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Berry Global (BERY) Earnings Lag Estimates in Q3, Up Y/Y

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Berry Global Group, Inc. (BERY - Free Report) reported weaker-than-expected results for third-quarter fiscal 2018 (ended Jun 30, 2018), with earnings lagging estimates by 9.4%.

The company’s adjusted earnings in the reported quarter were 96 cents per share, underperforming the Zacks Consensus Estimate of $1.06. However, the bottom line increased 6.7% from the year-ago tally of 90 cents on the back of top-line growth, partially offset by an increase in costs of goods sold.

Revenues Improve Y/Y

In the reported quarter, Berry Global’s net sales were $2,072 million, reflecting growth of 8.7% from the year-ago tally. Of the improvement, acquired assets added 6.6%, favorable foreign-currency movements contributed 0.7% to sales growth, hike in selling prices added 1.9% and volume growth added 0.5%. Positive impacts were partially offset by 1% negative impact from sales decline in legacy AEP locations.

Also, the top line exceeded the Zacks Consensus Estimate of $2,052 million by 1%.
The company reports revenues under the following segments — Consumer Packaging, Health, Hygiene & Specialties, and Engineered Materials. A brief snapshot of the segmental sales is provided below:

Consumer Packaging’s sales were roughly $659 million, reflecting year-over-year growth of 7.3%. The improvement was primarily driven by solid demand for foodservice products from convenience stores and quick service restaurants. It accounted for 31.8% of the reported quarter’s net sales.

Revenues generated from Health, Hygiene & Specialties amounted to $726 million, increasing 19.8% from the year-ago quarter. The result was positively impacted by the Clopay Plastic Products buyout (completed in February 2018). It accounted for 35% of the reported quarter’s net sales.

Revenues from Engineered Materials were roughly flat year over year at $687 million. It accounted for 33.2% of the reported quarter’s net sales.
Costs & Expenses Increase, Margin Weak

In the reported quarter, Berry Global’s cost of goods sold grew 11.3% year over year to $1,690 million. It represented 81.6% of net sales versus 79.6% in the year-ago quarter. Selling, general and administrative expenses decreased 7% year over year to $119 million, and represented 5.7% of net sales.

Adjusted operating income in the quarter under review grew 2.1% year over year to $245 million. However, adjusted operating margin decreased 80 bps to 11.8%.

Balance Sheet & Cash Flow

Exiting third-quarter fiscal 2018, Berry Global’s cash and cash equivalents were $365 million, up 25.4% from $291 million recorded in the last-reported quarter. Current and long-term debt decreased 1.3%, sequentially, to $5,945 million.

In the quarter under review, the company generated net cash of $271 million from its operating activities, increasing 9.7% from the year-ago tally. Capital invested for the purchasing of property, plant and equipment was $86 million versus $66 million in the comparable quarter a year ago. Free cash flow in the reported quarter increased 2.2% year over year to $185 million.

Concurrent with the earnings release, the company’s board of directors authorized a new $500-million share buyback program.


For 2018, Berry Global reiterated the adjusted free cash flow guidance at $630 million. It predicts cash flow from operations of $987 million (down from the earlier forecast of more than $1 billion) and capital expenditure of approximately $320 million (versus the prior projection of $340 million).

Berry Global Group, Inc. Price and Consensus

Berry Global Group, Inc. Price and Consensus | Berry Global Group, Inc. Quote

Zacks Rank & Stocks to Consider

With a market capitalization of approximately $6.3 billion, Berry Global currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks worth considering in the industry are AptarGroup, Inc. (ATR - Free Report) , Greif, Inc. (GEF - Free Report) and Sonoco Products Company (SON - Free Report) . All these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

In the past 60 days, earnings estimates for these three stocks improved both for the current and the next year. Moreover, average positive earnings surprise in the last four quarters has been 8.05% for AptarGroup and 3.06% for Sonoco Products.

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