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Crown Holdings (CCK) Down 15.5% Since Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Crown Holdings, Inc. (CCK - Free Report) . Shares have lost about 15.5% in that time frame.

Will the recent negative trend continue leading up to its next earnings release, or is CCK due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Crown Holdings' Q1 Earnings & Revenues Beat, View Up

Crown Holdings delivered first-quarter 2018 adjusted earnings per share of 94 cents, which increased 22% year over year. Also, the figure comfortably beat the Zacks Consensus Estimate of 80 cents. Earnings also came ahead of management’s guided 75-85 cents.

On a reported basis, the company reported earnings of 67 cents per share compared to 77 cents in the prior-year quarter.

Net sales in the quarter rose 15.6% year over year to $2,197 million. The revenue figure also surpassed the Zacks Consensus Estimate of $2,071 million. Year-over-year sales growth was driven by improved beverage can volumes, pass through of higher material costs to customers and favorable currency-translation impact.

Cost and Margins

Cost of products sold increased 18% year over year to $1,808 million. On a year-over-year basis, gross profit improved 5% to $389 million, while gross margin contracted 180 basis points (bps) to 17.7% in the quarter.

Selling and administrative expenses remained flat year over year at $90 million. Adjusted segment operating income increased 5.9% year over year to $234 million in the reported quarter. Operating margin shrunk 90 bps to 10.7% from 11.6% recorded in the year-ago quarter.

Segment Performance

Net sales from the Americas Beverage segment were $758 million, up 12.5% from $674 million reported in the year-ago quarter. Segment operating profit decreased 5.8% to $98 million from $104 million in the year-earlier quarter.

The European Beverage segment’s sales increased 22% year over year to $371 million. Operating income rose 10% year over year to $55 million.

Revenues in the European Food segment were up 13% year over year to $428 million. Segment operating profit went up 9.8% to $56 million from $51 million recorded in the year-ago quarter.

Revenues in the Asia-Pacific segment improved 21% year over year to $337 million. Operating profit went up to $44 million from $39 million reported in the prior-year quarter.

Financial Update

Crown Holdings had cash and cash equivalents of $2,201 million at the end of the first quarter compared with $338 million at the end of the prior-year quarter.  The company recorded cash used in operating activities of $751 million in the reported quarter compared to cash usage of $577 million recorded in the year-ago quarter.

Adjusted free cash flow was $665 million in the first quarter compared with $427 million in the prior-year quarter. As of the quarter end, Crown Holdings’ total debt increased to $7,810 million compared with $5,243 million as of the year-ago quarter end.

On Apr 3, Crown Holdings concluded the previously-announced acquisition of Signode for $3.9 billion. The buyout will add a portfolio of premier transit and protective packaging franchises to Crown Holdings’ metal packaging business, and significantly boost its free cash flow as well.

Outlook

Crown Holdings raised its adjusted diluted earnings per share guidance of $5.35-$5.55 from $4.30-$4.50, for full-year 2018. It also projects second-quarter earnings per share of $1.55-$1.65.

The company expects to begin production at the new one-line beverage can plant in Yangon, Myanmar, during second-quarter 2018, as well as the new two-line beverage can plant in Valencia, Spain, during fourth-quarter 2018.  The Valencia plant will commence conversion from steel to aluminum for beverage cans in the expanding Spanish market. Crown Holdings will also build a third beverage can line at its existing plant in Phnom Penh, Cambodia, to start production during the fourth quarter. Additionally, the new glass facility in Chihuahua, Mexico, began operations in January 2018 to serve the growing beer market in the northern part of the country.

These initiatives reflect that beverage cans continue to be the increasingly preferred package of beverage marketers. Thus, growing demand for beverage can volumes will drive the company’s performance.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. There have been four revisions higher for the current quarter. In the past month, the consensus estimate has shifted by 27.7% due to these changes.

Crown Holdings, Inc. Price and Consensus

VGM Scores

At this time, CCK has a poor Growth Score of F, however its Momentum is doing a lot better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Zacks' style scores indicate that the company's stock is suitable for value and momentum investors.

Outlook

Estimates have been trending upward for the stock and the magnitude of these revisions looks promising. It comes with little surprise CCK has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.




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