Berry (US:BERY)2021-02-05 21:07Financial Data and Key Metrics Changes - The first fiscal quarter reported sales increased over 11% to a record $3.1 billion, with organic volume growth of 11%, of which 4% was attributed to additional shipping days, resulting in a comparable organic volume growth of 7% [18][10] - Operating EBITDA for the quarter increased by 20% to a record $539 million, driven by strong volumes and realized cost synergies [19][20] - Adjusted earnings per share increased by 100% to $1.12, benefiting from EBITDA improvements and interest expense savings from debt reduction [20][21] - Free cash flow for the last four quarters exceeded $1 billion, with a reduction in leverage from 4.8x to 4.1x net debt to adjusted EBITDA [29][12] Business Line Data and Key Metrics Changes - Consumer Packaging International division delivered sales of just under $1 billion with EBITDA of $170 million, showing a 4% increase in comparable organic volumes driven by strength in consumer markets [22][23] - Consumer Packaging North America saw net sales up 12% to $686 million, with an 8% increase in comparable organic volumes [24] - Health Hygiene and Specialties division reported sales of $740 million, a 21% increase, with comparable organic volume growth of 15% [26][27] - Engineered Materials division sales increased by 9% to $722 million, with comparable organic volume growth of 2% [28] Market Data and Key Metrics Changes - The company experienced strong demand across various markets, with notable growth in stay-at-home food, health and wellness, and personal protective products [11][10] - Developed markets like Western Europe saw 2% volume growth, while emerging markets such as China and India exhibited robust growth [23] Company Strategy and Development Direction - The company aims to grow organic volumes and improve its balance sheet, with a focus on maintaining leverage below 4x [12][13] - Investments are being made in faster-growing end markets and emerging markets, with a commitment to sustainability and innovation in product offerings [38][45] - The company is actively working to pass through raw material cost increases to customers, with an updated guidance reflecting a $50 million timing lag related to inflation [15][16] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ability to achieve long-term predictable and sustainable growth, supported by customer-linked capital investments [16][36] - The company raised its fiscal year operating EBITDA guidance by $25 million and increased its organic volume growth assumption from 2% to 4% for the full year [32][33] - Management acknowledged significant cost increases in primary raw materials, particularly resin, and emphasized efforts to mitigate these impacts [14][15] Other Important Information - The company has a strong commitment to safety, with an OSHA incident rate significantly better than the industry average [9][8] - The company has made significant progress in sustainability initiatives, including investments in recycled content and innovations in product design [42][46] Q&A Session Summary Question: Inquiry about raw material pass-throughs - Management is actively working to pass through inflation related to both resin and non-resin costs, with improvements in reducing lag times [51] Question: Visibility into customer demand - Management noted robust demand and a strong pipeline, leading to increased organic volume growth expectations [52] Question: Clarification on organic volume growth - Management explained that the December quarter's performance was influenced by holiday impacts and ongoing recovery in industrial markets [54][56] Question: Impact of inflation on guidance - Management confirmed that the $50 million inflation impact is based on February price increases, with no assumptions beyond that [57] Question: Value creation and margin improvement - Management indicated that new product areas are expected to maintain or exceed company average margins, with plans for cash returns to shareholders once leverage targets are met [60][62] Question: Sustainability and customer willingness to pay - Management highlighted that while there is a strong interest in sustainable products, the current capacity is not sufficient to meet all customer needs [64] Question: Capital investment in wipes and masks - Management expressed confidence in the growing demand for wipes and the strategic nature of investments in this area [68][69] Question: EBITDA guidance and price cost assumptions - Management noted that the first quarter saw a modest benefit from price cost, but anticipated headwinds in Q2 and Q3 due to inflation [70] Question: Update on HHS mix headwinds - Management extended the expected mix benefits into the March quarter, reflecting ongoing strong demand [72] Question: Customer decision-making in sustainability - Management emphasized the importance of providing a range of solutions to meet customer sustainability objectives [74][75]