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Crown (CCK) Up 10.2% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Crown Holdings (CCK - Free Report) . Shares have added about 10.2% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Crown due for a pullback? 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 Lags Q3 Earnings Estimates, Trims View

Crown Holdings 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.

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.
 
Outlook


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.
 

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -6.13% due to these changes.

VGM Scores

At this time, Crown has a subpar Growth Score of D, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Crown has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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