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Berry Global (BERY) Q2 Earnings Top Estimates, Revenues Miss

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Berry Global Group, Inc. (BERY - Free Report) reported mixed results for second-quarter fiscal 2022 (ended March 2022). BERY’s earnings beat the Zacks Consensus Estimate by 8.4%, whereas sales missed the same by 0.2%.

In the reported quarter, Berry Global’s adjusted earnings were $1.93 per share, beating the Zacks Consensus Estimate of $1.78. On a year-over-year basis, the bottom line increased 21.4% from the year-ago quarter’s figure of $1.59 on sales improvement.

Revenue Details

In the quarter under review, BERY’s net sales were $3,775 million, reflecting year-over-year growth of 12%. Effective pricing increased sales by $576 million, partially offset by $64 million of forex, $19 million of shipping days and $14 million of divestiture impacts. Lower volumes left a negative impact of 2%.

Berry Global’s top line missed the Zacks Consensus Estimate of $3,783 million.

BERY reports results under four segments, namely Consumer Packaging, International, Consumer Packaging–North America, Health, Hygiene & Specialties, and Engineered Materials.

A brief snapshot of fiscal second-quarter segmental sales is provided below:

Consumer Packaging–International sales were $1,139 million, up 7.5% from the year-ago quarter’s level. The results benefited from effective pricing actions, which boosted sales by $144 million. However, divestitures and forex woes had adverse impacts of $14 million and $51 million, respectively. The segment accounted for 30.2% of the quarter’s net sales.

Consumer Packaging–North America’s sales were $880 million, increasing 20.4% year over year. The metric accounted for 23.3% of the quarter’s net sales.

Revenues generated from Health, Hygiene & Specialties amounted to $ 822 million, up 5.2% year over year. Effective pricing actions contributed $82 million to sales, while a 3% volume decline and a $10-million adverse impact from forex woes were worrisome. The segment accounted for 21.7% of the quarter’s net sales.

Revenues from Engineered Materials grew 17% year over year to $934 million. Increased pricing boosted sales by $195 million. Volume declines lowered sales 6%. The segment accounted for 24.8% of the quarter’s net sales.

Berry Global Group, Inc. Price, Consensus and EPS Surprise Berry Global Group, Inc. Price, Consensus and EPS Surprise

Berry Global Group, Inc. price-consensus-eps-surprise-chart | Berry Global Group, Inc. Quote

Margin Profile

In the fiscal second quarter, Berry Global’s cost of goods sold increased 16.5% to $3,154 million. The metric represented 83.5% of net sales compared with 80.3% in the year-ago quarter. Selling, general and administrative expenses decreased 5.9% to $207 million and represented 5.5% of net sales.

Operating earnings before interest, tax, depreciation and amortization (EBITDA) were $555 million, down 5.9% year over year. The EBITDA margin was 14.7% compared with 17.5% in the year-ago quarter.

Adjusted operating income in the quarter decreased 7.7% year over year to $349 million. Adjusted operating margin was 9.2%, down 200 basis points. Interest expenses, net, were $71 million, down 15.5% year over year. Labor issues, supply-chain woes and cost inflation were spoilsports in the quarter.

Balance Sheet and Cash Flow

Exiting second-quarter fiscal 2022, Berry Global’s cash and cash equivalents were $622 million, up 6.9% from $582 million in the previous quarter. Current and long-term debt increased 2.3% to $9,646 million from the previous quarter’s level.

In the quarter, BERY repaid $9 million of long-term borrowings.

In the fiscal second quarter, Berry Global generated net cash of $290 million for its operating activities compared with net cash of $323 million generated in the year-ago quarter. Capital expenditure totaled $205 million compared to $203 in the year-ago quarter. Free cash flow in the quarter was $85 million compared with $120 million generated in the comparable quarter a year ago.

Share repurchases in the quarter amounted to $350 million. Concurrent with the earnings release, Berry Global announced that it currently has shares worth $700 million left to buy back from its previously announced $1-billion share repurchase program. Management intends to buy back the remaining shares by the second half of fiscal 2022.

Outlook

Berry Global is focused on creating organic growth opportunities and improving the balance sheet. Demand across businesses, e-commerce, health, food safety and pharmaceutical is expected to be strong in the quarters ahead. Foreign currency woes, supply-chain issues and cost inflation are predicted to persist in fiscal 2022. However, moderation in cost inflation and improvements in the supply chain are predicted.

For fiscal 2022, BERY expects organic sales growth to be flat to 2% year over year. Adjusted earnings per share are predicted to be $7.20-$7.70.

Free cash flow will likely be $900-$1,000 million for fiscal 2022. Cash flow from operations is expected to be $1,650-$1,750 million while capital expenditure is estimated at $800 million.

For the second half of fiscal 2022, management expects organic sales growth to be in low-single-digit from the same-period level last year.

Zacks Rank & Stocks to Consider

With a market capitalization of $7.8 billion, BERY currently carries a Zacks Rank #3 (Hold).

Some better-ranked companies from the industrial products sector are discussed below.

Applied Industrial Technologies, Inc. (AIT - Free Report) presently sports a Zacks Rank #1. AIT delivered a trailing four-quarter earnings surprise of 25.4%, on average. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

AIT’s earnings estimates have increased 5.4% for fiscal 2022 (ending June 2022) in the past 60 days. Its shares have rallied 13.3% in the past three months.

Roper Technologies, Inc. (ROP - Free Report) presently has a Zacks Rank #2 (Buy). Its earnings surprise in the last four quarters was 2%, on average.

In the past 60 days, ROP’s earnings estimates have increased 1.1% for 2022. The stock has inched up 0.1% in the past three months.

Ferguson plc (FERG - Free Report) is presently Zacks #2 Ranked. FERG’s earnings surprise in the last four quarters was 14.2%, on average.

In the past 60 days, the stock’s earnings estimates have increased 6.5% for fiscal 2022 (ending July 2022). The same has declined 20.1% in the past three months.