Berry Global (BERY) Beats Q4 Earnings & Revenue Estimates

Berry Global Group, Inc. (NYSE:BERY) reported better-than-expected results for fourth-quarter fiscal 2018 (ended Sep 29, 2018), with earnings surpassing estimates by 2.3%.

The company’s adjusted earnings in the reported quarter were 90 cents per share, above the Zacks Consensus Estimate of 88 cents. Further, the bottom line increased 3.4% from the year-ago tally of 87 cents on the back of top-line growth, partially offset by an increase in costs of goods sold.

For fiscal 2018, the company’s adjusted earnings per share were $3.37, missing the Zacks Consensus Estimate of $3.79. However, the bottom line grew 9.8% from the year-ago tally of $3.07.

Organic Sales and Buyouts Drive Revenues

Berry Global’s fourth-quarter fiscal 2018 net sales were $2,054 million, reflecting year-over-year growth of 9.2%. The improvement was driven by 7% gain from acquired assets and 3% growth in organic sales, partially offset by 1% negative impact from unfavorable movements in foreign currencies.

Further, the top line exceeded the Zacks Consensus Estimate of $2,015 million by 1.9%.

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 $648 million, reflecting year-over-year growth of 8.2%. The improvement was primarily driven by solid demand for foodservice products from convenience stores and quick service restaurants. It accounted for 31.6% of the reported quarter’s net sales.

Revenues generated from Health, Hygiene & Specialties amounted to $724 million, increasing 21.5% from the year-ago quarter. It accounted for 35.2% of the reported quarter’s net sales.

Revenues from Engineered Materials decreased 0.6% year over year to $682 million. It accounted for 33.2% of the reported quarter’s net sales.

For fiscal 2018, the company’s revenues totaled $7,869 million, increasing 10.9% from the year-ago tally.

Margin Profile Weak

In the reported quarter, Berry Global’s cost of goods sold increased 12.6% year over year to $1,705 million. It represented 83% of net sales versus 90.6% in the year-ago quarter. Selling, general and administrative expenses decreased 5.8% year over year to $114 million, and represented 5.6% of net sales.

Adjusted operating income in the quarter under review decreased 3.6% year over year to $212 million. Moreover, adjusted operating margin decreased 140 basis points to 10.3%. Interest expenses slipped 3% year over year to $64 million.

Balance Sheet & Cash Flow

Exiting fourth-quarter fiscal 2018, Berry Global’s cash and cash equivalents were $381 million, up 4.4% from $365 million recorded in the last reported quarter. Current and long-term debt decreased 1.7%, sequentially, to $5,844 million. During the full fiscal year, the company repaid $335 million long-term debts.

In the fiscal year, the company generated net cash of $1,004 million from its operating activities, reflecting increase of 3% from the year-ago tally. Capital invested for the purchasing of property, plant and equipment totaled $336 million versus $269 million in the previous year. Free cash flow in the reported quarter increased 37.4% year over year to $382 million.

It’s worth mentioning here that the company completed the acquisition of Massachusetts-based Laddawn, Inc. in the fourth quarter of fiscal 2018. The acquired assets are now part of the company’s Engineered Materials segment.

This buyout will be beneficial for Berry Global as it will enhance the company’s sales generating capabilities in the core films market, and add 380 skilled employees and five manufacturing facilities in the United States. Further, Laddawn’s online and mobile selling expertise will help Berry Global to cater to the demands of a large number of customers, especially small and mid-sized.

Outlook

For fiscal 2019 (ending Sep 2019), Berry Global anticipates adjusted free cash flow of approximately $670 million. It predicts cash flow from operations of $1,036 million and capital expenditure of approximately $350 million.

Interest expenses in the fiscal year are predicted to be $270 million while taxes are estimated to be $165 million. Moreover, capital will be used for making acquisitions, investing in organic growth opportunities and continuing its approved $500-million share buyback program.

Berry Global Group, Inc. Price and Consensus