Berry Global Group, Inc. Reports First Quarter Fiscal 2018 Results
EVANSVILLE, Ind.–(BUSINESS WIRE)–Berry Global Group, Inc. (NYSE:BERY) today reported results for its
first fiscal 2018 quarter, referred to in the following as the December
2017 quarter.
Highlights
- Net income was $163 million.
-
Net income per diluted share increased to $1.20 compared to $0.40 in
the prior year quarter. - Adjusted net income per diluted share up 34 percent to $0.67.
- Net sales increased 18 percent to $1.8 billion.
- Operating income increased by 12 percent to $163 million.
-
Operating EBITDA was $310 million (17.5 percent of net sales), an
increase of 12 percent. - Cash flow from operations increased by 7% to $153 million.
-
Increased guidance for fiscal year 2018 cash flow from operations to
$1,007 million and adjusted free cash flow to $630 million.
“I am proud to report we had another solid quarter of improved financial
results. Milestones for both revenue and operating EBITDA were achieved
for any December ended quarter. I am very proud of our employees who
continually focus on building and strengthening our competitive
advantages while providing high quality products and service to our
customers,” said Tom Salmon, Chairman and Chief Executive Officer of
Berry.
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December 2017 Quarter Results |
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| Consolidated Overview | ||||||||
| December Quarter | ||||||||
| (in millions of dollars) | Current | Prior |
$ Change |
% Change | ||||
| Net sales | $ | 1,776 | $ | 1,502 | $ | 274 | 18 | % |
| Operating income | 163 | 146 | 17 | 12 | % | |||
The net sales increase of $274 million from the prior year quarter is
primarily attributed to acquisition net sales of $267 million, an $18
million favorable impact from currency translation, and increases in
selling prices due to the pass through of higher resin prices. These
increases are partially offset by a 1% base volume decline.
The operating income increase of $17 million from the prior year quarter
is primarily attributed to acquisition operating income of $26 million,
and an $11 million decrease in selling, general, and administrative
expenses from cost reductions, and a $7 million decrease in depreciation
and amortization. These increases are partially offset by an $18 million
unfavorable impact from under recovery of higher cost of goods sold, a
$5 million increase in business integration and restructuring costs, and
a $4 million unfavorable impact from volume decline.
The performance of the Company’s divisions compared with the prior
fiscal year quarter is as follows:
|
Engineered Materials |
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| December Quarter | ||||||||
| (in millions of dollars) | Current | Prior |
$ Change |
% Change | ||||
| Net sales | $ | 648 | $ | 383 | $ | 265 | 69 | % |
| Operating income | 88 | 53 | 35 | 66 | % | |||
Engineered Materials’ net sales increased by $265 million from
the prior year quarter primarily attributed to acquisition net sales of
$267 million and a $6 million increase in selling prices due to the pass
through of higher resin prices, partially offset by a 2% base volume
decline.
The operating income increase of $35 million from the prior year quarter
is primarily attributed to acquisition operating income of $26 million,
a $4 million favorable improvement in price cost spread, and a $4
million decrease in depreciation and amortization expense.
| Health, Hygiene, and Specialties | ||||||||
| December Quarter | ||||||||
| (in millions of dollars) | Current | Prior |
$ Change |
% Change | ||||
| Net sales | $ | 577 | $ | 570 | $ | 7 | 1 | % |
| Operating income | 37 | 59 | (22 | ) |
(37) |
% |
||
Health, Hygiene, and Specialties’ net sales increased by $7
million from the prior year quarter primarily attributed to a $16
million favorable impact from currency translation, partially offset by
a 1% base volume decline.
The operating income decrease of $22 million from the prior year quarter
is primarily attributed to a $17 million negative impact from under
recovery of cost of goods sold related to inflation and market pressure
in South America, a $6 million increase in business integration and
restructuring costs, and a slight increase in depreciation and
amortization expense, partially offset by a $4 million decrease in
selling, general and administrative expenses.
| Consumer Packaging | ||||||||
| December Quarter | ||||||||
| (in millions of dollars) | Current | Prior |
$ Change |
% Change | ||||
| Net sales | $ | 551 | $ | 549 | $ | 2 | – | % |
| Operating income | 38 | 34 | 4 | 12 | % | |||
Consumer Packaging’s net sales increased by $2 million from the
prior year quarter primarily attributed to an $8 million impact from
selling price increases due to the pass through of higher resin prices,
partially offset by a 1% base volume decline.
The operating income increase of $4 million from the prior year quarter
is primarily attributed to a $5 million decrease in depreciation and
amortization expense and a $5 million decrease in selling, general and
administrative expense, partially offset by a $5 million unfavorable
impact from under recovery of higher cost of goods sold.
Cash Flow and Capital Structure
Our cash flow from operating activities was $153 million and $985
million for the quarter and last four quarters ended December 2017,
respectively. The Company’s adjusted free cash flow for the quarter and
last four quarters ended December 2017 was $25 million and $606 million,
respectively. Our total debt less cash and cash equivalents at the end
of the December 2017 quarter was $5,308 million. Adjusted EBITDA for the
four quarters ended December 30, 2017 was $1,390 million.
Recent Development
On February 6, 2018, we closed on our previously announced acquisition
of the Clopay Plastic Products Company, Inc. (“Clopay”), a subsidiary of
Griffon Corporation for a purchase price of $475 million, which is
preliminary, unaudited and subject to adjustment. Clopay manufactures
printed breathable films and is an innovator in the development of
elastic films and laminates with product offerings uniquely designed for
applications used in a number of markets including: hygiene, healthcare,
construction and industrial protective apparel. Clopay will be operated
within the Health, Hygiene and Specialties segment. The Company expects
to realize annual cost synergies of approximately $20 million from the
completion of the Clopay transaction. To finance the purchase, the
Company used the proceeds from our new $500 million 4.5% second priority
senior secured notes issued in January 2018.
Outlook
Given the completion of our Clopay acquisition and recent tax reform, we
have increased our fiscal year 2018 cash flow from operations and
adjusted free cash flow to $1,007 million and $630 million,
respectively. Additionally, our fiscal 2018 capital spending and cash
interest costs are forecasted to be $340 million and $250 million,
respectively. Within our adjusted free cash flow guidance, we are also
assuming a working capital use of $40 million and cash taxes to be $160
million, including the $37 million payment made in the first fiscal
quarter under the Company’s tax receivable agreement, along with other
cash uses of $50 million related to items such as acquisition
integration expenses and costs to achieve synergies.
Investor Conference Call
The Company will host a conference call today, February 7, 2018, at 10
a.m. Eastern Time to discuss its first fiscal 2018 quarter results. The
telephone number to access the conference call is (800) 305-1078
(domestic), or (703) 639-1173 (international), conference ID 4959507. We
expect the call to last approximately one hour. Interested parties are
invited to listen to a live webcast and view
the accompanying slides by visiting the Company’s
Investor page at www.berryglobal.com.
A replay of the conference call can also be accessed on the Investor
page of the website beginning February 7, 2018, at 1 p.m. Eastern Time,
to February 27, 2018, by calling (855) 859-2056 (domestic), or (404)
537-3406 (international), access code 4959507.
About Berry
Berry Global Group, Inc. (NYSE:BERY), headquartered in Evansville,
Indiana, is committed to its mission of ‘Always Advancing to Protect
What’s Important,’ and proudly partners with its customers to provide
them with value-added protective solutions. The Company is a leading
global supplier of a broad range of innovative non-woven, flexible, and
rigid products used every day within consumer and industrial end
markets. Berry, a Fortune 500 company, generated $7.1 billion of sales
in fiscal 2017. For additional information, visit Berry’s website at www.berryglobal.com.
Non-GAAP Financial Measures
This press release includes non-GAAP financial measures such as
operating EBITDA, adjusted EBITDA, adjusted net income, adjusted free
cash flow, and cash interest expense. A reconciliation of these non-GAAP
financial measures to comparable measures determined in accordance with
accounting principles generally accepted in the United States of America
(GAAP) is set forth at the end of this press release.
Forward Looking Statements
Statements in this release that are not historical, including
statements relating to the expected future performance of the Company,
are considered “forward looking” and are presented pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of
1995. You can identify forward-looking statements because they
contain words such as “believes,” “expects,” “may,” “will,” “should,”
“would,” “could,” “seeks,” “approximately,” “intends,” “plans,”
“estimates,” “anticipates” “outlook,” or “looking forward,” or similar
expressions that relate to our strategy, plans or intentions. All
statements we make relating to our estimated and projected earnings,
margins, costs, expenditures, cash flows, growth rates and financial
results or to our expectations regarding future industry trends are
forward-looking statements. In addition, we, through our senior
management team, from time to time make forward-looking public
statements concerning our expected future operations and performance and
other developments. These forward-looking statements are subject
to risks and uncertainties that may change at any time, and, therefore,
our actual results may differ materially from those that we expected.
Important factors that could cause actual results to differ
materially from our expectations, which we refer to as cautionary
statements, are disclosed under “Risk Factors” and elsewhere in our
Annual Report on Form 10-K and subsequent filings with the Securities
and Exchange Commission, including, without limitation, in conjunction
with the forward-looking statements included in this release. All
forward-looking information and subsequent written and oral
forward-looking statements attributable to us, or to persons acting on
our behalf, are expressly qualified in their entirety by the cautionary
statements. Some of the factors that we believe could affect our
results include: (1) risks associated with our substantial
indebtedness and debt service; (2) changes in prices and availability of
resin and other raw materials and our ability to pass on changes in raw
material prices on a timely basis; (3) the impact of potential changes
in interest rates: (4) performance of our business and future operating
results; (5) risks related to our acquisition strategy and integration
of acquired businesses; (6) reliance on unpatented know-how and trade
secrets; (7) increases in the cost of compliance with laws and
regulations, including environmental, safety, and production and product
laws and regulations; (8) risks related to disruptions in the overall
economy and the financial markets may adversely impact our business; (9)
catastrophic loss of one of our key manufacturing facilities, natural
disasters, and other unplanned business interruptions; (10) risks of
competition, including foreign competition, in our existing and future
markets;(11) general business and economic conditions, particularly an
economic downturn; (12) potential failure to realize the intended
benefits from recent acquisitions( including the Clopay acquisition),
including, without limitation, the inability to realize the anticipated
cost synergies in the anticipated amounts or within the contemplated
timeframes or cost expectations, the inability to realize the
anticipated revenues, expenses, earnings and other financial results,
and growth and expansion of the company’s operations, and the
anticipated tax treatment; (13) risks related to international business,
including foreign currency exchange rate risk and the risks of
compliance with applicable export controls, sanctions, anti-corruption
laws and regulations, (14) ability of our insurance to fully cover
potential exposures and (15) the other factors discussed in the under
the heading “Risk Factors” in our Annual Report on Form 10-K and
subsequent filings with the Securities and Exchange Commission. We
caution you that the foregoing list of important factors may not contain
all of the material factors that are important to you. Accordingly,
readers should not place undue reliance on those statements. All
forward-looking statements are based upon information available to us on
the date of this release. We undertake no obligation to publicly
update or revise any forward-looking statement as a result of new
information, future events or otherwise, except as otherwise required by
law.
|
Berry Global Group, Inc. |
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|
Consolidated Statements of Income |
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|
(Unaudited) |
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|
(in millions of dollars, except per share data amounts) |
||||
| Quarterly Period Ended | ||||
| December 30, | December 31, | |||
| 2017 | 2016 | |||
| Net sales | $ |
1,776 |
$ | 1,502 |
| Costs and expenses: | ||||
| Cost of goods sold | 1,447 | 1,206 | ||
| Selling, general and administrative | 117 | 113 | ||
| Amortization of intangibles | 38 | 33 | ||
| Restructuring and impairment charges | 11 | 4 | ||
| Operating income | 163 | 146 | ||
| Other expense (income), net | 9 | (1 | ) | |
| Interest expense, net | 62 | 68 | ||
| Income before income taxes | 92 | 79 | ||
| Income tax expense (benefit) | (71 | ) | 28 | |
| Net income | $ | 163 | $ | 51 |
| Net income per share: | ||||
| Basic | $ | 1.24 | $ | 0.42 |
| Diluted | 1.20 | 0.40 | ||
| Outstanding weighted-average shares: (in millions) | ||||
| Basic | 131.0 | 122.0 | ||
| Diluted | 136.0 | 127.8 | ||
|
Berry Global Group, Inc. |
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|
Consolidated Statements of Comprehensive Income |
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|
(Unaudited) |
||||
|
(in millions of dollars) |
||||
| Quarterly Period Ended | ||||
| December 30, | December 31, | |||
| 2017 | 2016 | |||
| Net income | $ | 163 | $ | 51 |
| Currency translation | (24 | ) | (45 | ) |
| Pension and other postretirement benefits | (1 | ) | — | |
| Interest rate hedges | 17 | 17 | ||
| Provision for income taxes | (4 | ) | (6 | ) |
| Other comprehensive income, net of tax | (12 | ) | (34 | ) |
| Comprehensive income | $ | 151 | $ | 17 |
|
Berry Global Group, Inc. |
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|
Condensed Consolidated Balance Sheets |
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|
(Unaudited) |
||||
|
(in millions of dollars) |
||||
| December 30, | September 30, | |||
| 2017 | 2017 | |||
|
Assets: |
||||
| Cash and cash equivalents | $ | 228 | $ | 306 |
| Accounts receivable, net | 780 | 847 | ||
| Inventories | 878 | 762 | ||
| Other current assets | 95 | 89 | ||
| Property, plant, and equipment, net | 2,363 | 2,366 | ||
| Goodwill, intangible assets, and other long-term assets | 4,076 | 4,106 | ||
| Total assets | $ | 8,420 | $ | 8,476 |
|
Liabilities and stockholders' equity: |
||||
| Current liabilities, excluding debt | $ | 1,120 | $ | 1,101 |
| Current and long-term debt | 5,536 | 5,641 | ||
| Other long-term liabilities | 590 | 719 | ||
| Stockholders’ equity | 1,174 | 1,015 | ||
| Total liabilities and stockholders' equity | $ | 8,420 | $ | 8,476 |
|
Current and Long-Term Debt |
||||
| December 30, | September 30, | |||
| 2017 | 2017 | |||
|
(in millions of dollars) |
||||
| Revolving line of credit | $ | — | $ | — |
| Term loans | 3,855 | 3,957 | ||
| 5.5% Second priority notes | 500 | 500 | ||
| 6.0% Second priority notes | 400 | 400 | ||
| 5 ⅛ % Second priority notes | 700 | 700 | ||
| Debt discounts and deferred fees | (46 | ) | (48 | ) |
| Capital leases and other | 127 | 132 | ||
| Total debt | $ | 5,536 | $ | 5,641 |
| Berry Global Group, Inc. | ||||
| Condensed Consolidated Statements of Cash Flows | ||||
|
(Unaudited) |
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|
(in millions of dollars) |
||||
| Quarterly Period Ended | ||||
| December 30, | December 31, | |||
| 2017 | 2016 | |||
| Cash flows from operating activities: | ||||
| Net income | $ | 163 | $ | 51 |
| Depreciation | 91 | 87 | ||
| Amortization of intangibles | 38 | 33 | ||
| Other non-cash items | (108 | ) | 17 | |
| Working capital | (31 | ) | (45 | ) |
| Net cash from operating activities | 153 | 143 | ||
| Cash flows from investing activities: | ||||
| Additions to property, plant, and equipment | (94 | ) | (65 | ) |
| Proceeds from sale of assets | 3 | 2 | ||
| Other investing activities, net | — | (1 | ) | |
| Net cash from investing activities | (91 | ) | (64 | ) |
| Cash flows from financing activities: | ||||
| Repayments on long-term borrowings | (108 | ) | (10 | ) |
| Proceeds from issuance of common stock | 4 | 5 | ||
| Payment of tax receivable agreement | (37 | ) | (60 | ) |
| Net cash from financing activities | (141 | ) | (65 | ) |
| Effect of exchange rate changes on cash | 1 | (6 | ) | |
| Net change in cash | (78 | ) | 8 | |
| Cash and cash equivalents at beginning of period | 306 | 323 | ||
| Cash and cash equivalents at end of period | $ | 228 | $ | 331 |
| Berry Global Group, Inc. | ||||||||
| Condensed Consolidated Financial Statements | ||||||||
| Segment Information | ||||||||
|
(Unaudited) |
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|
(in millions of dollars) |
||||||||
| Quarterly Period Ended December 30, 2017 | ||||||||
| Consumer |
Health, Hygiene |
Engineered | ||||||
| Packaging |
& Specialties |
Materials | Total | |||||
| Net sales | $ | 551 | $ | 577 | $ | 648 | $ | 1,776 |
| Operating income | $ | 38 | $ | 37 | $ | 88 | $ | 163 |
| Depreciation and amortization | 54 | 46 | 29 | 129 | ||||
| Restructuring and impairment charges | 1 | 10 | — | 11 | ||||
| Other non-cash charges (1) | 2 | 1 | 2 | 5 | ||||
| Business optimization costs (2) | — | 2 | — | 2 | ||||
| Operating EBITDA | $ | 95 | $ | 96 | $ | 119 | $ | 310 |
| Quarterly Period Ended December 31, 2016 | ||||||||
| Consumer |
Health, Hygiene |
Engineered | ||||||
| Packaging |
& Specialties |
Materials | Total | |||||
| Net sales | $ | 549 | $ | 570 | $ | 383 | $ | 1,502 |
| Operating income | $ | 34 | $ | 59 | $ | 53 | $ | 146 |
| Depreciation and amortization | 59 | 44 | 17 | 120 | ||||
| Restructuring and impairment charges | 2 | 2 | — | 4 | ||||
| Other non-cash charges (1) | 2 | 2 | 1 | 5 | ||||
| Business optimization costs (2) | — | 3 | (1 | ) | 2 | |||
| Operating EBITDA | $ | 97 | $ | 110 | $ | 70 | $ | 277 |
| (1) |
Other non-cash charges in the December 2017 quarter primarily includes $4 million of stock compensation expense. Other non-cash charges in the December 2016 quarter primarily includes $3 million of stock compensation expense along with other non-cash charges. |
| (2) | Includes integration expenses and other business optimization costs. |
| Berry Global Group, Inc. | ||||||
| Reconciliation Schedules | ||||||
|
(Unaudited) |
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|
(in millions of dollars, except per share data) |
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| Four Quarters | ||||||
|
Quarterly Period Ended |
Ended | |||||
| December 30, | December 31, | December 30, | ||||
| 2017 | 2016 | 2017 | ||||
| Net income | $ | 163 | $ 51 | $ | 452 | |
| Add: other expense (income), net | 9 | (1 | ) | 24 | ||
| Add: interest expense, net | 62 | 68 | 263 | |||
| Add: income tax (benefit) expense | (71 | ) | 28 | 10 | ||
| Operating income | $ | 163 | $146 | $ | 749 | |
| Add: non-cash amortization from 2006 private sale | 7 | 8 | 31 | |||
| Add: restructuring and impairment | 11 | 4 | 31 | |||
| Add: other non-cash charges (1) | 5 | 5 | 34 | |||
| Add: business optimization and other expenses (2) | 2 | 2 | 16 | |||
| Adjusted operating income (10) | $ | 188 | $165 | $ | 861 | |
| Add: depreciation | 91 | 87 | 371 | |||
| Add: amortization of intangibles (3) | 31 | 25 | 128 | |||
| Operating EBITDA (10) | $ | 310 | $277 | $ | 1,360 | |
| Add: acquisitions (4) | 8 | |||||
| Add: unrealized cost savings (5) | 22 | |||||
| Adjusted EBITDA (10) | $ | 1,390 | ||||
| Cash flow from operating activities | $ | 153 | $ | 143 | $ 985 | |
| Net additions to property, plant, and equipment | (91 | ) | (63 | ) | (291 | ) |
| Payment of tax receivable agreement | (37 | ) | (60 | ) | (88 | ) |
| Adjusted free cash flow (10) | $ | 25 | $ | 20 | $ 606 | |
| Net income per diluted share | $ | 1.20 | $ | 0.40 | ||
| Other expense (income), net | 0.07 | (0.01 | ) | |||
| Non-cash amortization from 2006 private sale | 0.05 | 0.06 | ||||
| Restructuring and impairment | 0.08 | 0.03 | ||||
| Other non-cash charges (6) | 0.01 | 0.04 | ||||
| Business optimization costs (2) | 0.01 | 0.02 | ||||
| Tax reform adjustments, net (9) | (0.70 | ) | — | |||
| Income tax impact on items above (7) | (0.05 | ) | (0.04 | ) | ||
| Adjusted net income per diluted share (10) | $ | 0.67 | $ | 0.50 | ||
| Estimated | ||||||
| Fiscal 2018 | ||||||
| Cash flow from operating activities | $1,007 | |||||
| Additions to property, plant, and equipment | (340 |
) |
||||
| Tax receivable agreement payment (8) | (37 |
) |
||||
| Adjusted free cash flow (10) | $ 630 | |||||
| Interest expense | 255 | |||||
| Additions to property, plant, and equipment | (5 |
) |
||||
| Cash interest expense (10) | $ 250 | |||||
| (1) |
Other non-cash charges in the December 2017 quarter primarily include $4 million of stock compensation expense and other non-cash charges. The December 2016 quarter primarily includes $3 million of stock compensation expense and other non-cash charges. |
| (2) | Includes integration expenses and other business optimization costs. |
| (3) |
Amortization excludes non-cash amortization from the 2006 private sale of $7 million and $8 million for the December 30, 2017 and December 31, 2016 quarters, respectively. |
| (4) |
Represents Operating EBITDA for the AEP acquisition for the period of January 1, 2017 to January 19, 2017 and the Adchem acquisition for the months of January to June 2017. |
| (5) | Primarily represents unrealized cost savings related to acquisitions. |
| (6) |
Other non-cash charges excludes $4 million of stock compensation expense for the quarter ended December 30, 2017. Prior year quarter impact on adjusted net income per share would be $0.02. |
| (7) |
Income tax effects on adjusted net income is calculated using 25% for the December 2017 quarter and 32% for the December 2016 quarter. The rates used for each represents the Company’s expected effective tax rate for each respective period. |
| (8) |
Includes $37 million tax receivable agreement payment made in the December 2017 quarter. |
| (9) |
Includes $95 million of net adjustments for valuing and transition tax related to the recently passed tax reform legislation. |
| (10) |
Supplemental financial measures that are not required by, or |
We define “adjusted free cash flow” as cash flow from operating
activities less additions to property, plant, and equipment and payments
under the tax receivable agreement. We believe adjusted free cash flow
is useful to an investor in evaluating our liquidity because adjusted
free cash flow and similar measures are widely used by investors,
securities analysts, and other interested parties in our industry to
measure a company’s liquidity. We also believe adjusted cash flow is
useful to an investor in evaluating our liquidity as it can assist in
assessing a company’s ability to fund its growth through its generation
of cash. We believe cash interest expense is useful to investors by
providing information regarding interest expense without regard to
non-cash interest expense recognition which may vary based on financing
structure and accounting methods.
Adjusted EBITDA is used by our lenders for debt covenant compliance
purposes. We also use Adjusted EBITDA and Operating EBITDA among other
measures to evaluate management performance and in determining
performance-based compensation. Adjusted EBITDA and Operating EBITDA and
similar measures are widely used by investors, securities analysts, and
other interested parties in our industry to measure a company’s
performance. We also believe EBITDA and adjusted net income are useful
to an investor in evaluating our performance without regard to revenue
and expense recognition, which can vary depending upon accounting
methods.
Contacts
Berry Global Group, Inc.
Dustin Stilwell, +1 812-306-2964
[email protected]
