Berry Global (BERY) Q1 Earnings Lag Estimates, Up Y/Y On Sales

Berry Global Group, Inc. (NYSE:BERY) reported weaker-than-expected results for first-quarter fiscal 2019 (ended Dec 29, 2018), with a negative earnings surprise of 21.4%.

The company’s adjusted earnings in the reported quarter were 77 cents per share, lagging the Zacks Consensus Estimate of 98 cents. However, the bottom line increased 14.9% from the year-ago quarter’s number of 67 cents on the back of top-line growth, partially offset by an increase in cost of goods sold.

Segmental Performance Drives Revenues

Berry Global’s first-quarter fiscal 2019 net sales were $1,972 million, reflecting year-over-year growth of 11%. The improvement was driven by 9% gain from acquired assets and 3% growth in organic sales (organic growth includes improved pricing and weak volumes), partially offset by 1% negative impact from unfavorable movements in foreign currencies.

However, the top line lagged the Zacks Consensus Estimate of $2.05 billion.

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 $601 million, reflecting year-over-year growth of 9.1%. The improvement was primarily driven by solid demand for foodservice products. It accounted for 30.5% of the reported quarter’s net sales.

Revenues generated from Health, Hygiene & Specialties amounted to $702 million, increasing 21.7% from the year-ago quarter. It accounted for 35.6% of the reported quarter’s net sales.

Revenues from Engineered Materials increased 3.2% year over year to $669 million. It accounted for 33.9% of the reported quarter’s net sales.

Margin Declines Y/Y

In the reported quarter, Berry Global’s cost of goods sold increased 11.9% year over year to $1,619 million. It represented 82.1% of net sales versus 81.5% in the year-ago quarter. Selling, general and administrative expenses grew 6% year over year to $124 million, and represented 6.3% of net sales.

Adjusted operating income in the quarter under review increased 6.4% year over year to $200 million. Moreover, adjusted operating margin decreased 50 basis points to 10.1%. Interest expenses grew 3.2% year over year to $64 million.

Balance Sheet & Cash Flow

Exiting first-quarter fiscal 2019, Berry Global’s cash and cash equivalents were $293 million, down 23.1% from $381 million recorded in the last reported quarter. Current and long-term debt decreased 1.8% sequentially to $5,737 million. During the quarter under review, the company repaid long-term debt of $110 million.

In the reported quarter, the company generated net cash of $161 million from operating activities, reflecting increase of 5.2% from the year-ago tally. Capital invested for the purchasing of property, plant and equipment totaled $75 million versus $91 million in the year-ago quarter. Adjusted free cash flow in the reported quarter was $70 million, up from $25 million in the year-ago quarter.

During the quarter under review, the company repurchased shares worth $54 million. Exiting the quarter, the company had $411 million of buyback authorization outstanding.

Outlook

For fiscal 2019 (ending Sep 2019), Berry Global reaffirmed cash flow projections. It predicts adjusted free cash flow of approximately $670 million, with 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 buying back shares.

Berry Global Group, Inc. Price, Consensus and EPS Surprise