Crown Holdings Slips Despite Upbeat Q1 Results

Crown Holdings, Inc. (NYSE: CCK) has reported better-than-expected results for the first quarter of 2022. Its earnings surpassed the consensus estimate by 10.4%, and sales exceeded the same by 7.8%.

Despite the impressive results, shares of this $14.4-billion company declined 2.3% to close at $116.61 on Monday.

Crown Holdings specializes in manufacturing and selling packaging solutions for use in industrial, food & beverage, corrugated, and other industries. Its headquarters is located in Yardley, PA.

Financial Highlights

In the quarter, Crown Holdings’ adjusted earnings were $2.01 per share, above the consensus estimate of $1.82 per share. Also, the bottom line advanced 9.3% from the year-ago tally of $1.83 per share on the back of healthy sales growth and an 8.6% fall in share count, partially offset by high costs and expenses.

Revenues stood at $3.16 billion, higher than the consensus estimate of $2.93 billion. On a year-over-year basis, the top line grew 23.4% driven by growth across all business segments.

Americas Beverage segment’s sales increased 23.5% year-over-year to $1.23 billion, and European Beverage sales advanced 31.1% to $0.51 billion. Also, Asia Pacific sales at $0.41 billion reflected a 24.8% year-over-year increase. Further, Transit Packaging sales increased 18% to $0.66 billion.

Costs of products sold in the quarter increased 28.5% year-over-year to $2.55 billion while selling and administrative expenses were up 9.8% to $0.16 billion.

The operating margin in the quarter was at 10.9% versus 12.8% in the year-ago quarter. Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) margin were 14.5% down from 17.1% in the year-ago quarter. The adjusted effective tax rate in the quarter stood at 24.6%.

Balance Sheet and Cash Flows

Exiting the first quarter, Crown Holdings had cash and cash equivalents of $389 million, down 33.8% from the year-ago quarter. Also, long-term debts declined 28.2% to $5,654 million.

The adjusted net leverage ratio in the trailing 12 months ended March 2022 was 3.6x.

Net cash used for operations activities decreased 21.8% year-over-year to $301 million. Capital expenditures at $117 million represented a decline of 13.3%. Adjusted free cash outflow in the quarter was $429 million, down 15.4% from the year-ago outflow of $507 million.

Projections

Crown Holdings anticipates adjusted earnings per share to be within the $2.00-$2.10 range in the second quarter of 2022.

For 2022, the company reiterated its adjusted earnings projection at $8.00-$8.20 per share.

Official Comment

Crown Holdings’ President and CEO Timothy J. Donahue said that the company will “commercialize significant new beverage can capacity through the end of 2023” to leverage healthy global demand.

Projects are in progress in Nevada, Brazil, Virginia, and the United Kingdom while production lines are being built in Spain, Mexico, and Cambodia.

Capital Deployment

During the first quarter, Crown Holdings distributed dividends of $27 million and repurchased shares worth $350 million (higher versus $12 million in the year-ago quarter).

Other Important Events

Along with the earnings release, Crown Holdings has communicated that it will expand the production capacity of its Spain-based can (beverage) facility by adding a new aluminum line (high-speed). Commercialization is predicted in 2023.

Additionally, Crown Holdings announced that it has agreed to divest its Kiwiplan business, housed under the Transit Packaging segment. The deal has been valued at $182 million. The company anticipates using the resources from the sale to lower debts, buy back shares, and invest in capital projects.

The divestment is expected to conclude in the second quarter of 2022. Post the completion, Crown Holdings anticipates a gain of $100 million (after-tax).

Based in Cincinnati, OH, Kiwiplan is a specialist in logistics planning, analytical software, and execution systems for manufacturing applications related to corrugated packaging. In 2021, Kiwiplan generated revenues of $39 million.

Stock Rating

A few days ago, Gabe Hajde of Wells Fargo maintained a Buy rating on Crown Holdings while increasing the price target to $152 (30.35% upside potential) from $132.

He opines that “strong operating leverage in the global beverage can operations” and “potential for better-than-expected profitability in Transit Packaging” will help the company outperform in 2022.

Overall, the analysts are unanimously optimistic about Crown Holdings’ growth prospects and have a Strong Buy consensus rating based on 11 Buys and one Hold. Crown Holdings’ average price target of $142.64 suggests upside potential of 22.32%.

Over the past year, shares of Crown Holdings have increased 6.2%.

Bloggers’ Stance

Per TipRanks data, the financial blogger opinions are 100% Bullish on CCK, as compared with the sector average of 80%.

Conclusion

Crown Holdings is well-positioned to benefit from the high demand for packaging materials/solutions across the globe.

As revealed in the Packaging Industry in the United States – Growth, Trends, COVID-19 Impact, and Forecasts (2022 – 2027) report, the U.S. packaging industry is anticipated to increase 2.94% CAGR from 2022 to 2027.

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