Crown Holdings (CCK) Tops Q2 Earnings Despite Lower Sales

Crown Holdings (NYSE:CCK) reported second-quarter 2016 adjusted earnings per share of $1.19, which surpassed the Zacks Consensus Estimate of $1.10 and increased 16% year over year. The year-over-year upside was driven by stronger beverage can volumes and improved European Beverage performance. On a reported basis, earnings came in at $1.21 per share, an increase from $1.02, in the year-ago quarter.

Operational Update

Net sales in the quarter declined nearly 6% year over year to $2,142 million from $2,278 million in the year-ago quarter primarily, due to unfavorable currency translation and the pass through of lower material costs. Revenues also lagged the Zacks Consensus Estimate of $2,240 million.

Cost of products sold went down 8.2% year over year to $1.69 billion. Gross profit increased by 3.7% to $451 million, with gross margin expansion of 200 basis points to 21.1% in the quarter, both on a year-over-year basis.

Selling and administrative expenses decreased 5% year over year to $94 million. Segment income improved 5.9% year over year to $288 million in the quarter. Operating margin improved to 13.4% from 12% in the year-ago quarter.

Segment Performance

Net sales from the Americas Beverage segment were $706 million, down 4.7% from $741 million in the year-ago quarter. Segment operating profit however rose to $106 million from $99 million in the year-ago quarter.

The North-America Food segment’s sales went down 1.2% year over year to $168 million. Operating earnings also fell 13% year over year to $20 million.

The European Beverage segment’s sales dropped 5% year over year to $401 million. However, operating income increased 13.6% year over year to $75 million.

Revenues in the European Food segment were down 6.1% year over year to $462 million. Segment operating profit went down1.5% to $67 million from $68 million in the year-ago quarter.

Revenues in the Asia-Pacific segment decreased 9.4% year over year to $281 million. Operating profit remained flat at $39 million in the reported quarter.

Financial Update

Crown Holdings had cash and cash equivalents of $370 million at the end of second-quarter 2016, compared with $288 million at the end of 2015. Cash flow from operations came in at $63 million for the six-month period ending Jun 30, 2016 compared with cash usage of $15 million in the comparable year-ago period. As of quarter end, Crown Holdings’ total debt fell to $5.05 billion from $5.67 billion as of Jun 30, 2015.

Outlook

Crown Holdings is expected to benefit in 2016 on the back of solid performances across all businesses. The company continues to focus on laying the groundwork to meet the growth opportunities.

Last month, Crown Holdings began commercial production at third Cambodian beverage can plant in Phnom Penh. Further, its new beverage can plant in Monterrey, Mexico as well as the second production line at Osmaniye, Turkey facility will begin production during this year's fourth quarter.

Notably, the company expects to start up its Nichols, New York beverage can plant in early 2017, which will be focused primarily on expanding specialty can presence in North America. In Colombia, it will begin a major capacity expansion later this year with the added production available for shipment in the second quarter of 2017.

Additionally, Crown Holdings will begin installation of the second high speed aluminum production line at its beverage can plant in Custines, France, completing that plant's conversion from steel to aluminum. Commercial start-up of the second line is scheduled for April 2017.

With its many inherent benefits, including being infinitely recyclable, the beverage can continues to become the increasingly preferred package for marketers and consumers around the world. Crown Holdings is expected to benefit from a rise in global beverage can demand.

To meet this increase in demand, the company intends to build new facilities and is poised to gain from the geographic expansion of its beverage can lines. However, pricing remains quite challenging in China.

Zacks Rank

Crown Holdings currently carries a Zacks Rank #3 (Hold).

Better-ranked stocks in the broader industrial products sector include Greif, Inc. (NYSE:GEF) , Allegion Plc (NYSE:ALLE) and Columbus McKinnon Corp. (NASDAQ:CMCO) . All these stocks hold a Zacks Rank #2 (Buy).