Insights
- Berry Global’s Q2 net sales fell by 6 per cent, with resin price pass-throughs impacting 5 per cent. Operating income declined to $208 million, attributed to goodwill write-offs and the timing of resin costs.
- It plans for a tax-free spin-off and merger with Glatfelter Corporation to streamline Berry’s focus on packaging solutions, enhancing long-term growth.
Berry Global’s net sales in the second quarter of fiscal 2024 declined by 6% to $3.1 billion, due to a 5% decrease in resin prices.
Volumes fell 2%, which was consistent with the company’s forecasts, and all four operational segments recorded sequential volume growth during the first quarter.
Operating income was $208 million in the second quarter, a decrease from the previous year. The drop was principally due to goodwill write-offs from recent divestitures in the consumer packaging international division, a negative impact from volume, and an unfavorable impact from a price-cost spread caused by timing of resin costs.
Berry once again delivered outstanding financial results that met our expectations.
Our teams performed admirably, despite a protracted period of slow macroeconomic demand and significant inflation in our major raw material to begin fiscal 2024. We made further structural changes across our businesses, increasing our original cost reduction objective from $140 million to $165 million. We continue to anticipate a $55 million contribution from the program in fiscal 2024, with an additional $25 million recovered in fiscal 2025. Berry’s CEO, Kevin Kwilinski, reiterated the company’s commitment to cautious management and strategic progress.
“All four business segments showed sequential improvement in operational EBITDA margins compared to the previous quarter. Our year-to-date results support our progress toward meeting our fiscal 2024 target, which we reaffirmed today. We remain confident in the fundamental strength of our companies. We continue to forecast low-single-digit volume increase in the second half of this fiscal year, supported by good April volumes. As market volumes improve, we anticipate increased earnings from more effective asset utilization. I am enthused about the significant growth and operational excellence prospects that lie ahead. We’re concentrating on three major initiatives: optimizing our portfolio to accelerate growth and deleveraging, implementing our lean transformation, and driving growth through improved commercial excellence,” Kwilinski explained.
“Our firm’s commitment is in providing long-term value to our stockholders. In 2024, we will continue to focus on increasing shareholder value and prioritizing debt payments. Furthermore, we remain dedicated to returning capital to shareholders through additional share repurchases and dividend payments,” Kwilinski stated.
In February, the company announced a tax-free spin-off and merger of the majority of its HH&S sector, including its global nonwovens and films business, with Glatfelter Corporation (GLT), resulting in a global leader in specialty materials. Following the deal, Berry stockholders are likely to possess around 90% of the newly combined business. The transaction valued the merged business at $3.6 billion in enterprise value.
In April, the company achieved a regulatory milestone with the expiration of the required waiting period under the Hart-Scott-Rodino (HSR) Antitrust Improvements Act. The transaction is subject to further certain customary closing conditions and regulatory approvals including, but not limited to, approval by GLT shareholders, the effective filing of related registration statements, completion of a tax-free spin-off and receipt of certain required anti-trust approvals, the company said in a press release.
“This announcement is the culmination of a comprehensive review to determine the highest value alternative for Berry shareholders.
We believe these two businesses can drive significant value for their respective stakeholders with more focused portfolios, positioning each for greater success. Berry will now become a pure-play leading supplier of innovative, sustainable global packaging solutions and we believe this focus will result in an even more predictable, stable earnings and growth profile for Berry.