On Feb 4, 2015, we issued an updated research report on Crown Holdings Inc. (CCK), a leading global manufacturer of packaging products for consumer goods.
Crown Holdings reported third-quarter 2014 earnings of $1.36 per share, which grew 31% year over year driven by strong demand for beverage cans in developing markets, notably Turkey and Southeast Asia. Moreover, the company increased its full-year earnings guidance to the $3.37—$3.43 range from $3.20—$3.35, while initiating fourth-quarter earnings guidance of 41—51 cents.
The ongoing decline in CSD (Carbonated Soft Drink) consumption in the United States, owing to growing health and wellness concerns, is affecting the results of the America Beverage segment. Moreover, in the Asia Pacific division, the ongoing pricing issue is expected to persist in 2015. This is due to excess capacity in China and intense competition from domestic can producers.
Moreover, elevated aluminium premiums in Europe are expected to be a headwind in the fourth quarter and will continue to weigh on earnings in 2015. The weakening of euro and Brazilian real could also raise concerns for the fourth quarter and 2015. Crown Holdings also has substantial outstanding indebtedness, with a debt to total capitalization ratio as high at 91%.
Nevertheless, we believe Crown Holdings will continue to benefit from the Mivisa and EMPAQUE acquisitions. The Mivisa acquisition is a strategic fit for Crown Holdings and will significantly enhance the company’s position in the strategically important European food can segment by substantially increasing its presence in Spain, one of Europe's leading agricultural economies. The acquisition is expected to be accretive to earnings in 2014.
The EMPAQUE acquisition will help Crown Holdings to expand its presence in the growing Mexican market and to fortify its global beverage packaging business, catapulting it to the position of the second largest beverage can producer in North America. It is expected to contribute between 15 cents to 20 cents per share to Crown's 2015 earnings before synergies. Globally, Crown Holdings will produce more than 62 billion beverage cans, accounting for 20% of total beverage cans.
In recent years, Crown Holdings has expanded its beverage can business in Asia, Brazil and Eastern Europe to meet increased demand driven by rise in per capita income and consumption, as well as a shift in packaging mix to two-piece aluminum beverage cans from other packages.
Crown Holdings has also embarked on a cost-reduction initiative to better align costs with ongoing market conditions pertaining to its European operations, primarily in its food, aerosol and specialty packaging businesses. The plan is expected to result in the reduction of around 235 employees, when completed in 2014. This will lead to annual cost savings of approximately $25 million.
Other Stocks to Consider
Crown Holdings currently has a Zacks Rank #3 (Hold). However, some better-ranked stocks in the packaging sector include Berry Plastics Group, Inc. (BERY), Bemis Company Inc (BMS) and Sealed Air Corp. (SEE). While Bemis and Berry Plastics sport a Zacks Rank #1 (Strong Buy), Sealed Air carries a Zacks Rank #2 (Buy).
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