Coverage Initiated on Crown Holdings - Analyst Blog

On Mar 26, 2014, we initiated coverage on leading global manufacturer of packaging products for consumer goods, Crown Holdings Inc. CCK. Crown Holdings had a tepid fourth-quarter 2013 with both the top and the bottom line falling short of the respective Zacks Consensus Estimate. However, the company expects better results in 2014 driven by improving business conditions in North America and Europe, capacity expansions, establishment of a new plant in Brazil and prudent cost cutting measures.

Crown Holdings' earnings declined 6% year over year to 48 cents per share in the quarter. The figure also missed the Zacks Consensus Estimate of 50 cents. Net sales, however, rose 1.7% year over year to $2.07 billion on increased global beverage can volumes and the favorable impact of foreign currency translation, partially offset by decreased food can volumes. However, the number lagged the Zacks Consensus Estimate of $2.10 billion.

Crown Holdings expects growth in its beverage can business and solid contributions from the 2013 capacity expansions in Cambodia, China, Malaysia, Thailand and Vietnam. The company is also positioned to benefit from the start-up of a new plant in Teresina, Brazil. Furthermore, Crown Holdings' cost-containment initiatives, primarily in its food, aerosol and specialty packaging businesses, to better align costs with ongoing market conditions in its European operations, is also likely to result in annual cost savings of approximately $25 million.

Crown Holdings' pending acquisition of Mivisa will significantly fortify the company's position in the strategically important European food can market by enhancing its presence in Spain, one of Europe's leading agricultural economies. Mivisa is a leading Spanish manufacturer of two- and three-piece food cans and ends.

On the flip side, the food packaging business is somewhat seasonally slower in the first quarter. Results will thus be affected in this quarter. Crown Holdings' substantial outstanding debt with a total debt to total capitalization ratio of 91.6% as of Dec 31, 2013, is a concern.

In the Asia Pacific division, pricing pressure in China and political tensions in emerging markets of Cambodia, Turkey, Thailand also add to the headwinds. The North America Food segment suffered a setback in the fourth quarter owing to the bankruptcy of a client, which will affect results in 2014 as well.

Other Stocks to Consider

The stock currently carries a Zacks Rank #3 (Hold).  Some better-ranked stocks in the same sector include Ball Corporation BLL, Packaging Corporation of America PKG and Sealed Air Corporation SEE. While Ball Corporation and Packaging Corporation sport a Zacks Rank #1 (Strong Buy), Sealed Air carries a Zacks Rank #2 (Buy).