Berry Global Group (BERY) Tops Q2 EPS by 12c

Berry Global Group (NYSE: BERY) reported Q2 EPS of $1.19, $0.12 better than the analyst estimate of $1.07. Revenue for the quarter came in at $3 billion versus the consensus estimate of $3.04 billion.

Second Quarter Highlights
(all comparisons made to the March 2019 quarter)

• Net sales up 53 percent to $3.0 billion
• Operating income up 54 percent to $284 million
• Operating EBITDA up 52 percent to $539 million
• Net income per diluted share increase of 71 percent to $0.94
• Adjusted net income per diluted share increase of 42 percent to $1.19
• RPC Group Plc (“RPC”) integration progressing on plan; synergy target remains on track
• Reaffirmed fiscal year 2020 cash flow from operations and free cash flow guidance of $1.4 billion and $800 million, respectively

Berry’s Chairman and CEO, Tom Salmon said, “While there are unprecedented uncertainties impacting the global economy right now, we are fortunate to have an extremely diverse portfolio of products, both geographically and by end market, which will further demonstrate our proven track record of stability as we progress through the back half of fiscal 2020. The long-term fundamentals of the business have strengthened and we remain focused on our top three financial objectives of improving our strong balance sheet, organically growing our businesses, and integrating the RPC acquisition as demonstrated in this recently completed quarter.

“I am happy to report we generated March quarterly records for net sales and operating EBITDA, both increasing over 50 percent to $3 billion and $539 million, respectively. Our adjusted earnings per share increased 42 percent to $1.19, and we reported a significant improvement in quarterly free cash flow, bringing our four quarters ended free cash flow to $886 million.

“For the March 2020 quarter, overall volumes were up 2 percent in the aggregate. We estimate the net volume benefit from corona-driven activity in the quarter was 1 percent. Specific detail by segment includes our Health, Hygiene & Specialties segment, which recorded stronger than expected volume growth of 3 percent. We anticipated volume growth inflection within this business in the June quarter and we are very proud of accomplishing this goal a quarter ahead of plan. Our Engineered Materials team delivered volume growth in the quarter of 2 percent, which was in line with our commitment. Our Consumer Packaging North American business had flat volume for the quarter with strength in healthcare, household cleaning and grocery offset by softness in food service and industrial markets. We remain encouraged by the momentum of the division with a continued growing revenue pipeline. And lastly, our Consumer Packaging International business reported improved volumes sequentially, and we continue to efficiently integrate the business with an intense focus on developing our growth pipeline and realizing the cost synergies in our initial forecast of $150 million.

“Our financial profile remains solid as we have a strong liquidity position with over $950 million of cash at the end of the quarter as well as an undrawn $850 million asset-based line of credit representing $1.8 billion of liquidity. Also, we have no financial maintenance covenants or near-term debt maturities.”

Outlook

While certain markets have been impacted by COVID-19 and related restrictions, we are fortunate to have such a diversified portfolio with strong, stable end markets. Our guidance has assumed COVID-19 related restrictions, such as shelter-in-place orders, continue for the remainder of our fiscal year. We believe approximately 65 percent of our portfolio is advantaged to neutral with about 35 percent disadvantaged related to COVID-19. We expect the coronavirus to negatively impact our volumes with a low-single digit decline, but believe that we will still generate growth in EBITDA for the back half of our fiscal year driven by cost synergies and improved cost productivity. The net negative impact we are anticipating related to COVID-19 on volumes and earnings are transitory. As the restrictions are lifted, we anticipate all our segments will return to positive organic growth, as demonstrated in the most recent fiscal quarter from the pre-COVID-19 volumes and earnings levels.

We are pleased to report that we expect our fiscal year 2020 free cash flow will be in excess of $800 million, which includes at least $1.4 billion of cash flow from operations partially offset by capital expenditures of $600 million. Cash taxes are expected to be $150 million, and cash interest costs are projected at $430 million assuming interest rates at the end of the March quarter. Additionally, we expect working capital, restructuring and other costs to be $50 million.

We believe the acquisition of RPC is truly a transformational and complementary opportunity for our Company and we are off to a solid start with respect to our synergy realization and integration activities. We intend to realize approximately $150 million of annual cost synergies of which an estimated $75 million is expected to be realized in fiscal 2020.

For earnings history and earnings-related data on Berry Global Group (BERY) click here.

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