Shares of Berry Plastics Group, Inc. (BERY) reached a new 52-week high of $31.17 on Dec 19, before closing lower at $30.51. The company has delivered a solid one-year return of about 38.7% and a year-to-date return of 28.2%, outperforming the S&P 500. Average volume of shares traded over the last three months is approximately 1298K.
Over the past 52 weeks, Berry Plastics’ share price has ranged from a 52-week low of $21.55 on Apr 15, 2014, to a 52-week high of $31.17 on Dec 19, 2014. Evansville, IN-based Berry Plastics is a manufacturer and distributor of plastic consumer packaging and engineered materials in North America and internationally with a market cap of $3.6 billion. Berry Plastics has long-term estimated earnings per share growth rate of 15.3%.
Growth Drivers
Oil prices going into a free fall and hitting five-year low of $53.60 a barrel on Dec 16, has helped the cause of Berry Plastics. It is a well known fact that resin, a derivative of oil, makes up almost a major portion of the cost of goods sold of the packaging companies. Berry Plastics Group is reportedly one of the largest global purchasers of plastic resins, more than 2 billion pounds annually.
Polypropylene and polyethylene account for majority of the plastic resin purchases. The correlation between polyethylene prices to crude oil is 95%. Polyethylene prices fell 3 cents per pound in November and are expected to fall 4-5 cents per pound in December. Generally, a $10 per barrel decline in oil translates to 4 cents per pound decline in polyethylene prices. This will lead to meaningful margin expansion for Berry Plastics.
Moreover, cheaper oil means lower gasoline prices. This, along with an improving employment scenario, will lead to a positive turn in consumer spending patterns and consequently, packaging demand.
Berry Plastics’ share price has been on a rise since it reported its fourth-quarter results on Nov 21. Adjusted earnings from continuing operations rose 6% year over year to 35 cents per share aided by record sales of $1.31 billion. Sales increased 9% year over year, driven by increased selling prices due to higher material costs along with sales from businesses which were acquired by the company in the last 12 months, partially offset by weak packaged food demand.
For fiscal 2014, Berry Plastics reported adjusted earnings of $1.31, up 26% year over year. Revenues for the year increased 7% year over year to $4.96 billion, primarily on the back of revenues from acquired businesses along with increases in net selling prices due to the pass through of higher raw material costs, somewhat offset by weak demand for packaged food.
Continued focus on driving organic and international growth coupled with cost reduction actions pave the way for Berry Plastics’ success in the future. In Nov 2013, the company had initiated a cost reduction plan designed to deliver approximately $27 million of cost savings and improved equipment utilization. Going forward, the company plans to remain focused on its key strategic initiatives to persistently drive shareholder value.
Other Stocks to Consider
Berry Plastics currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks worth considering in the sector include Sealed Air Corporation (SEE), Crown Holdings Inc. (CCK) and MeadWestvaco Corporation (MWV). While Sealed Air sports a Zacks Rank #1 (Strong Buy), Crown Holdings and MeadWestvaco hold a Zacks Rank #2 (Buy).
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