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Why Is Berry Global (BERY) Down 13.6% Since Last Earnings Report?

Zacks Equity Research

A month has gone by since the last earnings report for Berry Global (BERY). Shares have lost about 13.6% 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 catalysts.

Berry Global Q3 Earnings & Revenues Miss, Decline Y/Y

Berry Global reported weaker-than-expected results for third-quarter fiscal 2019 (ended Jun 29, 2019), delivering a negative earnings surprise of 10%.

The company’s adjusted earnings were 90 cents per share, lower than 96 cents reported a year ago. Also, the bottom line missed the Zacks Consensus Estimate of $1.00.

Segmental Performance

Berry Global’s net sales were $1,937 million, reflecting year-over-year decline of 6.5%. The fall was primarily attributable to decline in organic sales and negative impact from unfavorable movements in foreign currencies, partially offset by gain from acquired assets.

Notably, the top line lagged the Zacks Consensus Estimate of $2,000 million.

The company reports revenues under the following segments — Consumer Packaging, Health, Hygiene & Specialties, and Engineered Materials. A brief snapshot of the segmental sales is provided below:

Consumer Packaging’s sales were roughly $652 million, reflecting year-over-year decline of 1.1%. The fall was primarily attributable to decreased selling prices, partially offset by volume improvement. It accounted for 33.7% of the quarter’s net sales.

Revenues generated from Health, Hygiene & Specialties amounted to $646 million, decreasing 11%. The fall was attributable to organic sales decline and unfavorable movements in foreign currencies. It accounted for 33.4% of the quarter’s net sales.

Revenues from Engineered Materials declined 7% year over year to $639 million. The fall was due to decline in organic sales owing to lower selling prices and supply disruption. It accounted for 32.9% of the quarter’s net sales.

Margin Details

In the fiscal third quarter, Berry Global’s cost of goods sold decreased 7.9% to $1,557 million. It represented 80.4% of net sales compared with 81.6% in the year-ago quarter. Selling, general and administrative expenses jumped 5% to $125 million, and represented 6.5% of net sales.

Adjusted operating income in the quarter decreased 6.9% to $228 million. In addition, adjusted operating margin came in at 11.8%, flat year over year. Interest expenses were $71 million, higher than $67 million.

Balance Sheet & Cash Flow

Exiting third-quarter fiscal 2019, Berry Global’s cash and cash equivalents were $255 million, down from $365 million recorded a year ago. Current and long-term debt decreased 6.4% to $5,468 million from Sep 29, 2018.

In the first nine months of fiscal 2019, the company generated net cash of $571 million from operating activities, reflecting increase of 2.7% from the year-ago period. Capital invested for the purchasing of property, plant and equipment totaled $271 million, up from $270 million. Also, during the period, the company repurchased shares worth $74 million.

Free cash flow in the reported quarter was $136 million, down from $185 million.

Outlook

For fiscal 2019 (ending September 2019), Berry Global reaffirmed cash flow projections. It predicts adjusted free cash flow of approximately $670 million.

Notably, for fiscal 2020, it predicts free cash flow of approximately $800 million, with cash flow from operations of $1,400 million and capital expenditure of roughly $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?

It turns out, estimates review have trended downward during the past month.

VGM Scores

At this time, Berry Global has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

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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