A month has gone by since the last earnings report for Berry Global (BERY Quick QuoteBERY - Free Report) . Shares have added about 10.5% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is 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 Beats Q3 Earnings Estimates, Updates View

Berry Global reported mixed third-quarter fiscal 2020 (ended Jun 27, 2020) results. Its earnings surpassed estimates by 28.81% — this being the fourth consecutive quarter of earnings beat. However, the quarter’s sales lagged estimates by 3.56%.

The company’s adjusted earnings in the reported quarter of $1.52 per share surpassed the Zacks Consensus Estimate of $1.18. Also, the bottom line rose 68.9% from the year-ago number of 90 cents.

Revenue Details

In the quarter under review, Berry Global’s net sales were $2,910 million, reflecting year-over-year growth of 50.2%. The improvement was driven by $1,092 million contributions from acquired assets and 2% growth in organic volumes, partially offset by $99 million adverse impacts of a decline in selling prices. Notably, unfavorable movements in foreign currencies and divestitures adversely impacted sales by $19 million and $34 million, respectively.

However, the top line lagged the consensus estimate of $3,018 million.

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 third-quarter segmental sales is provided below:

Consumer Packaging–International’s sales were $1,020 million compared with $52 million in the year-ago quarter. The increase was driven by the significant contribution of net sales from the RPC acquisition. It accounted for 35.1% of the quarter’s net sales.

Consumer Packaging–North America’s sales were $718 million, up 10.1% year over year. The increase was attributable to gains from acquired assets, partially offset by lower selling prices. It accounted for 24.7% of the quarter’s net sales.

Revenues generated from Health, Hygiene & Specialties amounted to $608 million, up 0.8% year over year. The improvement was driven by volume growth, partially offset by lower selling prices, forex woes and divestiture impact. It accounted for 20.9% of the quarter’s net sales.

Revenues from Engineered Materials declined 10.5% year over year to $564 million. The fall was due to lower selling prices and volume decline, partially offset by gains from acquisitions.

Margin Profile

In the fiscal third quarter, Berry Global’s cost of goods sold increased 45.7% to $2,272 million. It represented 78.1% of net sales compared with 80.5% in the year-ago quarter. Selling, general and administrative expenses rose 58.4% to $198 million and represented 6.8% of net sales.

Adjusted operating income in the quarter increased 65.8% to $378 million. Also, adjusted operating margin came in at 13%, up 120 basis points year over year. Interest expenses were $110 million, up 54.9% year over year.

Balance Sheet & Cash Flow

Exiting third-quarter fiscal 2020, Berry Global’s cash and cash equivalents were $906 million, down 4.9% from $953 million in the previous quarter. Current and long-term debt decreased 3.2% to $10,760 million from the previously reported quarter.

In the first three quarters of fiscal 2020, the company repaid $1,859 million of borrowings. Its proceeds from borrowings totaled $1,202 million.

In the reported quarter, it generated net cash of $446 million from operating activities, up 85.8% from the year-ago quarter. Capital expenditure in the period totaled $156 million, increasing 50% from $104 million spent in the year-ago quarter.

Free cash flow surged 113.2% year over year to $290 million.

Outlook

Berry Global is focused on creating organic growth opportunities, improving balance sheet and integrating and realizing the benefits from the buyout of RPC Group Plc (completed in July 2019). The company expects RPC Group to yield cost synergies of $85 million in fiscal 2020.

For fiscal 2020 (ending September 2020), Berry Global predicts a free cash flow of $830 million, with cash flow from operations of $1,450 million and capital expenditure of $620 million. Notably, the company earlier predicted free cash of more than $800 million, capital expenditure of $600 million and cash flow from operating activities of $1.4 billion.

Moreover, interest expenses for fiscal 2020 are predicted to be $430 million, while cash taxes are estimated to be $170 million. In addition, working capital, restructuring and other costs are anticipated to be $50 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 8.3% due to these changes.

VGM Scores

At this time, Berry Global has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the second 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.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Berry Global has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.