Release Date: August 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Berry Global Group Inc (BERY, Financial) delivered 2% organic volume growth and strong financial performance during the quarter.
- Third quarter EPS and operating EBITDA grew by 16% and 6% respectively over the prior year quarter.
- The company confirmed its fiscal 2024 guidance within previously announced ranges for adjusted EPS and free cash flow.
- Berry Global Group Inc (BERY) expects to generate over $3 billion in cash over the next four quarters from strategic divestitures and portfolio optimization.
- The company has made substantial progress in its lean transformation initiatives, particularly at its Franklin, Indiana facility, leading to improved operational efficiency and engagement.
Negative Points
- Revenue in the consumer packaging international division was down 5% due to lower polymer costs, despite a 1% organic volume growth.
- The flexibles division saw a 2% decline in revenue due to lower prices, although this was partially offset by a 2% organic volume increase.
- The health, hygiene & specialties division's revenue remained flat compared to the prior year, with lower selling prices offsetting a 2% organic volume increase.
- Persistent weakness in North American transportation and industrial markets was noted, particularly in Europe, which is experiencing a slower recovery.
- The company faces challenges from softer global market demand due to inflation, impacting overall performance.
Q & A Highlights
Q: In terms of our interest expense on the guidance in the fourth quarter, it looks much higher than the previous three quarters. Can you provide some color on that?
A: The increase in interest expense is primarily driven by some non-cash cost income that fell off in Q2. This was always projected given our outlook for fiscal '24. (Mark W. Miles, CFO)
Q: Can you provide an update on the market share trends, particularly in the takeout cups segment?
A: Foot traffic has been weaker than expected due to inflation, leading to increased promotional activity by our customers. We are starting to see the benefit of this in our volumes and expect continued focus on growth from our customers. (Kevin J. Kwilinski, CEO)
Q: Have you already felt the impact of weaker inflation in your numbers? What supports your guidance for low single-digit volume growth in Q4?
A: Our guidance is based on easier comps and modest improvement, not dependent on market improvement. If there is market improvement, it would provide upside. (Kevin J. Kwilinski, CEO)
Q: Can you give an update on the potential divestitures and how you see leverage shaping up by the end of 2025?
A: We expect to be in the very low threes in terms of leverage by the end of 2025, possibly even hitting the high twos. We see share buybacks as meaningful value for our shareholders and are always looking at bolt-on acquisitions that are highly accretive. (Kevin J. Kwilinski, CEO)
Q: Can you talk about the pilot at Franklin and what it means for the broader business in terms of improved efficiency and margin?
A: The lean transformation at Franklin has led to over 20% improvement in throughput. We are focusing on daily management processes and predictive maintenance, which will have a dramatic impact across our facilities. (Kevin J. Kwilinski, CEO)
Q: What is driving the lower EBITDA outlook despite better volumes and positive comps?
A: The biggest impact is resin inflation and the timing of recovery. Supply side constraints have affected the markets, but this is not a long-term issue. We see strong momentum and performance on costs. (Kevin J. Kwilinski, CEO)
Q: Any initiatives underway to drive better performance in North American transportation and treat from?
A: We are shifting a portion of our volume to higher-value engineered products and winning share at better margins. The slower recovery is more limited to Europe, but we do see recovery happening. (Kevin J. Kwilinski, CEO)
Q: How is the competitive activity impacting your business, especially in food service?
A: We are seeing higher levels of competition, but our superior products and ability to service customers with rapidly changing demand requirements allow us to maintain margins and win share. (Kevin J. Kwilinski, CEO)
Q: How do you see volume growth evolving into fiscal Q4 and 2025 for each of the different segments?
A: We expect similar low single-digit growth in Q4 and accelerating growth in 2025 based on our performance, not market recovery. If market recovery happens, it would provide additional upside. (Kevin J. Kwilinski, CEO)
Q: How should we think about EBITDA growth next year in light of planned divestitures?
A: We expect EBITDA growth roughly in line with low single-digit volume growth, with potential upside from cost reductions and operating leverage. (Kevin J. Kwilinski, CEO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
