Tuesday, May 17, 2016

69th AIM Student Equity Update by Colin Canfield. Berry Plastics Group, Inc. (BERY): “An International Engineered Materials Company That's Ready for Growth”

Berry Plastics Group, Inc. (BERY, $36.39): “Sealing in the Growth Story”
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.
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.