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Berry Global (BERY) Exhibits Strong Prospects Despite Headwinds

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Berry Global Group, Inc.’s (BERY - Free Report) investments in the latest equipment technologies, advantaged film development and design for circularity are likely to enhance its competency in the long run. It boasts a strong portfolio of products, the bulk of which includes consumer non-discretionary products like bottles & vials, containers, tubs, & pots and filtration materials.

In April 2023, the company completed the construction of a second manufacturing facility and Global Healthcare Center in Sira, Bangalore. The Sira facility extends Berry Global’s research and development expertise and increases production in several major healthcare sectors. The new facility enables the company to increase supply in India and throughout South Asia, thereby capitalizing on the growing opportunities across the healthcare markets in the region.

Also, Berry Global started expanding one of its stretch film manufacturing facilities in Lewisburg, TN in April 2023. The 25,000-square-foot expansion will support the growing demand for the company’s highest-performing, sustainable stretch films by creating space for three new cast lines and upgrading the capacity of the facilities’ existing post-industrial resinreprocessing system.

Berry Global follows a balanced capital allocation strategy. It utilizes its cash flow for acquiring businesses, paying out dividends and repurchasing shares. The company acquired Pro-Western Plastics in June 2023. The buyout boosted Berry Global’s container business in North America, particularly in the dairy, industrial and medical sectors. The acquired business is operated within the Consumer Packaging North America segment.

Regarding rewards to shareholders, Berry Global repurchased 1.4 million shares for approximately $8 million in the first six months of fiscal 2024 (ended March 2024). In the same period, it paid dividends of $70 million. The company also repurchased shares worth $600 million in fiscal 2023 (ended September 2023). In November 2023, Berry Global hiked its dividend by 10% to 27.5 cents per share (annually: $1.10).

Berry Global’s cost reduction actions, which include structural plant closures, labor management and asset optimization, are expected to support its bottom line. In the fiscal second quarter, the company’s cost of sales declined 6.5% year over year. We expect the cost of sales to decrease 4% year over year in fiscal 2024. The company expects to deliver conversion cost reductions in the range of 2-3% per year over the next 12-18 months.

However, Berry Global has been witnessing weakness across its segments. Reduced selling prices, owing to the pass-through of lower resin prices, are affecting the Consumer Packaging International segment. Continued softness in the paper and packaging industry, due to lower consumer spending, is affecting the Consumer Packaging North America segment. Also, lower selling prices, due to the pass-through of resin costs, are concerning for the segment.

The Flexibles segment is experiencing weakness due to softness in North American transportation and shrink film markets. Demand softness in hygiene and specialty markets is affecting the Health, Hygiene & Specialties segment.

The company has a significant presence in the international markets. As a result, its financial performance is subject to various risks like the foreign currency exchange rate, interest rate fluctuations and hyperinflation in some foreign countries. The increased value of the U.S. dollar relative to the local currencies of the foreign markets may affect the top line in the quarters ahead.

In the past year, this Zacks Rank #3 (Hold) company’s shares have lost 13.8% against the industry’s 5.7% growth.

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Stocks to Consider

Some better-ranked companies from the Industrial Products sector are discussed below.

Belden Inc. (BDC - Free Report) presently carries a Zacks Rank #2 (Buy) and has a trailing four-quarter earnings surprise of 14.7%, on average. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for BDC’s 2024 earnings has increased 8.3% in the past 60 days. Shares of Belden have gained 25.9% in the past six months.

Applied Industrial Technologies, Inc. (AIT - Free Report) presently carries a Zacks Rank of 2. It has a trailing four-quarter average earnings surprise of 8.2%.

The consensus estimate for AIT’s fiscal 2024 earnings has improved 1.4% in the past 60 days. The stock has risen 10.3% in the past six months.

Crane Company (CR - Free Report) presently carries a Zacks Rank of 2. CR delivered a trailing four-quarter earnings surprise of 15.2%, on average.

The Zacks Consensus Estimate for CR’s 2024 earnings has increased 4% in the past 60 days. Its shares have gained 31.8% in the past six months.

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