Breaking Down Berry Global Group, Inc. (BERY) Financial Health: Key Insights for Investors

Understanding Berry Global Group, Inc. (BERY) Revenue Streams

Understanding Berry Global Group, Inc.’s Revenue Streams

Berry Global Group, Inc. generates revenue through various segments, primarily categorized into Consumer Packaging International, Consumer Packaging North America, Health, Hygiene & Specialties, and Flexibles. Below is a detailed breakdown of revenue sources and performance metrics as of 2024.

Breakdown of Primary Revenue Sources

Year-over-Year Revenue Growth Rate

The year-over-year revenue growth rate has shown a decline, with total net sales decreasing by 5% from $9,577 million in 2023 to $9,090 million in 2024. Each segment contributed variably to this overall decline.

Contribution of Different Business Segments to Overall Revenue

As per the latest financial data, the segments contributed to overall revenue as follows:

• Consumer Packaging International: 31% of total net sales
• Consumer Packaging North America: 25% of total net sales
• Health, Hygiene & Specialties: 21% of total net sales
• Flexibles: 23% of total net sales

Analysis of Significant Changes in Revenue Streams

Notably, the decline in net sales across all segments was primarily attributed to decreased selling prices, amounting to a total decrease of $436 million due to lower polymer costs. Additionally, a 1% volume decline was observed, slightly offset by a $79 million favorable impact from foreign currency changes.

In the Consumer Packaging International segment, a $167 million decrease in selling prices and a $40 million decline from divestitures significantly impacted revenue. The Consumer Packaging North America segment faced a $45 million drop in selling prices, reflecting market softness.

The Health, Hygiene & Specialties segment experienced a $106 million decrease in selling prices, while the Flexibles segment noted a $118 million reduction in selling prices, both contributing to the overall revenue downturn.

Overall, the financial landscape for Berry Global Group, Inc. reflects a challenging environment, with selling price reductions and volume declines influencing revenue across all operational segments in 2024.

A Deep Dive into Berry Global Group, Inc. (BERY) Profitability

Profitability Metrics

Analyzing the profitability of a company involves examining key metrics such as gross profit, operating profit, and net profit margins. For the most recent fiscal year, the following profitability figures were reported:

Over time, trends in profitability reveal the following insights:

• Gross profit margin has slightly improved from 10.57% in 2023 to 10.79% in 2024.
• Operating and net profit margins have decreased, indicating challenges in maintaining profitability despite stable gross margins.

In comparison to industry averages, the current profitability ratios are as follows:

The company’s gross profit margin of 10.79% is slightly below the industry average of 11.00%, while the operating profit margin of 7.35% is also below the industry average of 8.50%. The net profit margin of 4.04% falls short of the industry average of 5.00%.

Additionally, operational efficiency can be assessed through cost management and gross margin trends. The following points summarize the operational efficiency metrics:

• Cost of goods sold decreased to $7,448 million from $7,873 million, a reduction of 5.38%.
• Other operating expenses increased from $926 million to $974 million, a rise of 5.18%.

These metrics indicate a need for improved cost management strategies to enhance operational efficiency and overall profitability.

Debt vs. Equity: How Berry Global Group, Inc. (BERY) Finances Its Growth

Debt vs. Equity: How Berry Global Group, Inc. Finances Its Growth

Overview of Debt Levels:

As of June 29, 2024, the company reported total long-term debt of $8,676 million and current liabilities of $2,268 million. The total liabilities stand at $12,617 million.

Debt-to-Equity Ratio:

The debt-to-equity ratio is calculated as total debt divided by total equity. As of June 29, 2024, the total equity was $3,371 million. Therefore, the debt-to-equity ratio is:

Debt-to-Equity Ratio = Total Debt / Total Equity = $12,617 million / $3,371 million = 3.74

This ratio indicates a significant reliance on debt compared to equity financing, which is higher than the industry average of approximately 2.0.

Recent Debt Issuances:

During fiscal 2024, the company issued $800 million of 5.65% First Priority Senior Secured Notes due in January 2034 and $800 million of 5.80% First Priority Senior Secured Notes due in June 2031. The proceeds were utilized to refinance existing debt obligations, including prepaying $750 million of 0.95% Senior Secured Notes due in February 2024.

Credit Ratings:

The company maintains a credit rating of B3 from Moody's and B+ from S&P, reflecting a higher risk profile due to its substantial debt levels.

Balancing Debt Financing and Equity Funding:

The company has been actively managing its capital structure by balancing debt and equity financing to support growth initiatives. For instance, the issuance of common stock raised $33 million in the current fiscal year, while approximately $117 million was used for share repurchases.

The company’s approach to financing emphasizes maintaining liquidity while managing interest rate risks through various financial instruments, including interest rate swaps and cross-currency swaps.

Assessing Berry Global Group, Inc. (BERY) Liquidity

Assessing Liquidity and Solvency

Current and Quick Ratios

The current ratio for the company as of June 29, 2024, is 1.82, calculated from current assets of $4,136 million and current liabilities of $2,268 million. The quick ratio, which excludes inventory, is 1.11, derived from liquid assets totaling $3,504 million (current assets minus inventory of $1,047 million) over current liabilities.

Analysis of Working Capital Trends

The working capital, defined as current assets minus current liabilities, stands at $1,868 million as of June 29, 2024, indicating a decrease from $1,820 million in the previous year. This reflects a trend of increasing current liabilities which rose from $2,713 million to $2,268 million, while current assets decreased from $4,533 million to $4,136 million.

Cash Flow Statements Overview

Potential Liquidity Concerns or Strengths

As of June 29, 2024, the cash balance is $509 million, down from $1,203 million the previous year. The company has no outstanding balance on its $1,000 million asset-based revolving credit facility, which matures in June 2028, indicating strong access to liquidity. However, the decrease in cash flow from operating activities raises potential concerns regarding operational efficiency and working capital management.

Free cash flow for the year-to-date period is $(176 million), compared to $(70 million) for the prior year, primarily driven by higher capital expenditures totaling $473 million. This trend suggests a need for careful monitoring of capital allocation and operating efficiencies to enhance liquidity going forward.

Is Berry Global Group, Inc. (BERY) Overvalued or Undervalued?

Valuation Analysis

The valuation of a company can be assessed through various financial metrics. Below is a detailed breakdown of key valuation ratios for Berry Global Group, Inc. as of 2024.

Price-to-Earnings (P/E) Ratio

The P/E ratio is calculated as the company's current share price divided by its earnings per share (EPS). As of June 29, 2024, the diluted EPS was $1.65.

The stock price at close on June 28, 2024, was $62.00. Thus, the P/E ratio is:

P/E Ratio = Stock Price / EPS = $62.00 / $1.65 = 37.58

Price-to-Book (P/B) Ratio

The P/B ratio compares a company's market value to its book value. As of June 29, 2024, the total stockholders' equity was $3,371 million with 114.5 million shares outstanding.

Book value per share = Total Stockholders’ Equity / Shares Outstanding = $3,371 million / 114.5 million = $29.42.

The P/B ratio is:

P/B Ratio = Stock Price / Book Value per Share = $62.00 / $29.42 = 2.11

Enterprise Value-to-EBITDA (EV/EBITDA) Ratio

To calculate the EV/EBITDA ratio, we first need to determine the enterprise value (EV). The formula for EV is:

• Market Capitalization = Stock Price × Shares Outstanding = $62.00 × 114.5 million = $7,103 million
• Total Debt = $8,676 million
• Cash and Cash Equivalents = $509 million

Therefore, the EV is:

EV = Market Capitalization + Total Debt - Cash = $7,103 million + $8,676 million - $509 million = $15,270 million

For the fiscal year ended June 29, 2024, EBITDA was reported at $1,042 million.

The EV/EBITDA ratio is:

EV/EBITDA = EV / EBITDA = $15,270 million / $1,042 million = 14.65

Stock Price Trends

Over the last 12 months, the stock price has fluctuated as follows:

• 12 months ago: $57.00
• 6 months ago: $68.00
• Current price: $62.00

This indicates a 8.77% increase over the past year.

Dividend Yield and Payout Ratios

The company declared a dividend of $0.275 per share per quarter. Thus, the annual dividend is:

Annual Dividend = $0.275 × 4 = $1.10

The dividend yield based on the stock price of $62.00 is:

Dividend Yield = Annual Dividend / Stock Price = $1.10 / $62.00 = 1.77%

The payout ratio based on a net income of $368 million and shares outstanding is:

Payout Ratio = Annual Dividend / Net Income = ($1.10 × 114.5 million) / $368 million = 0.36 or 36%

Analyst Consensus

As per the latest analyst reports, the consensus rating for the stock is:

• Buy: 6 analysts
• Hold: 4 analysts
• Sell: 1 analyst

This gives a consensus rating leaning towards a Buy.

Key Risks Facing Berry Global Group, Inc. (BERY)

Key Risks Facing Berry Global Group, Inc.

The financial health of Berry Global Group, Inc. is influenced by various internal and external risk factors that can affect its operational efficiency and profitability. Below are the key risk factors identified for the company as of 2024.

Industry Competition

The company operates in a highly competitive environment characterized by numerous competitors and price pressures. In fiscal 2024, the company reported a 5% decline in net sales to $9,090 million compared to $9,577 million in the prior year. This decline was attributed to decreased selling prices and a 1% volume decline in sales.

Regulatory Changes

Changes in environmental regulations and policies can impact production costs and operational practices. The company has ongoing legal proceedings involving routine claims, which may result in financial liabilities. The expenses related to compliance and potential fines could affect profitability.

Market Conditions

Market fluctuations, particularly in raw material prices, significantly impact the company's cost structure. The company experienced a $436 million decrease in selling prices due to lower polymer costs during the year. Additionally, foreign currency fluctuations have also affected financial results, with a $337 million decline in comprehensive income attributed to unfavorable currency translation.

Operational Risks

The company faces operational risks related to supply chain disruptions and production inefficiencies. In fiscal 2024, the company reported an increase in operating expenses to $974 million, up from $926 million in the previous year, reflecting higher costs associated with restructuring and divestitures.

Financial Risks

Berry Global Group has a significant amount of long-term debt totaling $8,676 million as of June 29, 2024. The company is exposed to interest rate fluctuations on its variable-rate debt. A 0.25% increase in interest rates could raise annual interest expenses by approximately $3 million. Additionally, the company holds derivative instruments to manage these risks, which may also lead to fluctuations in earnings due to changes in fair value.

Strategic Risks

The company is undergoing significant restructuring efforts, including a planned spin-off and merger of its Health, Hygiene & Specialties business. Such strategic changes, while aimed at improving operational efficiency, carry risks of execution and potential disruptions in business operations.

Mitigation Strategies

To mitigate these risks, the company employs several strategies including:

• Utilizing derivative instruments to hedge against interest rate and foreign currency risks.
• Implementing cost reduction initiatives through plant rationalizations aimed at saving approximately $250 million.
• Maintaining a strong liquidity position with a cash balance of $509 million, which is expected to support operational needs.

Future Growth Prospects for Berry Global Group, Inc. (BERY)

Future Growth Prospects for Berry Global Group, Inc.

Analysis of Key Growth Drivers

Berry Global Group, Inc. is poised for growth through various strategic initiatives, including product innovations, market expansions, and acquisitions. The company has been focusing on enhancing its product offerings to meet evolving consumer demands. For instance, the introduction of sustainable packaging solutions is gaining traction, as the global market for sustainable packaging is projected to reach $500 billion by 2027, growing at a CAGR of 7.7%.

Future Revenue Growth Projections and Earnings Estimates

Revenue for the fiscal year 2024 is projected to be around $9.1 billion, reflecting a slight decline from $9.6 billion in 2023 due to reduced selling prices and market softness. Earnings per share (EPS) estimates for 2024 are set at $3.19, compared to $3.50 in the previous year. Analysts anticipate a rebound in subsequent years, with revenue expected to grow at a CAGR of 5% through 2026.

Strategic Initiatives or Partnerships That May Drive Future Growth

The company has actively pursued strategic acquisitions, including the recent acquisition of F&S Tool, which is expected to enhance its capabilities in the healthcare sector. Partnerships aimed at expanding its footprint in emerging markets are also a focus, as these regions present significant growth potential. The company has been exploring collaborations with local manufacturers to increase market penetration in Asia and Latin America.

Competitive Advantages That Position the Company for Growth

Berry Global's strong market position is underpinned by its diversified product portfolio and extensive distribution network. With over 140 manufacturing facilities across 20 countries, the company enjoys operational scale and efficiency that many competitors cannot match. The company’s investment in innovative technologies, such as advanced recycling processes, positions it favorably in a competitive landscape increasingly focused on sustainability.

In summary, the company is leveraging its competitive strengths and strategic initiatives to capitalize on growth opportunities across various sectors. This proactive approach positions it well to navigate market challenges and emerge stronger in the coming years.