Berry Global Group, Inc. (BERY - Free Report) continues to struggle with the headwinds that have marred its performance over the past few months. We expect that a continuous rise in operating expenses, among other factors, will continue to hinder its growth.
Read on to find the major factors hurting the Zacks Rank #5 (Strong Sell) company’s prospects and why it may be prudent to avoid the stock at the moment.
Factors at Play
Escalating cost of sales has been a major concern for Berry Global over the past five years. In third-quarter fiscal 2018, the company’s cost of goods sold flared 11.3% year over year, primarily on account of increased raw material costs and higher manufacturing and transportation expenses. Of late, significant cost inflation in a major input — polypropylene resin — is weighing on the margins of the company’s Health, Hygiene and Specialties and Consumer Packaging segments.
The company is trying to strengthen competency on the back new investments and acquisitions but these expenses are adding on its aggregate debt level. Exiting first nine months of fiscal 2018, the company’s current and long-term debt was $5,945 million, up from $5,641 million recorded in fiscal 2017 end. Notably, the company’s debt/capital ratio is currently pegged at 0.8, higher than 0.5 recorded by the industry. Rising debt, if not controlled, will continue hurting the company, going forward.
It’s not surprising that the stock has also put up a dismal show in recent times. In the past three months, it has lost 5.4% compared with the industry’s decline of 3.5%. Further, the Zacks Consensus Estimate for 2018 earnings has moved south over a couple of months from $3.64 to $3.36. This indicates exceedingly bearish analyst sentiment, reflected by seven downward estimate revisions versus none upward.
Further, the company’s policy of acquiring a large number of companies adds to the integration risks. Frequent acquisitions are a distraction for management and can impact the company’s organic growth over the long term.
Stocks to Consider
Some better-ranked stocks from the same space are iRobot Corporation (IRBT - Free Report) , Alamo Group, Inc. and Terex Corporation (TEX - Free Report) . While iRobot sports a Zacks Rank #1 (Strong Buy), Alamo Group and Terex carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
iRobot surpassed estimates in each of the trailing four quarters with an average positive earnings surprise of 73.43%.
Alamo Group surpassed estimates thrice in the trailing four quarters with an average positive earnings surprise of 6.06%.
Terex outpaced estimates in each of the preceding four quarters with an average earnings surprise of 32.11%.
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