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Crown Holdings (CCK) Lags Q3 Earnings Estimates, Trims View

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Crown Holdings, Inc. (CCK - Free Report) reported third-quarter 2019 adjusted earnings per share of $1.56, missing the Zacks Consensus Estimate of $1.57.. The bottom line also fell 9% year over year. Improvement in operating margins in the Americas Beverage segment were negated by weaker performance at European Food business thanks to unfavorable weather conditions and weaker-than-expected harvest. Nevertheless, beverage can volumes witnessed robust growth in Europe, Mexico and Southeast Asia driven by consumers’ growing preference for cans over other packaging options.

Including one-time items, earnings per share improved 11% year over year to $1.36 in the quarter.

Net sales in the quarter came in at $3,084 million, down from the year-ago quarter’s $3,174 million. The reported figure also fell short of the Zacks Consensus Estimate of $3,187 million. The top line figure reflects the impact of unfavorable currency translation of $64 million.

Crown Holdings, Inc. Price, Consensus and EPS Surprise


Cost and Margins

Cost of products sold was down 3% year over year to $2,455 million. On a year-over-year basis, gross profit dipped 2.3% to $629 million. However, gross margin surged 20.4% from the year-ago quarter’s 20.3%.

Selling and administrative expenses were down 5% year over year to $121 million. Segment operating income declined 5% year over year to $396 million during the July-September quarter. Operating margin came in at 12.8%, a 30 basis points contraction year on year.

Segment Performance

Net sales in the Americas Beverage segment came in at $835 million, down 4% from the prior-year quarter’s tally of $871 million. Segment operating profit improved 8% year over year to $134 million.

The European Beverage segment’s sales went down 0.5% year over year to $416 million. Operating income was down 3% year over year to $64 million.

Revenues in the European Food segment fell 7% year over year to $581 million. Segment operating profit dropped 12% year over year to $79 million.
The Asia-Pacific segment’s revenues were down 0.6% year over year to $319 million. Operating profit went up to $47 million from prior-year quarter’s figure of $46 million.

Revenues in the Transit Packaging segment totaled $564 million compared with $585 million recorded in the year-ago period. Operating profit declined 9% year over year to $74 million.

Financial Update

Crown Holdings had cash and cash equivalents of $3339 million at the end of the reported quarter compared with the $298 million at the end of the prior-year quarter. The company generated $201 million of cash from operating activities for the nine-month period ended Sep 30, 2019 compared with cash usage of $232 million recorded in the year-earlier comparable period.

As of the quarter’s end, Crown Holdings’ long-term debt decreased to $8,042 million from $8,928 million as of the year-ago quarter end.

Expansion Plans in Motion

During the reported quarter, Crown Holdings’ recently installed beverage-can capacity additions, ,including a third line at the its existing plant in Phnom Penh, Cambodia, a new one line high-speed plant in Parma, Italy and a new two line high-speed plant in Valencia, Spain, have helped it meet the continuing expansion in demand. The company will commence operations in a one-line beverage can plant in Rio Verde, central Brazil in November this year.

In order to support volume requirements in the North American beverage can business, the company has started construction of a third high-speed line at Nichols, New York facility. It is expected to commence production during the second quarter of 2020. The company is also installing a new aluminum beverage can line at its Weston, Ontario plant, slated to be operational from the first quarter of 2020. Both the Nichols and Weston lines will be capable of producing multiple sizes. The company has also begun construction of a new one line beverage can plant in Nong Khae, Thailand, which is likely to start operating during the third quarter of 2020.

Crown Holdings now expects adjusted earnings per share to be $5.00-$5.05 for 2019, compared with prior range of $5.05 and $5.20. The trimmed guidance is primarily owing to poor harvest in Europe and the impact of slowing economic activity on the Transit Packaging business.

Further, adjusted earnings per share for fourth-quarter 2019 are projected at 93-98 cents. Adjusted free cash flow is expected at $725 million for the ongoing year after capital spending of approximately $450 million.

Share Price Performance

Over the past year, Crown Holdings’ stock has appreciated 36.7% compared with the industry’s growth of 41.3%.

Zacks Rank and Stocks to Consider

Crown Holdings currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the Industrial Products sector are Atkore International Group Inc. ATKR, Cintas Corporation CTAS and Sharps Compliance Corp SMED, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Atkore International Group has a projected earnings growth rate of 19.8% for the current year. The stock has gained 39% in the past year.

Cintas has an estimated earnings growth rate of 12.74% for 2019. Shares of the company have rallied 48% in the past year.

Sharps Compliance has an estimated earnings growth rate of a whopping 500% for 2019. The company has appreciated 19% in a year’s time.

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