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Why Is Crown (CCK) Up 6.5% Since Last Earnings Report?

It has been about a month since the last earnings report for Crown Holdings (CCK). Shares have added about 6.5% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Crown 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 drivers.

Crown Holdings Beats Q3 Earnings & Revenue Estimates

Crown Holdings delivered third-quarter 2018 adjusted earnings per share of $1.71, which increased 17% year over year. Earnings comfortably beat the Zacks Consensus Estimate of $1.65 and also exceeded the higher end of management’s guided range of $1.60-$1.70.

On a reported basis, the company reported earnings of $1.23 per share compared to $1.32 in the prior-year quarter.

Net sales in the quarter rose 29% year over year to $3,174 million. The revenue figure also surpassed the Zacks Consensus Estimate of $3,158 million. This year-over-year improvement in sales was driven by positive impact of the Signode acquisition, improved beverage can volumes and pass through of higher material costs to customers. Global beverage can volumes grew 3% year over year in the third quarter.

Cost and Margins

Cost of products sold rose 28% year over year to $2,530 million. On a year-over-year basis, gross profit improved 30% to $644 million and gross margin expanded 20 basis points (bps) to 20.3% in the quarter.

Selling and administrative expenses flared up 72% year over year to $153 million. Adjusted segment operating income increased 17% year over year to $229 million in the reported quarter. Operating margin shrunk 70 bps to 7.2% from 7.9% recorded in the year-ago quarter.

Segment Performance

Net sales from the Americas Beverage segment were $872 million, up 14% from $763 million reported in the prior-year quarter. Segment operating profit declined 3% to $125 million from $129 million witnessed in the year-earlier quarter.

The European Beverage segment’s sales climbed 2% year over year to $418 million. Operating income dropped 14% year over year to $66 million.

Revenues in the European Food segment decreased 2.5% year over year to $623 million. Segment operating profit went down 10% to $90 million from $100 million reported in the year-ago quarter.

Revenues in the Asia-Pacific segment improved 7% year over year to $321 million. Operating profit went up to $46 million from $40 million reported in the prior-year quarter.

Revenues in the Transit Packaging segment were $585 million. Operating profit was $81 million in the reported quarter.

Financial Update

Crown Holdings had cash and cash equivalents of $298 million at the end of the third quarter compared with $374 million at the end of the prior-year quarter. The company reported cash used in operating activities of $232 million for the nine-month period ended Sep 30, 2018, compared with cash usage of $270 million recorded in the comparable period last year.

Adjusted free cash flow was $310 million in the Sep-end quarter compared with $374 million in the prior-year quarter. As of the quarter end, Crown Holdings’ total debt increased to $9,070 million compared with $5,232 million as of the year-ago quarter end.

Crown Holdings commenced production at a new one-line beverage can plant in Yangon, Myanmar, this July. The first line of the beverage can plant in Valencia, Spain began operations in October, with the second line scheduled to begin in December.  The company will also set up a third beverage can line at its existing plant in Phnom Penh, Cambodia, in November.

Outlook

Crown Holdings projects fourth-quarter 2018 earnings per share between 97 cents and $1.20. The company maintained its 2018 adjusted free cash flow guidance of approximately $625 million.
 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -7.01% due to these changes.

VGM Scores

At this time, Crown has an average Growth Score of C, a grade with the same score on the momentum front. 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, Crown has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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