Shares of Crown Holdings, Inc. (CCK) dropped around 1.9% and closed at $40.32 on Feb 3, 2014, after it reported a 6% year over year decline in its fourth-quarter 2013 adjusted earnings to 48 cents per share. The results also missed the Zacks Consensus Estimate of 50 cents.
On a reported basis, earnings came in at 36 cents per share, compared with 21 cents in the prior-year quarter. Both quarters’ earnings include restructuring charges.
Operational Update
Net sales rose 1.7% year over year to $2.07 billion. The year-over-year rise was mainly attributable to an increase in global beverage can volumes and favorable impact of foreign currency translation, partially offset by decreased food can volumes. However the results marginally fell short of the Zacks Consensus Estimate of $2.10 billion.
Cost of products sold increased 3% year over year to $1.76 billion. Gross profit fell 2.5% year over year to $274 million mainly due to lower volumes and reduced production activity across food can operations in North America and Europe. Gross margin contracted 50 basis points to 13.2% in the quarter.
Selling, general and administrative expenses increased 12.8% year over year to $106 million. Adjusted operating income declined 10% to $168 million from the year-ago quarter. Consequently, operating margin decreased 100 basis points to 8%.
Segment Performance
Net sales from the Americas Beverage segment were $572 million, compared to $573 million in the year-ago quarter. Segment operating profit rose 1.2% to $83 million from $82 million in the year-ago quarter.
The North America Food segment reported revenues of $193 million, down 5.3% from $204 million in the year-ago quarter. Operating earnings also decreased 27.5% year over year to $21 million.
The European Beverage segment sales went up 5% year over year to $387 million. Consequently, operating income grew 6.9% year over year to $46 million.
In the European Food segment, sales declined to $402 million from $410 million in the year-ago quarter. Segment operating income plunged 65.5% year over year to $10 million.
Revenues in the Asia Pacific segment increased 20.5% over year year to $312 million. However, operating profit fell 5.7% to $33 million from the year-ago quarter.
Financial Update
Crown ended 2013 with cash and cash equivalents of $689 million, up from $350 million in 2012. Cash from operations for fiscal 2013 was $885 million versus $621 million in prior the year.
Total debt of the company increased to $3.5 billion as of Dec 31, 2013 from $3.4 billion as of Dec 31, 2012. Debt-to-capitalization ratio was at a high 92% as of Dec 31, 2013, though it decreased from 96% as of Dec 31, 2012. Free cash flow in 2013 was $641 million versus $345 million in 2012. During full-year 2013, Crown Holdings repurchased 6.9 million shares for $300 million.
Fiscal 2013 Performance
For full-year 2013, Crown reported record adjusted earnings per share of $2.99, up 6.4% from $2.81 in 2012. The results, however, lagged behind the Zacks Consensus Estimate of $3.09. Including one-time items, EPS was $2.30 compared with $3.77 in the prior year.
Revenues for the year 2013 increased 2.2% year over year to $8.65 billion, but missed the Zacks Consensus Estimate of $8.68 billion.
Outlook
Crown Holdings expects that general business conditions in North America and Europe will improve in 2014. Beverage can growth and solid contributions from the 2013 capacity expansions in Cambodia, China, Malaysia, Thailand and Vietnam will also aid Crown’s increase in profitability. The company will also benefit from the start-up of a new plant in Teresina, Brazil.
In Oct 2013, Crown Holdings made an announcement to buy Mivisa, a leading Spanish manufacturer of two-and three-piece food cans and ends. Crown will buy Mivisa from Blackstone, N+1 Mercapital, and Mivisa management for $1.63 billion. Per the company, the transaction will be accretive to earnings in 2014.
In addition, continuing focus on cost reduction, productivity improvement and cash flow generation will help in increasing shareholders’ wealth. However, a high debt-to-capitalization ratio and general market uncertainties remain concerns.
Philadelphia-based Crown is a leading supplier of packaging products to consumer marketing companies. The company manufactures aluminum beverage cans, food cans, aerosol cans and other packaging products.
Crown Holdings currently retains a Zacks Rank #3 (Hold). Other better-ranked players in the same industry are Ball Corporation (BLL), Resolute Forest Products Inc. (RFP) and UPM-Kymmene Oyj (UPMKY), all of which hold a Zacks Rank #1 (Strong Buy).
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