engineered Materials declined 6.7% year over year to $628 million. The fall was due to 5% decline in base volume owing to weak industrial markets and supply chain disruption. It accounted for 20.8% of the quarter’s net sales.
In the fiscal fourth quarter, Berry Global’s cost of goods sold increased 47.3% to $2,511 million. It represented 83.2% of net sales compared with 83% in the year-ago quarter. Selling, general and administrative expenses rose 74.6% to $199 million, and represented 6.6% of net sales.
Adjusted operating income in the quarter increased 35.8% to $288 million. In addition, adjusted operating margin came in at 9.5%, down 80 basis points year over year. Interest expenses were $128 million, up 100% on a year-over-year basis.
Balance Sheet & Cash Flow
Exiting fourth-quarter fiscal 2019, Berry Global’s cash and cash equivalents were $750 million, up from $381 million recorded a year ago. Current and long-term debt increased 94.5% to $11,365 million from Sep 29, 2018.
In fiscal 2019, the company generated net cash of $1,201 million from operating activities, reflecting increase of 19.6% from the year-ago period. Capital invested for the purchasing of property, plant and equipment totaled $399 million, up from $336 million. Also, during the period, the company repurchased shares worth $74 million.
Free cash flow in the reported quarter was $480 million, up from $382 million 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 revision. The consensus estimate has shifted -16.94% due to these changes.
Currently, Berry Global has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top quintile 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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