Why Is Berry Global (BERY) Up 12.9% Since Last Earnings Report?
A month has gone by since the last earnings report for Berry Global (BERY). Shares have added about 12.9% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Berry Global due for a pullback? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Berry Global Q2 Earnings Beat Estimates, Revenues Miss
Berry Global reported mixed second-quarter fiscal 2020 (ended Mar 28, 2020) results, wherein earnings surpassed the Zacks Consensus Estimate but revenues lagged the same.
In the fiscal second quarter, the company’s adjusted earnings of $1.19 per share were higher than 84 cents reported a year ago. However, the bottom line beat the Zacks Consensus Estimate of $1.07 by 11.2%.
Berry Global’s net sales were $2,975 million, reflecting a year-over-year increase of 52.6%. The improvement was driven by gains from acquired assets and 2% growth in organic volumes, partially offset by a decline in selling prices. However, the top line lagged the consensus estimate of $3,064 million by 2.9%.
Segmental Performance
The company reports results under four segments — Consumer Packaging–International, Consumer Packaging–North America, Health, Hygiene & Specialties, and Engineered Materials. A brief snapshot of fiscal second-quarter segmental sales is provided below:
Consumer Packaging–International’s sales were $1,095 million compared with $50 million in the year-ago quarter. The increase was driven by significant contribution of net sales from the RPC acquisition. It accounted for 36.8% of the quarter’s net sales.
Consumer Packaging–North America’s sales were $706 million, up 10.5% year over year. The increase was attributable to gains from acquired assets, partially offset by lower selling prices. It accounted for 23.7% of the quarter’s net sales.
Revenues generated from Health, Hygiene & Specialties amounted to $576 million, down 10.3% year over year. The fall was primarily attributable to divesture of the SFL business and lower selling prices. It accounted for 19.4% of the quarter’s net sales.
Revenues from Engineered Materials declined 3.4% year over year to $598 million. The fall was due to lower selling prices, partially offset by 2% growth in base volume. It accounted for 20.1% of the quarter’s net sales.
Margin Details
In the fiscal second quarter, Berry Global’s cost of goods sold increased 51.5% to $2,391 million. It represented 80.4% of net sales compared with 80.9% in the year-ago quarter. Selling, general and administrative expenses rose 42.7% to $204 million, and represented 6.9% of net sales.
Adjusted operating income in the quarter increased 45% to $332 million. In addition, adjusted operating margin came in at 11.1%, down 60 basis points year over year. Interest expenses were $111 million, up 68.2% year over year.
Balance Sheet & Cash Flow
Exiting second-quarter fiscal 2020, Berry Global’s cash and cash equivalents were $953 million, down from $750 million recorded a year ago. Current and long-term debt decreased 2.2% to $11,115 million from Dec 28, 2019.
In the first six months of fiscal 2020, the company generated net cash of $533 million from operating activities, reflecting an increase of 61% from the year-ago period.
In the quarter, capital invested for the purchasing of property, plant and equipment totaled $115 million, up from $92 million. Free cash flow in the reported quarter was $200 million, up from $78 million reported in the year-ago quarter.
Outlook
For fiscal 2020 (ending September 2020), Berry Global predicts free cash flow of more than $800 million, with cash flow from operations of a minimum of $1,400 million and capital expenditure of $600 million. Moreover, interest expenses for fiscal 2020 are predicted to be $430 million, while taxes are estimated to be $150 million. In addition, working capital, restructuring and other costs are anticipated to be $50 million.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month.
VGM Scores
At this time, Berry Global has a great Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
