Berry Plastics Shares Details of Financial Performance and Plastics Industry

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Researched by Industrial Info Resources (Sugar Land, Texas)--After transitioning as a public company last month, which some investors had a healthy dose of skepticism about, Berry Plastics Group Incorporated (NYSE:BERY) (Evansville, Indiana) revealed fourth quarter and full year financial results in a conference call on November 26, 2012. (A transcription of the conference call can be found at www.seekingalpha.com.) Berry Plastics went public as a way to reduce debt. The proceeds from the initial public offering "went to retire the company's 11% senior subordinated notes," James Kratochvil, Berry's chief financial officer, said.

Jonathan Rich, the Berry's chairman and CEO, explained that "improved product mix, aggressive cost reduction initiative, and lower cost for raw materials" that were coupled with higher prices in some of the company's product segments, allowed the company to have record earnings. For the full year, net sales rose 4% to $4,766 million since 2011. Part of the reason this increase occurred is because of the company's acquisitions as well as lower raw material costs; however, the increase was partially offset by the company's decision to exit some low margin businesses. And this caused the company to have 6% less volumes year-to-date compared to 2011. Rich believes that the benefits of the company's decision to let go of some low margin businesses outweigh the cons. He believes that these changes caused an 18% year-over-year increase in the company's operating earnings before interest, taxes and amortization (EBITA).

The company had $212 million in EBITDA in the fourth quarter and $803 million for the full year. Operating EBITA rose 13% in the fourth quarter compared to the same period in 2011. Rich informed also informed audience participants that "adjusted net income per share for the September 2012 quarter was $0.34 compared to a net loss per share of $0.04 for the same period in 2011." Kratochvil informed audience participants that in September 2012, the company had a positive adjusted free cash flow of $159 million compared to $91 million the same time last year. Berry Plastics had $87 million in net cash at the end of September 2012.

Despite the positive news, the company still experienced some losses. For example, the company's net sales fell 2% to $1.20 billion from $1.23 billion in the fourth quarter. "The reduced year-over-year sales were attributable to the pass through of lower raw material cost versus last year, intentional withdrawal from chronically low margin business and weaker demand as a result of ongoing sluggish economic activity," Rich explained.

As part of the North American Industrial Database, Industrial Info is tracking a number of plants and projects owned by Berry Plastics over the years. Industrial Info has detailed information on Berry Plastics plants located all over the U.S., including: Woodstock, Illinois, Phoenix, Arizona, Dunkink, New York and Baltimore, Maryland.

About the Packaging Industry as a Whole

According to Rich, the packaging industry (which includes plastics, metal, glass and paper substrates) creates more than $600 billion in turnover each year, and this is equally distributed geographically between Europe, Asia and the Americas. He explained that the average demand for packaging volumes typically grows at the gross domestic (GDP) rates of individual countries. Growth rates for aggregate packaging volumes in the U.S. correlate "most closely" to the nondurable goods component of the U.S. GDP, Rich explained. According to Rich, demand in other industries tends to be more predictable and less cyclical. "This has certainly been through since the economic recession of 2009 and the recovery of the past two years," Rich said. He also mentioned that the plastics substrate has the highest demand out of all the substrates in the packaging industry. "Plastic packaging has over the past several years generally growing at 2 to 3 times the rate of glass, metal or paper packaging," Rich said. He went on to say that plastic packaging has many benefits. For example, it requires significantly less energy throughout its lifecycle compared to other substrates. Rich also noted that "the expansion of post-consumer recycling is reducing the environmental impact of packages and providing a re-usable raw material string."

Rich stated that in the U.S., the overall GDP has been growing 1.5% to 2% each quarter. The non-durable goods component of GDP, however, has only grown approximately half that rate. "This situation is somewhat unusual from a historical perspective that has been principally caused by weak demand for packaged food products especially grocery," Rich said. He also mentioned that food prices have risen "substantially" in the past year and half, and this led to "a nearly 3% overall decline in demand for packaged food products." Despite the declines in packaged food products demand, there has been an increase in demand in other segments that Berry Plastic's serves. Healthcare, personal care, and restaurants have been growing in line or above the average U.S. GDP rates, Rich said. In 2013, Rich is under the impression that U.S. GDP will grow by about 2%. He also thinks that the non-durable goods portion will return "to more normal historical relationships that overall GDP and could provide some list especially in the latter half of 2013."

Raw Material Costs and Resin Prices

Rich also spoke about raw material cost and resin demand. He said that raw material cost for the company's principle inputs (polyethylene and polypropylene) have typically been lower in 2012 compared to 2011. He thinks this trend is linked to the overall global soft demand for resins. He went on to say that the lower oil prices and increased production from low-cost natural gas inputs have started to impact ethylene-related derivatives. Rich said that the company's "crystal ball to resin prices" has never been as clear as he would like, but resin demand remains consistent with "rent past quarters." For the upcoming quarters, Rich thinks that resin prices will be flat to slightly down.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.