By:
Colin Canfield, AIM student at Marquette University
Disclosure:
The AIM Equity Fund currently holds this position. This article was written by
myself, and it expresses my own opinions. I am not receiving compensation for
it and I have no business relationship with any company whose stock is
mentioned in this article.
Summary
• Berry Plastics Group, Inc. (NYSE:BERY) manufactures and distributes
plastic consumer packaging and engineered materials in the United States,
Canada, Mexico, Belgium, France, Australia, Germany, Brazil, Malaysia, India,
China, and the Netherlands.
• BERY’s corporate
strategy indicates a penchant for growth in international markets as well as
other product lines.
• After acquiring AVINTIV
from Blackstone for $2.45B, BERY expanded into a range of specialty materials
including diapers, filters, and medical gowns.
• In addition to their
inorganic expansion, BERY’s organic growth into foreign markets looks to
continue due to the need of hygienic packaging for food and other household
products.
• While trading near its
52-week high, strong market position and C-Suite dedication to shareholder
returns look to make this an attractive hold going forward.
Key
points: Since their acquisition of ANTIV and subsequent debt
offering of $400M, BERY’s stock price has exhibited a volatility in line with
market movements since the start of 2016.
Outside of this quarterly
fluctuation, investors have largely received the acquisition with optimism as
the company’s move away from its core brand signals a belief that their core
food and hygiene competencies will translate well in the medical space.
On the subject of their
core packaging brands, the company’s combined #1 or #2 market position in 75%
of their TTM sales, as well as their corporate partnerships with name brands
such as Starbucks, McDonald’s, P&G, and Ace Hardware, will provide a spring
board for growth going forward. In effect, as these companies move into foreign
markets, BERY will be able to benefit from the benefits of their partner’s
capex while being able to spend little themselves on expansion.
Overall, BERY management
looks to continue working on cutting costs by maintaining these corporate
relationships while pursuing newer, cheaper materials for their goods. While
the risk exists for lower usage rates of plastic containers in the developed
world, the fact remains that emerging markets have no safe alternative to the
sealed products BERY offers and continued growth in those needs will mandate an
increase in demand.
What
has the stock done lately?
Over the course of 2015,
BERY experienced a 6.25% rise in share value, albeit experiencing a great
degree of volatility during that time frame. In addition, the stock has risen
7.08% since the start of 2016, as investor fears over an emerging market
collapse gave way to optimism in the continued rebound of consumer spending.
Going forward, BERY will largely be reliant on the tailwinds provided by
continued job gains in the U.S. and Europe.
Past
Year Performance: Looking at the shares on a YTD basis, the mid
cap stock rose only .52%, compared to gains of 1.4% by the S&P 500, due to
the underlying issues of dollar strength and emerging market volatility.
Source:
FactSet
My
Takeaway
While the ANTIV
acquisition was out of the ordinary for BERY’s C-Suite, it demonstrates a
confidence in the company’s ability to develop their packaging business into a
multi-faceted production line for multiple industries. By positioning
themselves in the healthcare sectors, the company effectively has hedged away
some of the risk associated with consumer spending. It also puts pressure on
management to ensure a successful integration of manufacturing going forward as
a means to not only realize revenue synergies, but cost synergies as well. At
the end of the day, I believe that the their core line packaging business will
continue to succeed in the near term and provide a nice cushion on sales for
management to go out and take more risk in the emerging market sphere, albeit
without letting cost management become a point of downside should these core
sales turn for the worse.
