Shares of Crown Holdings, Inc.
(CCK - Free Report
) have lost 20% so far this year, underperforming its industry
's decline of 8%.
Reasons Behind the Lackluster Price Performance
In the first quarter, Crown Holdings’ total debt increased to $7,810 million compared with $5,243 million as of the year-ago quarter end. This can primarily be attributed to debt related to the Signode acquisition. To fund the deal, the company issued €500 million of 2.875% senior unsecured notes due 2026, €335 million of 2.250% senior unsecured notes due 2023, and $875 million of 4.750% senior unsecured notes due 2026.
Additionally, the company entered into an agreement for €750 million and $1.25 billion of Term loans. However, the company anticipates generating free cash flow of more than $2 billion over the next three years. Nevertheless, risk of rising interest rates remains a matter of concern as higher interest expenses will continue to thwart margins.
Crown Holdings uses various raw materials, such as steel, aluminum, tin, water, natural gas, electricity and other processed energy, in its manufacturing operations. Signode, which will become its subsidiary now, also uses steel and materials derived from crude oil and natural gas, such as polyethylene and polypropylene resins.
The prices of certain raw materials used by the company, such as steel, aluminum and processed energy, have historically been subject to volatility. In 2017, consumption of steel and aluminum represented 21% and 42% of its consolidated cost of products sold, respectively. The company may not be able to pass through the rise in raw materials costs to its customers, without suffering loss in unit volume, revenues and operating income.
Other Unfavorable Readings
The Zacks Consensus Estimate for both current fiscal earnings and fiscal 2019 has moved south 1%, in the last 60 days. This reflects investor’s pessimism surrounding the stock.
Undoubtedly, the above negatives substantiate the company’s Zacks Rank #4 (Sell). Further, its unfavorable VGM Score
of C lowers the stock’s appeal.
Stocks to Consider
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