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Crown Holdings (CCK) Bets on Beverage Can Demand, Costs High

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Crown Holdings, Inc. (CCK - Free Report) has been witnessing strong demand across all product lines with demand for beverage cans being particularly strong, courtesy of consumers’ growing preference for the same. The company’s investments in construction of new plants, addition of production lines to existing facilities and strategic acquisitions to make the most of this trend will act as a key catalyst. Inflated raw material and freight costs, and supply chain issues remain headwinds.

Upbeat Guidance for 2021

Crown Holdings delivered year-over-year improvement in both sales and earnings per share in the third quarter of 2021. Strong performances in the North American beverage and food businesses, and the Transit Packaging business led to improved results. It helped offset global inflationary and supply chain pressures, and lower volumes in Vietnam due to extensive lockdown measures in the country to stem the spread of COVID-19.

Backed by strong demand, Crown Holdings raised adjusted earnings per share guidance for 2021 to $7.50-$7.55, from the prior guidance of $7.30 to $7.40. The new guidance suggests year-over-year growth of 25% at the mid-point.

Efforts to Tap the Beverage Can Demand

Over the past few years, demand for beverage cans has been growing as it is the world’s most sustainable and recycled beverage packaging. An estimated 75% of new beverage product launches are now in cans. Developing markets have witnessed higher growth rates owing to rising per capita income and consequent increase in beverage consumption. Demand is expected to outstrip supply for the foreseeable future.

Crown Holdings continues to implement several projects, which include both the construction of new plants and addition of production lines to existing facilities to meet this demand. To this end, the company began commercial production on a third line at its Nichols, NY facility in June 2020, two lines at its new Bowling Green, KY facility during the second and third quarter of 2021, and a third line at its Olympia, WA plant in the third quarter of 2021. The new plant in Vung Tau, Vietnam is now ready for commercial shipments. Crown Holdings recently announced the construction of a new facility in Martinsville, VA that is expected to commence operations late in 2022 and a new beverage can plant in Mesquite, NV, which is anticipated to start operations in late second-quarter 2023.

A second line at the company's Rio Verde, Brazil facility is expected to commence operations during the fourth quarter of 2021. It has also begun construction of a two-line facility in Uberaba, Brazil that is expected to begin production late in 2022. Additionally, start-up on a second line at the company's Monterrey, Mexico facility is expected in the first quarter of 2022.

Its peer, Ball Corporation (BLL - Free Report) has also been making every effort to expand its production capabilities to ride this wave. It recently announced that it intends to build a new multi-line aluminum beverage-can packaging plant in North Las Vegas, NV. This plant is scheduled to commence production at the end of 2022. The company plans to invest roughly $290 million in this facility over several years.

Other Growth Drivers

Crown Holdings is focused on disciplined pricing, cost control and capital allocation. The company's primary capital-allocation focus will be to reduce leverage while still investing in its business. Crown Holdings continues to pursue growth opportunities through capacity additions to existing plants, new plants in existing markets, strategic acquisitions in geographic areas and product lines, and making share repurchases.

Cost Inflation, Supply Issues Remain Woes

Crown Holdings and its peers like Ball Corp are facing higher raw material costs as well as increased labor and freight costs. This will weigh on their margins this year and in 2022 as well. Supply chain headwinds currently encountered by the industry are also likely to impact their results.

Price Performance

Crown Holdings has gained 8.2% so far this year, compared with the industry’s growth of 5.5%.

Zacks Investment ResearchImage Source: Zacks Investment Research

Zacks Rank and Stocks to Consider

Crown Holdings currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the Industrial Products sector are Encore Wire Corporation (WIRE - Free Report) and Casella Waste Systems, Inc. (CWST - Free Report) . Both these stocks flaunt a Zacks Rank #1 (Strong Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Encore Wire has an expected earnings growth rate of around 491% for the current year. The Zacks Consensus Estimate for current-year earnings has been revised upward by 37% in the past 60 days.

Encore Wire’s shares have soared 137% so far this year. The company has a trailing four-quarter earnings surprise of 271%, on average.

Casella Waste has an estimated earnings growth rate of around 6% for the current year. In the past 60 days, the Zacks Consensus Estimate for current-year earnings has been revised upward by 11.4%.

The company’s shares have increased 41% year-to-date. Casella Waste has a trailing four-quarter earnings surprise of 42.1%, on average. CWST has a long-term earnings growth of 14.2%.