Berry (BERY) - 2024 Q2 - Earnings Call Transcript

Financial Data and Key Metrics - Adjusted earnings per share for Q2 2024 was $1.95, similar to the prior year, while operating EBITDA was down 5$800 million to $900 million for fiscal 2024, with cash from operations of$1.35 billion to $1.45 billion and capital expenditures of$550 million [44] Business Line Performance - Consumer Packaging International revenue was down 8%, primarily due to polymer cost pass-through, with EBITDA down 4% [27] - Consumer Packaging North America revenue declined 4%, driven by softer customer demand and lower selling prices, with EBITDA down 11% [29][31] - Flexibles revenue decreased 9%, primarily due to lower resin costs and volume softness, while EBITDA remained flat [32] - Health, Hygiene, and Specialties revenue was down 6%, with EBITDA essentially flat, driven by cost reductions offset by resin pass-through timing [33] Market Performance - North America showed strong performance, particularly in food, beverage, personal care, and home care markets, while Europe saw incremental improvements [27][29] - The company observed substrate conversions to plastic from paper, foam, glass, and metal, driven by sustainability efforts and consumer experience improvements [30] Strategic Direction and Industry Competition - The company is focused on portfolio optimization, lean transformation, and commercial excellence to drive growth and operational efficiency [10][13] - Berry expanded its cost savings program by an additional $25 million, bringing the total to$165 million, with savings expected by the end of fiscal 2025 [9] - The proposed spin-off and merger of the Health, Hygiene, and Specialties segment with Glatfelter is expected to close in the second half of 2024, creating a leading specialty materials company [11] Management Commentary on Operating Environment and Future Outlook - Management expressed confidence in the second half of fiscal 2024, driven by easing inflation, improved volumes, and cost reduction efforts [17][43] - The company remains optimistic about achieving peer-leading performance, with a focus on low leverage, cost reductions, and organic growth [46] Other Key Information - Berry completed two divestitures in Q2, generating approximately $150 million in revenue, and expects to generate over$2 billion from strategic divestitures in the next year [18][35] - The company has reduced net debt by more than $3 billion since mid-2019 and returned over$1.5 billion to shareholders through share repurchases and dividends [38] Q&A Session Summary Question: Confidence in achieving strong second-half growth - Management cited easier year-over-year comparisons, strong April volumes, and improved foodservice performance as key drivers of confidence [51][53] - The company expects an $80 million EBITDA improvement in the second half of 2024 compared to 2023, driven by volume recovery and resin cost pass-through timing [54] Question: Divestiture strategy and proceeds - The additional$1 billion in expected divestiture proceeds excludes the Health, Hygiene, and Specialties segment and already divested businesses, with proceeds expected to be used for deleveraging and core business growth [56] Question: Lean transformation and commercial excellence - The company is focused on improving first-pass yield, reducing unplanned downtime, and automating SG&A processes to drive cost reductions and growth [66][68] Question: Glatfelter transaction valuation - Management believes the market is undervaluing the Glatfelter transaction, citing improving business performance and significant synergy potential [103] Question: Volume improvement drivers - The company attributed volume improvements to reduced destocking, increased promotional activity, and improved consumer consumption levels [98][109] Question: Portfolio optimization focus - Divestiture opportunities are primarily in the Flexibles and Consumer Packaging International segments, with a focus on reducing industrial exposure and increasing consumer-facing businesses [111]