Market Overview

Berry Global Group, Inc. Reports Third Quarter Fiscal 2018 Results; Confirms 2018 Fiscal Year Adjusted Free Cash Flow Guidance; Announces Share Repurchase Program

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Berry Global Group, Inc. (NYSE:BERY) today reported results for its
third fiscal 2018 quarter, referred to in the following as the June 2018
quarter.

Highlights

(all comparisons made to the June 2017 quarter)

  • Net income per diluted share up 3 percent to $0.81.
  • Adjusted net income per diluted share up 7 percent to $0.96.
  • Net sales increased 9 percent to $2.1 billion.
  • Operating income increased by 2 percent to $216 million.
  • Operating EBITDA was $374 million, an increase of 3 percent.
  • Announced authorization of new $500 million share repurchase program
  • Reaffirmed adjusted free cash flow guidance of $630 million for fiscal
    year 2018; including cash flow from operations of $987 million
    partially offset by net capital expenditures of $320 million and tax
    receivable payment of $37 million.

Commenting on the quarter, Tom Salmon, Chairman and Chief Executive
Officer of Berry stated, "During the quarter we reported record net
sales of $2.1 billion, growth of 9 percent compared to the prior year
quarter. Additionally, we had quarterly records for operating EBITDA and
adjusted earnings per share of $374 million and $0.96, respectively."

"Specifically by segment, Consumer Packaging reported strong net sales
and organic volume growth of 7 percent and 4 percent, respectively in
the quarter, which was led by our foodservice products driven by
stronger demand at quick service restaurants and convenience stores.
Within our Health, Hygiene & Specialties division we recorded strong
revenue growth of 20 percent as well as an 11 percent improvement in
Operating EBITDA, including the impact of the recently completed
acquisition of Clopay. Inside our Engineered Materials division, we
recorded modest positive organic volume growth in our legacy business
led by our tape and flexible packaging products."

Mr. Salmon continued, "Berry's financial performance and balance sheet
have strengthened considerably over the past several years. We are now
in a position to return cash to shareholders while still maintaining
financial flexibility to execute our strategic plan, further strengthen
our balance sheet, and invest for future growth. I am happy to announce
that Berry's Board of Directors have approved a $500 million share
repurchase program."

June 2018 Quarter Results

Consolidated Overview
      June Quarter        
(in millions of dollars) Current   Prior  

$ Change

  % Change
Net sales $ 2,072   $ 1,906   $ 166   9 %
Operating income 216 212 4 2 %

The net sales increase of $166 million from the prior year quarter was
primarily attributed to acquisition net sales of $125 million, selling
price increases of $37 million due to the pass through of higher resin
prices, a $14 million favorable impact from foreign currency changes
along with 1 percent base volume improvement, partially offset by a core
sales decline of $19 million in legacy AEP locations as a result of
business rationalizations.

The operating income increase of $4 million from the prior year quarter
was primarily attributed to a $12 million decrease in selling, general,
and administrative expense due to synergies and cost reductions,
acquisition operating income of $9 million, a $4 million decrease in
depreciation and amortization expense, a $2 million impact from the base
volume improvement, and a $3 million favorable impact from foreign
currency changes, partially offset by a $20 million negative impact from
under recovery of higher cost of goods sold, and a $7 million earnings
decline from legacy AEP locations.

The performance of the Company's divisions compared with the prior
fiscal year quarter is as follows:

Engineered Materials
      June Quarter        
(in millions of dollars) Current   Prior  

$ Change

  % Change
Net sales $ 687   $ 686   $ 1   - %
Operating income 94 99 (5 ) (5 )%

Engineered Materials' net sales increase from the prior year
quarter was primarily attributed to selling price increases of $8
million due to the pass through of higher resin prices, acquisition net
sales of $7 million, a $2 million favorable impact from foreign currency
changes, and a slight base volume improvement partially offset by a core
sales decline of $19 million in legacy AEP locations as a result of
business rationalizations.

The operating income decrease from the prior year quarter was primarily
attributed to a $7 million earnings decline from legacy AEP locations
and a $5 million increase in business integration expense, partially
offset by a $4 million decrease in depreciation and amortization, and a
$3 million decrease in selling, general, and administrative expense.

Health, Hygiene, and Specialties
      June Quarter        
(in millions of dollars) Current   Prior  

$ Change

  % Change
Net sales $ 726   $ 606   $ 120   20 %
Operating income 62 53 9 17 %

Health, Hygiene, and Specialties' net sales increased $120
million from the prior year quarter primarily attributed to acquisition
net sales of $118 million, selling price increases of $9 million due to
the pass through of higher resin prices, and a $12 million favorable
impact from foreign currency changes, partially offset by a 3 percent
base volume decline.

The operating income increase of $9 million from the prior year quarter
was primarily attributed to acquisition operating income of $8 million,
a $5 million decrease in selling, general, and administrative expenses,
a $5 million decrease in business integration expenses, a $3 million
favorable impact from foreign currency changes, and a $2 million
decrease in depreciation and amortization, partially offset by a $11
million negative impact from under recovery of higher cost of goods
sold, and a $3 million negative impact from the volume decline.

Consumer Packaging
      June Quarter        
(in millions of dollars) Current   Prior  

$ Change

  % Change
Net sales $ 659   $ 614   $ 45   7 %
Operating income 60 60 - - %

Consumer Packaging's net sales increased by $45 million from the
prior year quarter, primarily attributed to a 4 percent base volume
improvement along with selling price increases of $20 million due to the
pass through of higher resin prices.

Operating income was flat compared to the prior year quarter and was
positively impacted by a $4 million improvement in base volumes along
with a $4 million decrease in selling, general and administrative
expense offset by an $7 million negative impact from under recovery of
higher cost of goods sold.

Cash Flow and Capital Structure

Our cash flow from operating activities was $271 million and $952
million for the quarter and last four quarters ended June 2018,
respectively. The Company's adjusted free cash flow for the quarter and
last four quarters ended June 2018 was $185 million and $530 million,
respectively. Our total debt less cash and cash equivalents at the end
of the June 2018 quarter was $5,580 million. Adjusted EBITDA for the
four quarters ended June 30, 2018 was $1,449 million.

$500 Million Share Repurchase Program

Today the Company announced that its Board has unanimously approved a
new $500 million share repurchase program. The new share repurchase
authorization allows for the repurchase of shares, from time to time,
through open market purchases, privately negotiated transactions, Rule
10b5-1 plans, and any other purchase techniques deemed appropriate in
accordance with applicable securities laws. The timing of purchases will
depend on market conditions. The share repurchase program has no
expiration date.

Outlook

Today we are reaffirming our fiscal year 2018 adjusted free cash flow
guidance of $630 million. This includes cash flow from operations of
$987 million partially offset by net capital expenditures of $320
million and the $37 million tax receivable payment that was made in the
Company's first fiscal quarter. This guidance includes a reduction to
capital spending of $20 million along with a total $30 million of lower
cash taxes and other cash costs. The earnings reduction is being driven
by ongoing cost inflation versus the timing lag of passing along these
cost increases. We are extremely proud of our history and predictability
and have a proven track record of generating growth in annual free cash
flow through various economic cycles and market conditions.

Investor Conference Call

The Company will host a conference call today, August 3, 2018, at 10
a.m. Eastern Time to discuss its third quarter fiscal 2018 results. The
telephone number to access the conference call is (800) 305-1078
(domestic), or (703) 639-1173 (international), conference ID 2239647. We
expect the call to last approximately one hour. Interested parties are
invited to listen to a live webcast and view
the accompanying slides
by visiting the Company's
Investor page at www.berryglobal.com.
A replay of the conference call can also be accessed on the Investor
page of the website beginning August 3, 2018, at 1 p.m. Eastern Time, to
August 24, 2018, by calling (855) 859-2056 (domestic), or (404) 537-3406
(international), access code 2239647.

About Berry

Berry Global Group, Inc. (NYSE:BERY), headquartered in Evansville,
Indiana, is committed to its mission of ‘Always Advancing to Protect
What's Important,' and proudly partners with its customers to provide
them with value-added protective solutions. The Company is a leading
global supplier of a broad range of innovative non-woven, flexible, and
rigid products used every day within consumer and industrial end
markets. Berry, a Fortune 500 company, generated $7.1 billion of sales
in fiscal 2017. For additional information, visit Berry's website at www.berryglobal.com.

Non-GAAP Financial Measures

This press release includes non-GAAP financial measures such as
operating EBITDA, adjusted EBITDA, adjusted net income, and adjusted
free cash flow. A reconciliation of these non-GAAP financial measures to
comparable measures determined in accordance with accounting principles
generally accepted in the United States of America (GAAP) is set forth
at the end of this press release.

Forward Looking Statements

Statements in this release that are not historical, including
statements relating to the expected future performance of the Company,
are considered "forward looking" and are presented pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of
1995.
You can identify forward-looking statements because they
contain words such as "believes," "expects," "may," "will," "should,"
"would," "could," "seeks," "approximately," "intends," "plans,"
"estimates," "anticipates," "outlook," or "looking forward," or similar
expressions that relate to our strategy, plans, or intentions.
All
statements we make relating to our estimated and projected earnings,
margins, costs, expenditures, cash flows, growth rates, and financial
results or to our expectations regarding future industry trends are
forward-looking statements.
In addition, we, through our senior
management team, from time to time make forward-looking public
statements concerning our expected future operations and performance and
other developments.
These forward-looking statements are subject
to risks and uncertainties that may change at any time, and, therefore,
our actual results may differ materially from those that we expected.

Important factors that could cause actual results to differ
materially from our expectations, which we refer to as cautionary
statements, are disclosed under "Risk Factors" and elsewhere in our
Annual Report on Form 10-K and subsequent filings with the Securities
and Exchange Commission, including, without limitation, in conjunction
with the forward-looking statements included in this release.
All
forward-looking information and subsequent written and oral
forward-looking statements attributable to us, or to persons acting on
our behalf, are expressly qualified in their entirety by the cautionary
statements.
Some of the factors that we believe could affect our
results include:
(1) risks associated with our substantial
indebtedness and debt service; (2) changes in prices and availability of
resin and other raw materials and our ability to pass on changes in raw
material prices on a timely basis; (3) the impact of potential changes
in interest rates: (4) performance of our business and future operating
results; (5) risks related to our acquisition strategy and integration
of acquired businesses; (6) reliance on unpatented know-how and trade
secrets; (7) increases in the cost of compliance with laws and
regulations, including environmental, safety, and production and product
laws and regulations; (8) risks related to disruptions in the overall
economy and the financial markets may adversely impact our business; (9)
catastrophic loss of one of our key manufacturing facilities, natural
disasters, and other unplanned business interruptions; (10) risks of
competition, including foreign competition, in our existing and future
markets;(11) general business and economic conditions, particularly an
economic downturn; (12) potential failure to realize the intended
benefits from recent acquisitions including, without limitation, the
inability to realize the anticipated cost synergies in the anticipated
amounts or within the contemplated timeframes or cost expectations, the
inability to realize the anticipated revenues, expenses, earnings and
other financial results, and growth and expansion of the company's
operations, and the anticipated tax treatment; (13) risks related to
international business, including foreign currency exchange rate risk
and the risks of compliance with applicable export controls, sanctions,
anti-corruption laws and regulations, (14) the ability of our insurance
to fully cover potential exposures and (15) the other factors discussed
in the under the heading "Risk Factors" in our Annual Report on Form
10-K and subsequent filings with the Securities and Exchange Commission.

We caution you that the foregoing list of important factors may not
contain all of the material factors that are important to you.
Accordingly,
readers should not place undue reliance on those statements.
All
forward-looking statements are based upon information available to us on
the date of this release.
We undertake no obligation to publicly
update or revise any forward-looking statement as a result of new
information, future events or otherwise, except as otherwise required by
law.

   
Berry Global Group, Inc.
Consolidated Statements of Income

(Unaudited)

(in millions of dollars, except per share data amounts)

 
Quarterly Period Ended Three Quarterly Periods Ended

June 30,
2018

 

July 1,
2017

June 30,
2018

 

July 1,
2017

 
Net sales $ 2,072 $ 1,906 $ 5,815 $ 5,214
Costs and expenses:
Cost of goods sold 1,690 1,518 4,733 4,177
Selling, general and administrative 119 128 366 373
Amortization of intangibles 40 40 116 113
Restructuring and impairment charges   7   8     33     18
Operating income 216 212 567 533
 
Other expense (income), net 3 (1 ) 17 18
Interest expense, net   67   68     195     203
Income before income taxes 146 145 355 312
Income tax expense (benefit)   36   38     (8 )   82
Net income $ 110 $ 107   $ 363   $ 230
 
Net income per share:
Basic $ 0.84 $ 0.82 $ 2.76 $ 1.82
Diluted 0.81 0.79 2.67 1.75
 
Outstanding weighted-average shares: (in millions)
Basic 131.7 129.9 131.3 126.6
Diluted 135.4 135.2 135.8 131.4
 
   
Consolidated Statements of Comprehensive Income

(Unaudited)

(in millions of dollars)

 
Quarterly Period Ended Three Quarterly Periods Ended

June 30,
2018

 

July 1,
2017

June 30,
2018

 

July 1,
2017

Net income $ 110 $ 107 $ 363 $ 230
Currency translation (92 ) 24 (109 ) 4
Pension and other postretirement benefits (1 ) 13
Interest rate hedges 6 (1 ) 47 23
Provision for income taxes   (2 )       (13 )   (8 )
Other comprehensive income, net of tax   (88 )   23     (76 )   32  
Comprehensive income $ 22   $ 130   $ 287   $ 262  
 
   
Berry Global Group, Inc.
Condensed Consolidated Balance Sheets

(Unaudited)

(in millions of dollars)

 

June 30,
2018

September 30,
2017

Assets:
Cash and cash equivalents $ 365 $ 306
Accounts receivable, net 932 847
Inventories 955 762
Other current assets 85 89
Property, plant, and equipment, net 2,507 2,366
Goodwill, intangible assets, and other long-term assets   4,198   4,106
Total assets $ 9,042 $ 8,476
 
Liabilities and stockholders' equity:
Current liabilities, excluding debt $ 1,127 $ 1,101
Current and long-term debt 5,945 5,641
Other long-term liabilities 631 719
Stockholders' equity   1,339   1,015
Total liabilities and stockholders' equity $ 9,042 $ 8,476
 
   

Current and Long-Term Debt

 

June 30,
2018

September 30,
2017

(in millions of dollars)
 
Revolving line of credit $ $
Term loans 3,753 3,957
5½% Second priority notes 500 500
6 % Second priority notes 400 400
5⅛ % Second priority notes 700 700
4½ % Second priority notes 500
Debt discounts and deferred fees (46 ) (48 )
Capital leases and other   138     132  
Total debt $ 5,945   $ 5,641  
 
 
Berry Global Group, Inc.
Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in millions of dollars)

 
Three Quarterly Periods Ended

June 30,
2018

 

July 1,
2017

 
Cash flows from operating activities:
Net income $ 363 $ 230
Depreciation 281 270
Amortization of intangibles 116 113
Other non-cash items 87
Working capital   (204 )   (120 )
Net cash from operating activities 556 580
 
Cash flows from investing activities:
Additions to property, plant, and equipment (270 ) (201 )
Proceeds from sale of assets 3 4
Other investing activities, net (1 )
Acquisitions of businesses, net of cash acquired   (474 )   (515 )
Net cash from investing activities (741 ) (713 )
 
Cash flows from financing activities:
Proceeds from long-term borrowings 497 545
Repayments on long-term borrowings (224 ) (427 )
Proceeds from issuance of common stock 17 26
Debt financing costs (1 ) (4 )
Payment of tax receivable agreement   (37 )   (60 )
Net cash from financing activities   252     80  
Effect of exchange rate changes on cash (8 ) 5
Net change in cash (59 ) (48 )
Cash and cash equivalents at beginning of period   306     323  
Cash and cash equivalents at end of period $ 365   $ 275  
 
 
Berry Global Group, Inc.
Condensed Consolidated Financial Statements
Segment Information

(Unaudited)

(in millions of dollars)

 
Quarterly Period Ended June 30, 2018
             

Consumer
Packaging

 

Health, Hygiene
& Specialties

 

Engineered
Materials

  Total
Net sales $ 659 $ 726 $ 687 $ 2,072
 
Operating income $ 60 $ 62 $ 94 $ 216
Depreciation and amortization 59 51 26 136
Restructuring and impairment charges 1 4 2 7
Other non-cash charges (1) 2 2 3 7
Business optimization costs (2)     4   4   8
Operating EBITDA $ 122 $ 123 $ 129 $ 374
 
 
Quarterly Period Ended July 1, 2017
             

Consumer
Packaging

 

Health, Hygiene
& Specialties

 

Engineered
Materials

  Total
Net sales $ 614 $ 606 $ 686 $ 1,906
 
Operating income $ 60 $ 53 $ 99 $ 212
Depreciation and amortization 56 46 30 132
Restructuring and impairment charges 2 4 2 8
Other non-cash charges (1) 3 3 1 7
Business optimization costs (2)     5     5
Operating EBITDA $ 121 $ 111 $ 132 $ 364
 
(1)   Other non-cash charges in the June 2018 quarter primarily includes
$6 million of stock compensation expense and other non-cash charges.
Other non-cash charges in the June 2017 quarter primarily includes
$5 million of stock compensation expense.
(2) Includes integration expenses and other business optimization costs.
 
 
Berry Global Group, Inc.
Condensed Consolidated Financial Statements
Segment Information

(Unaudited)

(in millions of dollars)

 
Three Quarterly Periods Ended June 30, 2018
             

Consumer
Packaging

 

Health, Hygiene
& Specialties

 

Engineered
Materials

  Total
Net sales $ 1,816 $ 2,009 $ 1,990 $ 5,815
 
Operating income $ 151 $ 140 $ 276 $ 567
Depreciation and amortization 169 146 82 397
Restructuring and impairment charges 3 26 4 33
Other non-cash charges (1) 7 11 9 27
Business optimization costs (2)     6   4   10
Operating EBITDA $ 330 $ 329 $ 375 $ 1,034
 
 
Three Quarterly Periods Ended July 1, 2017
             

Consumer
Packaging

 

Health, Hygiene
& Specialties

 

Engineered
Materials

  Total
Net sales $ 1,752 $ 1,773 $ 1,689 $ 5,214
 
Operating income $ 150 $ 164 $ 219 $ 533
Depreciation and amortization 174 136 73 383
Restructuring and impairment charges 6 8 4 18
Other non-cash charges (1) 8 10 10 28
Business optimization costs (2) 10 5 15
Operating EBITDA $ 338 $ 328 $ 311 $ 977
 
(1)   Other non-cash charges for the three quarterly periods ended June
2018 includes $20 million of stock compensation expense, a $3
million inventory step up charge related to the Clopay acquisition
and other non-cash charges. Other non-cash charges for the three
quarterly periods ended June 2017 primarily includes $16 million of
stock compensation expense, a $5 million inventory step-up charge
related to the AEP acquisition along with other non-cash charges.
(2) Includes integration expenses and other business optimization costs.
 
   
Berry Global Group, Inc.
Reconciliation Schedules

(Unaudited)

(in millions of dollars, except per share data)

 
Quarterly Period Ended  

Four Quarters
Ended

June 30,
2018

 

July 1,
2017

 

June 30,
2018

 
Net income $ 110 $ 107 $ 474
Add: other expense (income), net 3 (1

)

12
Add: interest expense, net 67 68 261
Add: income tax (benefit) expense   36     38     19  
Operating income $ 216 $ 212 $ 766
 
Add: non-cash amortization from 2006 private sale 7 8 29
Add: restructuring and impairment 7 8 39
Add: other non-cash charges (1) 7 7 33
Add: business optimization and other expenses (2)   8     5     11  
Adjusted operating income (9) $ 245 $ 240 $ 878
 
Add: depreciation 96 92 378
Add: amortization of intangibles (3)   33     32     128  
Operating EBITDA (9) $ 374   $ 364   $ 1,384
 
Add: acquisitions (4) 32
Add: unrealized cost savings (5)   33  
Adjusted EBITDA (9) $ 1,449  
 
Cash flow from operating activities $ 271 $ 247

 

$

951

Net additions to property, plant, and equipment (86 ) (66 )

 

(333

)
Payment of tax receivable agreement        

 

 

(88

)
Adjusted free cash flow (9) $ 185   $ 181  

 

$

530

 
 
Net income per diluted share $ 0.81 $ 0.79
Other expense (income), net 0.02 (0.01 )
Non-cash amortization from 2006 private sale 0.05 0.06
Restructuring and impairment 0.05 0.06
Other non-cash charges (6) 0.01 0.01
Business optimization costs (2) 0.06 0.04
Income tax impact on items above (7)   (0.04 )   (0.05 )
Adjusted net income per diluted share (9) $ 0.96   $ 0.90  
 

Estimated
Fiscal 2018

 
Cash flow from operating activities

$

987

Additions to property, plant, and equipment

 

(320

)

 

Tax receivable agreement payment (8)

 

(37

)

 

Adjusted free cash flow (9)

$

630

 
(1)   Other non-cash charges in the June 2018 quarter includes $6 million
of stock compensation expense and other non-cash charges. Other
non-cash charges in the June 2017 quarter primarily includes $5
million of stock compensation expense along with other non-cash
charges. For the four quarters ended June 2018 other non-cash
charges primarily includes $23 million of stock compensation
expense, a $3 million inventory step up charge related to the Clopay
acquisition and other non-cash charges.
(2) Includes integration expenses and other business optimization costs.
(3) Amortization excludes non-cash amortization from the 2006 private
sale of $7 million and $8 million for the June 2018 and June 2017
quarters, respectively.
(4) Represents Operating EBITDA for the Clopay acquisition for the
period of July 1, 2017 - February 6, 2018.
(5) Primarily represents unrealized cost savings related to acquisitions.
(6) Other non-cash charges excludes $6 million and $5 million of stock
compensation expense for the quarters ended June 30, 2018 and July
1, 2017, respectively.
(7) Income tax effects on adjusted net income is calculated using 25
percent for the June 2018 quarter and 32 percent for the June 2017
quarter. The rates used for each represents the Company's expected
effective tax rate for each respective period.
(8) Includes $37 million tax receivable agreement payment made in the
December 2017 quarter.
(9) Supplemental financial measures that are not required by, or
presented in accordance with, accounting principles generally
accepted in the United States ("GAAP"). These non-GAAP financial
measures should not be considered as alternatives to operating or
net income or cash flows from operating activities, in each case
determined in accordance with GAAP. These non-GAAP financial
measures may be calculated differently by other companies, including
other companies in our industry, limiting their usefulness as
comparative measures.
 

 

 

We define "adjusted free cash flow" as cash flow from operating
activities less additions to property, plant, and equipment and
payments under the tax receivable agreement. We believe adjusted
free cash flow is useful to an investor in evaluating our
liquidity because adjusted free cash flow and similar measures are
widely used by investors, securities analysts, and other
interested parties in our industry to measure a company's
liquidity. We also believe adjusted cash flow is useful to an
investor in evaluating our liquidity as it can assist in assessing
a company's ability to fund its growth through its generation of
cash.

 

 

 

Adjusted EBITDA is used by our lenders for debt covenant
compliance purposes. We also use Adjusted EBITDA and Operating
EBITDA among other measures to evaluate management performance and
in determining performance-based compensation. Adjusted EBITDA and
Operating EBITDA and similar measures are widely used by
investors, securities analysts, and other interested parties in
our industry to measure a company's performance. We also believe
EBITDA and adjusted net income are useful to an investor in
evaluating our performance without regard to revenue and expense
recognition, which can vary depending upon accounting methods.

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