We expect Berry Plastics Group, Inc. (BERY) to beat expectations when it reports fourth-quarter fiscal 2015 results on Jan 30 before the market opens. In the last quarter, it posted a negative surprise of 5.41%. Let’s see how things are shaping up for this announcement.
Why a Likely Positive Surprise?
Our proven model shows that Berry Plastics is likely to beat earnings estimates this quarter. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. Berry Plastics has the right combination of the two key components.
Zacks ESP: Berry Plastics currently has an Earnings ESP of +3.85%. This is because the Most Accurate estimate stands at 27 cents, while the Zacks Consensus Estimate is pegged at 26 cents.
Zacks Rank: Berry Plastics carries a Zacks Rank #2 (Buy). Note that stocks with a Zacks Rank #1, 2 or 3 have a significantly higher chance of beating earnings estimates. Conversely, Sell-rated stocks (Rank #4 and 5) should never be considered going into an earnings announcement.
Berry Plastics’ Zacks Rank #2 and ESP of +3.85% make us reasonably confident of an earnings beat.
What is Driving Better-than-Expected Earnings?
Oil prices going into a free fall 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 is reportedly one of the largest global purchasers of plastic resins, more than 2 billion pounds annually.
Polypropylene and polyethylene account for the majority of plastic resin purchases. The correlation between polyethylene prices to crude oil is 95%. Generally, a $10 per barrel decline in oil translates to a 4 cent 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.
Continued focus on driving organic and international growth coupled with cost reduction actions will 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 that Warrant a Look
Here are some other companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:
Noranda Aluminum Holding Corp. (NOR) has an earnings ESP of +30.00% and a Zacks Rank #1(Strong Buy). It is expected to report results on Feb 18.
Century Aluminum Co. (CENX) has an earnings ESP of +7.69% and a Zacks Rank #2. It is expected to report results on Feb 19.
Zebra Technologies Corp. (ZBRA) has an Earnings ESP of +65.63% and holds a Zacks Rank #3 (Hold).
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