Back to top

Analyst Blog

Zacks Equity Research

Berry Plastics (BERY) Beats on Q4 Earnings, Lags Revenues

GEF JBT ACCO BERY

Trades from $3

Berry Plastics Group, Inc. (BERY - Free Report) posted fourth-quarter fiscal 2016 (ended Oct 1, 2016) results with adjusted earnings per share of 73 cents improving around 46% year over year. Earnings comfortably beat the Zacks Consensus Estimate of 59 cents per share.

Including one-time items, the company posted earnings of 61 cents per share, up 56% from 39 cents earned in the year-ago quarter.

Berry Plastics reported sales of $1.62 billion in the quarter, up 35% from the year-ago period. However, the top line lagged the Zacks Consensus Estimate of $1.63 billion. The year-over-year increase can primarily be attributed to net sales from the AVINTIV buyout.
 


Operational Update

Cost of sales jumped 35% to $1.3 billion from $975 million in fourth-quarter fiscal 2015. Gross profit surged 36% year over year to $301 million. Gross margin increased 10 basis points (bps) to 18.6% in the quarter.

Selling, general and administrative expenses went up 21% year over year to $110 million. Adjusted operating income came in at $174 million as against $126 million in the year-ago quarter, leading to a 30 bps expansion in operating margin to 10.8%. Benefits from Avintiv acquisition, favorable product mix and price/cost spread, including contributions from sourcing synergies along with lower selling, general, and administrative expenses, were offset by an increase in depreciation and amortization expenses as well as unfavorable currency translation.

Segmental Performance

Net sales from the Consumer Packaging segment were $693 million compared with $707 million in the year-ago quarter. Operating profit declined roughly 15% to $52 million from $61 million in the year-ago quarter.

The Health, Hygiene, & Specialties segment reported revenues of $560 million, significantly higher than $119 million in the year-ago quarter. Operating earnings increased considerably to $50 million from $7 million in the year-ago quarter.

The Engineered Materials segment’s sales fell 1% year over year to $365 million. However, operating income was up 26% year over year to $49 million.

Financial Update

Berry Plastics ended fiscal 2016 with cash and cash equivalents of $323 million compared with $228 million at the end of fiscal 2015.  The company reported cash from operations of $857 million in fiscal 2016 compared with $637 million in the prior fiscal. Adjusted free cash flow for fiscal 2016 was $517 million compared with $436 million in fiscal 2015. Total debt was $5.76 billion at the end of fiscal 2016 compared with $3.69 billion at the end of fiscal 2015.

BERRY PLASTICS Price, Consensus and EPS Surprise
 

BERRY PLASTICS Price, Consensus and EPS Surprise | BERRY PLASTICS Quote

Fiscal 2016 Performance

The company reported fiscal 2016 adjusted earnings per share of $2.53, up 46% year over year. The reported figure also surpassed the Zacks Consensus Estimate of $2.35. Including one-time items, the company posted earnings of $1.89 per share, soaring 170% from 70 cents earned in the year-ago quarter.
 
Berry Plastics reported record sales of $6.49 billion in fiscal 2016, surging 33% year over year but falling short of the Zacks Consensus Estimate of $6.5 billion.

In Aug 2016, Berry Plastics agreed to acquire Montvale, NJ-based AEP Industries for approximately $735 million, including the assumption of approximately $147 million of net debt as of Jul 31, 2016.  AEP manufactures and sells various flexible plastic packaging products for consumer, industrial, and agricultural applications through its 14 manufacturing facilities in the U.S and Canada.

Per the agreement, Berry Plastics will acquire all of the outstanding shares of AEP in a cash and stock transaction. Each AEP shareholder will have the choice to receive either $110 in cash or 2.5011 shares of Berry Plastic’s common stock, subject to an overall 50/50 proration to ensure that 50% of the total outstanding AEP shares are exchanged for the cash consideration. Upon closing, AEP shareholders will own approximately 5% of Berry on a fully diluted basis. The transaction is expected to close around Feb 1, 2017, subject to the approval of AEP shareholders and customary closing conditions.

Following the acquisition, the company will be able to optimize complementary production capacities as well as cut down material and conversion costs. The company eyes cost savings through procurement initiatives, operational improvements, adopting best operational practices, improved asset utilization and logistics optimization across the combined plant network.

Outlook

For fiscal 2017, the company projects adjusted free cash flow to be $550 million, after deducting the $60 million payment made in Oct 2016 under the company’s tax receivable agreement. This guidance is based on the assumption that the acquisition of AEP will be completed on Feb 1, 2017. Further, these estimates assume flat working capital, constant currency rates as of the end of September and no significant change in short-term interest rates. Further, capital spending and cash interest costs are anticipated to be around $315 million and $275 million, respectively.

Evansville, IN-based Berry Plastics Group makes and sells plastic consumer packaging and engineered materials in the U.S., Canada, Mexico and several other markets around the world. The company sells its products to specialty businesses through its direct field sales force and distributors.

Zacks Rank

Berry Plastics currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the same sector include ACCO Brands Corporation (ACCO - Free Report) , John Bean Technologies Corporation (JBT - Free Report) and Greif, Inc. (GEF - Free Report) .

ACCO Brands Corporation has an impressive track record of earnings surprise with an average positive earnings surprise of 23.93% in the last four quarters and sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

John Bean Technologies, another Zacks Rank #1 stock, has an average positive earnings surprise of 17.98% in the last four quarters. Greif carries a Zacks Rank #2 (Buy) and has delivered a positive average earnings surprise of 21.29% in the last four quarters.

Zacks' Top Investment Ideas for Long-Term Profit

How would you like to see our best recommendations to help you find today’s most promising long-term stocks? Starting now, you can look inside our portfolios featuring stocks under $10, income stocks, value investments and more. These picks, which have double and triple-digit profit potential, are rarely available to the public. But you can see them now. Click here >>


In-Depth Zacks Research for the Tickers Above

Normally $25 each - click below to receive one report FREE:

GREIF INC (GEF) - free report >>

JOHN BEAN TECH (JBT) - free report >>

ACCO BRANDS CP (ACCO) - free report >>

BERRY PLASTICS (BERY) - free report >>