Crown (CCK 44.93, -0.19, -0.42%) opened more than 4% lower after the
company lowered earnings expectations due to the strong dollar and higher
Crown is a supplier of packaging products to consumer marketing companies around the world.
Second quarter revenue grew 41% to $3.05 bln, more than 2% above estimates. Top line strength was helped by the recent acquisition of transit packaging systems company Signode, an increase in beverage can volumes, the pass through of higher material costs to customers, and $77 mln of favorable currency translation.
Adjusted second quarter EPS grew 32% to $1.55/share, which was in-line with consensus. The company's primary products are steel and aluminum cans. Those raw material costs are likely to go up due to U.S. tariffs, but Crown is able to pass these rising expenses on to its customers.
However, the company guided for third quarter EPS of $1.60-1.70, which was 6% below consensus at the midpoint.
Crown also lowered fiscal 2018 adjusted EPS guidance to $5.15-5.30 from $5.35-5.55, citing continued elevated freight costs in North America and the impact of foreign currency translation from the strength of the U.S. dollar. Crown derives just over one-third of its sales from its Americas Beverage segment.
Chief executive Timothy Donahue said: "Global beverage can volume growth of over 4% was propelled by strong demand in Brazil, North America, and Southeast Asia. This strong operational performance was somewhat offset by macroeconomic headwinds from elevated freight costs in North America and foreign currency losses in Brazil due to the strength of the U.S. dollar. We have revised our full year outlook with the expectation that elevated freight costs and the strength of the dollar will continue for the remainder of the year."
Companies have been complaining about higher freight costs all year, and this probably won't be the last time we hear about it impacting profitability this earnings season. The U.S. economy is strong, and the truck market is very tight. A shortage of drivers means capacity constraints, higher rates for logistics companies, and potential margin pressure for most everyone else.
Crown has a $6 bln market capitalization, but the enterprise value is $15 bln including more than $9 bln in debt after the Signode acquisition closed for almost $4 bln in April. The stock trades at 8x earnings and ~9x EV/EBITDA. Larger packing peer Ball (BLL) has a $13 bln market cap and trades at 16x EPS and 11x EV/EBITDA.
- OUR VIEW
- LEARNING CENTER