Berry (US:BERY)2019-07-31 01:42Financial Data and Key Metrics Changes - Net sales for the quarter were $1.94 billion, with operating EBITDA of $348 million, reflecting contributions from the Laddawn acquisition and growth in consumer packaging, offset by weakness in Engineered Materials and Health, Hygiene and Specialties [12][19] - Adjusted earnings per share were $0.90, and free cash flow for the quarter was $136 million, totaling $665 million for the last four quarters [12][30] - The company is targeting free cash flow of $800 million for fiscal 2020, representing a free cash flow yield approaching 12% [31] Business Line Data and Key Metrics Changes - Consumer Packaging reported sales of $652 million, a 1% decrease year-over-year, but volume grew by 3%, driven by foodservice, containers, and closure products [21][22] - Engineered Materials sales were $639 million, down from $687 million in the prior year, primarily due to lower resin prices and organic volume decline [23] - Health, Hygiene and Specialties division saw sales of $646 million, down from $726 million, attributed to weaker volumes and unfavorable currency impacts [25][26] Market Data and Key Metrics Changes - The North American baby care market continues to show weakness, impacting the Health, Hygiene and Specialties division, while the company is focusing on higher growth markets such as adult incontinence and feminine care [13][100] - The company is optimistic about growth in emerging markets and has committed to sustainability initiatives, which are expected to enhance its competitive position [15][16] Company Strategy and Development Direction - The acquisition of RPC Group is seen as transformational, with expected annual cost synergies of $150 million and a combined pro forma revenue of $13 billion [9][34] - The company is restructuring into four operating divisions to better serve customers and leverage growth opportunities [36] - Berry Global is committed to sustainability, aiming for 100% of plastics packaging to be reusable, recyclable, or compostable by 2025 [16][47] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving historical free cash flow growth and outlined a commitment to improving the balance sheet post-acquisition [18][39] - The integration of RPC is progressing better than planned, with management optimistic about the combined entity's potential in the healthcare and pharma sectors [66] - The company anticipates positive organic volume growth in the second half of fiscal 2020, driven by new business opportunities and market recovery [43][65] Other Important Information - The company completed the sale of its Seal For Life business for approximately $330 million, which will be used to repay debt and improve the balance sheet [10][11] - Management highlighted the importance of innovation and cost reduction to maintain competitiveness in a challenging market environment [80][96] Q&A Session Summary Question: Confirmation on material qualification issues - Management confirmed that material qualification issues have been resolved and progress has been made in recovering demand from regional distribution accounts [50][51] Question: Sensitivities around free cash flow and EBITDA - Management provided insights on the $800 million free cash flow target, including assumptions on capital expenditures and transition-related costs [53][54] Question: Impact of Seal for Life sale - The sale had a positive impact on the Health, Hygiene and Specialties segment, with annual sales of approximately $120 million and above-average EBITDA margins [58] Question: Volume outlook and confidence in growth - Management expressed confidence in achieving positive volumes by March 2020, supported by a $120 million pipeline of new revenue [63][64] Question: Performance of RPC business post-acquisition - RPC's performance has been in line with expectations, with modest growth in sales and EBITDA reported for the last six months [67][68] Question: Cost recovery and pricing strategies - Management acknowledged challenges in recovering costs due to competitive pressures but emphasized ongoing efforts to innovate and reduce costs [80][96]