Berry Global Group, Inc. (BERY Quick QuoteBERY - Free Report) reported weaker-than-expected results for third-quarter fiscal 2018 (ended Jun 30, 2018), with earnings lagging estimates by 9.4%.

The company’s adjusted earnings in the reported quarter were 96 cents per share, underperforming the Zacks Consensus Estimate of $1.06. However, the bottom line increased 6.7% from the year-ago tally of 90 cents on the back of top-line growth, partially offset by an increase in costs of goods sold.

Revenues Improve Y/Y

In the reported quarter, Berry Global’s net sales were $2,072 million, reflecting growth of 8.7% from the year-ago tally. Of the improvement, acquired assets added 6.6%, favorable foreign-currency movements contributed 0.7% to sales growth, hike in selling prices added 1.9% and volume growth added 0.5%. Positive impacts were partially offset by 1% negative impact from sales decline in legacy AEP locations.

Also, the top line exceeded the Zacks Consensus Estimate of $2,052 million by 1%.
 
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 $659 million, reflecting year-over-year growth of 7.3%. The improvement was primarily driven by solid demand for foodservice products from convenience stores and quick service restaurants. It accounted for 31.8% of the reported quarter’s net sales.

Revenues generated from Health, Hygiene & Specialties amounted to $726 million, increasing 19.8% from the year-ago quarter. The result was positively impacted by the Clopay Plastic Products buyout (completed in February 2018). It accounted for 35% of the reported quarter’s net sales.

Revenues from Engineered Materials were roughly flat year over year at $687 million. It accounted for 33.2% of the reported quarter’s net sales.
    
Costs & Expenses Increase, Margin Weak

In the reported quarter, Berry Global’s cost of goods sold grew 11.3% year over year to $1,690 million. It represented 81.6% of net sales versus 79.6% in the year-ago quarter. Selling, general and administrative expenses decreased 7% year over year to $119 million, and represented 5.7% of net sales.

Adjusted operating income in the quarter under review grew 2.1% year over year to $245 million. However, adjusted operating margin decreased 80 bps to 11.8%.

Balance Sheet & Cash Flow

Exiting third-quarter fiscal 2018, Berry Global’s cash and cash equivalents were $365 million, up 25.4% from $291 million recorded in the last-reported quarter. Current and long-term debt decreased 1.3%, sequentially, to $5,945 million.

In the quarter under review, the company generated net cash of $271 million from its operating activities, increasing 9.7% from the year-ago tally. Capital invested for the purchasing of property, plant and equipment was $86 million versus $66 million in the comparable quarter a year ago. Free cash flow in the reported quarter increased 2.2% year over year to $185 million.

Concurrent with the earnings release, the company’s board of directors authorized a new $500-million share buyback program.

Outlook

For 2018, Berry Global reiterated the adjusted free cash flow guidance at $630 million. It predicts cash flow from operations of $987 million (down from the earlier forecast of more than $1 billion) and capital expenditure of approximately $320 million (versus the prior projection of $340 million).

Berry Global Group, Inc. Price and Consensus