Crown Holdings Beats on Earnings - Analyst Blog

Shares of Crown Holdings, Inc. CCK nudged up 1.28% and closed at $46.53 on Apr 16, 2014, after it reported a 14% year-over-year rise in its first-quarter 2014 adjusted earnings to 57 cents per share, surpassing the Zacks Consensus Estimate of 51 cents.

On a reported basis, earnings came in at 17 cents per share, compared with 28 cents in the prior-year quarter. In the reported quarter, Crown Holdings recorded a charge of $7 million ($5 million net of tax) in cost of products sold, related to hedge ineffectiveness caused mainly by volatility in the metal premium component of aluminum prices. Both the quarters' earnings include restructuring charges and the prior-year quarter included a loss from early extinguishment of debt.

Operational Update

Net sales edged up 1% year over year to $1.99 billion, but fell short of the Zacks Consensus Estimate of $2.02 billion. The year-over-year rise was attributable to a 6% increase in global beverage can volumes particularly due to strong demand in Asia Pacific and Brazil. Global food can shipments, however, declined 3% in the quarter.

Cost of products sold increased 1% year over year to $1.66 billion. Gross profit increased 2% year over year to an adjusted $304 million, mainly due to the increase in beverage can sales. Gross margin expanded 10 basis points to 15.3% in the quarter.

Selling, general and administrative expenses remained flat at $104 million. Adjusted operating profit increased 3% to $200 million from the year-ago quarter and operating margin increased 10 basis points to 10%.

Segment Performance

Net sales from the Americas Beverage segment were $549 million, compared with $552 million in the year-ago quarter. Segment operating profit rose 4% to $79 million from $76 million in the year-ago quarter.

The North America Food segment reported revenues of $179 million, down 9% from $197 million in the year-ago quarter. Operating earnings also decreased 6% year over year to $29 million.

The European Beverage segment sales went up 5% year over year to $388 million. Consequently, operating income grew 16% year over year to $59 million.

In the European Food segment, sales declined 1% to $373 million from $376 million in the year-ago quarter. Segment operating income plunged 19% year over year to $26 million.

Revenues in the Asia Pacific segment increased 8% year over year to $298 million. However, operating profit rose 3% to $34 million from the year-ago quarter.

Financial Update

Crown ended the quarter with cash and cash equivalents of $267 million, down from $304 million at the prior-year quarter-end. Cash used in operations in the first quarter of 2014 was $495 million versus $432 million in the prior-year quarter. Total debt of the company remained flat at $4.1 billion as of Mar 31, 2014 compared with Mar 31, 2013.

Our Take

Crown Holdings will benefit from improving general business conditions in North America and Europe in 2014. Beverage can growth and solid contributions from the 2013 capacity expansions in Cambodia, China, Malaysia, Thailand and Vietnam will aid in increase of Crown's profitability as well. The company will benefit from the new plant in Teresina, Brazil as well, which will start commercial production this month by fulfilling the increased demand for beverage cans in Brazil. The upcoming soccer World Cup in Brazil will be a catalyst.

Crown Holdings has received the approval of the European Commission for its pending acquisition of Mivisa, a leading Spanish manufacturer of two- and three-piece food cans and ends. We anticipate that the transaction will close on Apr 23, 2014. The acquisition will significantly fortify the company's position in the strategically important European food can market by increasing its presence in Spain, one of Europe's leading agricultural economies. Per the company, the transaction will be accretive to earnings in 2014.

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 #2 (Buy). Some other stocks worth considering in the sector include Neenah Paper, Inc. NP, Berry Plastics Group, Inc. BERY and KapStone Paper and Packaging Corporation KS. While Neenah Paper sports a Zacks Rank #1 (Strong Buy), Berry Plastics Group and KapStone Paper and Packaging Corporation hold the same rank as Crown Holdings.