Berry Global Group, Inc. Reports Fourth Quarter and Fiscal Year 2018 Results; Provides 2019 Fiscal Year Guidance

Berry Global Group, Inc. (NYSE:BERY) today reported its fourth quarter and fiscal year 2018 results, referred to in the following as the September 2018 quarter and fiscal year 2018.

Fourth Quarter Highlights (all comparisons made to the September 2017 quarter)

  • Net sales increased 9 percent to $2.1 billion
  • Organic sales growth, excluding currency and acquisition effects, up 3 percent
  • Operating income down 3 percent to $194 million
  • Operating EBITDA down 1 percent to $346 million
  • Net income per diluted share up 22 percent to $0.99
  • Adjusted net income per diluted share up 3 percent to $0.90
  • Cash flow from operations increased by 13 percent to $448 million
  • Adjusted free cash flow increased by 37 percent to $382 million
  • Completed the strategic acquisition of Laddawn, Inc.

Fiscal Year Highlights (all comparisons made to fiscal year 2017)

  • Net sales increased 11 percent to an annual record of $7.9 billion
  • Organic sales, excluding currency and acquisition effects, increased 1 percent
  • Operating income up 4 percent to $761 million
  • Operating EBITDA up 4 percent to $1,380 million
  • Net income per diluted share up 43 percent to $3.67
  • Adjusted net income per diluted share up 10 percent to $3.37
  • Cash flow from operations increased by 3 percent to $1,004 million
  • Adjusted free cash flow increased by 5 percent to $634 million
  • Expect fiscal year 2019 cash flow from operations of $1.04 billion and adjusted free cash flow of $670 million

Commenting on the quarter, Tom Salmon, Chairman and Chief Executive Officer of Berry stated, Net sales increased 9 percent to $2.1 billion, compared to the prior year quarter. Additionally, we generated quarterly and annual records for free cash flow of $382 million and $634 million, respectively.”

Specifically by segment, our Consumer Packaging division delivered strong organic sales growth of 8 percent in the quarter, which was led by our foodservice products. These results were driven by stronger demand at quick service restaurants and convenience stores along with stronger overall end market demand for certain products. Within our Health, Hygiene & Specialties division we recorded strong quarterly sales growth of 21 percent as well as a 16 percent improvement in Operating EBITDA, including the impact of the recently completed acquisition of Clopay. Inside our Engineered Materials division, we successfully completed the acquisition of Laddawn, which enhances our ability to service the faster growing small and medium size customer base.

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Mr. Salmon continued, As we disclosed last quarter, our Board of Directors approved a new $500 million share repurchase program. In our fiscal 2019 first quarter, we expect to continue to execute on our share repurchase plan given the current attractive market conditions and valuation.

September 2018 Quarter Results

Consolidated Overview
September Quarter
(in millions of dollars)CurrentPrior$ Change% Change
Net sales$2,054$1,881$1739 %
Operating income194199(5)(3)%

The net sales increase of $173 million from the prior year quarter was primarily attributed to acquisition net sales of 7 percent and organic sales growth of 3 percent partially offset by a small negative impact from foreign currency changes.

The operating income decrease of $5 million from the prior year quarter was primarily attributed to a $33 million negative impact from under recovery of higher cost of goods sold partially offset by a $10 million decrease in selling, general, and administrative expense, due to synergies and cost reductions; and acquisition operating income of $8 million, a $7 million decrease in depreciation and amortization expense, and a $5 million decrease in business integration expenses.

Fiscal Year 2018 Results

Consolidated Overview
Fiscal Year
(in millions of dollars)20182017$ Change% Change
Net sales$7,869$7,095$77411%
Operating income761732294%

The net sales growth of $774 million is primarily attributed to acquisition net sales of $624 million, organic sales growth of $92 million, and a $58 million favorable impact from foreign currency changes. The organic sales growth is primarily attributed to increased selling prices of $191 million due to the pass through of higher cost of goods sold, partially offset by a modest 1% volume decline.

The operating income increase of $29 million is primarily attributed to acquisition operating income of $62 million, a $46 million decrease in selling, general and administrative expense related to synergies and lower incentive compensation, a $26 million decrease in depreciation and amortization, and an $11 million favorable impact from foreign currency changes. These improvements were partially offset by a $96 million negative impact from under recovery of higher cost of goods sold, and a $12 million impact from the lower volumes.

Engineered Materials
Fiscal Year
(in millions of dollars)20182017$ Change% Change
Net sales$2,672$2,375$ 29713%
Operating income3683165216%

Net sales in the Engineered Materials segment grew by $297 million primarily attributed to acquisition net sales of $319 million, partially offset by an organic sales decline of $29 million. The organic sales decline is primarily related to increased selling prices of $54 million, being more than offset by a 3% volume decline as a result of business rationalizations within legacy AEP locations.

The operating income increase of $52 million is primarily attributed to acquisition operating income of $40 million, an $18 million decrease in depreciation and amortization expense, and an $8 million decrease in selling, general and administrative expenses. These improvements were partially offset by an $11 million negative impact from the lower volumes.

Health, Hygiene, & Specialties
Fiscal Year
(in millions of dollars)20182017$ Change% Change
Net sales$2,734$2,369$36515%
Operating income202216(14)(6)%

Net sales in the Health, Hygiene & Specialties segment grew by $365 million primarily attributed to acquisition net sales of $305 million, a $52 million favorable impact from foreign currency changes, and organic sales growth of $9 million. The organic sales growth is primarily attributed to increased selling prices of $56 million due to the pass through of higher cost of goods sold, partially offset by a 2% volume decline.

The operating income decrease of $14 million is primarily attributed to a $53 million negative impact from under recovery of higher cost of goods sold, a $7 million impact from lower volumes, and a $12 million increase in business integration. These decreases were partially offset by a $22 million decrease in selling, general and administrative expenses, acquisition operating income of $22 million from the Clopay acquisition, and a $10 million favorable impact from foreign currency changes.

Consumer Packaging
Fiscal Year
(in millions of dollars)20182017$ Change% Change
Net sales$2,463$2,351$1125 %
Operating income191200(9)(5)%

Net sales in the Consumer Packaging segment grew by $112 million primarily attributed to organic sales growth. The organic sales growth is primarily attributed to increased selling prices of $81 million due to the pass through of higher cost of goods sold and a 1% volume improvement.

The operating income decrease of $9 million is primarily attributed to a $40 million negative impact from under recovery of higher cost of goods sold, partially offset by a $16 million decrease in selling, general and administrative expenses, a $6 million favorable impact from the volume improvement, and a $6 million decrease in business integration expense.

Cash Flow and Capital Structure

Our cash flow from operating activities was $448 million for the September 2018 quarter and $1,004 million for fiscal year 2018. The Companys adjusted free cash flow for the September 2018 quarter was $382 million, a 37 percent increase compared to the prior year quarter of $278 million. The Companys adjusted free cash flow for fiscal year 2018 was a fiscal year record of $634 million.

Our total debt less cash and cash equivalents at the end of the September 2018 quarter was $5,463 million. Adjusted EBITDA for the four quarters ended September 29, 2018 was $1,449 million.

Share Repurchase Program

In the June 2018 quarter, the Company announced that its Board had unanimously approved a new $500 million share repurchase program. The new share repurchase authorization allows for the repurchase of shares, from time to time, through open market purchases, privately negotiated transactions, Rule 10b5-1 plans, and any other purchase techniques deemed appropriate in accordance with applicable securities laws. The timing and amount of repurchases will depend on market conditions. The share repurchase program has no expiration date. The Company repurchased $35 million of shares outstanding during the September 2018 quarter. In our fiscal 2019 first quarter, we expect to continue to execute on our share repurchase plan given attractive market conditions and compelling valuations.

Outlook

We anticipate our fiscal year 2019 cash flow from operations and adjusted free cash flow to be $1.04 billion and $670 million, respectively. Our estimate assumes constant currency rates from the end of fiscal 2018 and a normal inflationary environment on our costs. Additionally, our fiscal 2019 capital spending and cash interest costs are forecasted to be $350 million and $270 million, respectively. Within our adjusted free cash flow guidance, we are also assuming cash taxes to be $165 million in fiscal 2019, including a $16 million payment in the first fiscal quarter under the Companys tax receivable agreement, along with working capital and other cash uses of $45 million.

Investor Conference Call

The Company will host a conference call today, November 15, 2018, at 10 a.m. Eastern Time to discuss its fourth quarter and fiscal year 2018 results. The telephone number to access the conference call is (800) 305-1078 (domestic), or (703) 639-1173 (international), conference ID 2388109. We expect the call to last approximately one hour. Interested parties are invited to listen to a live webcast and view the accompanying slides by visiting the Companys Investor page at www.berryglobal.com. A replay of the conference call can also be accessed on the Investor page of the website beginning November 15, 2018, at 1 p.m. Eastern Time, to December 6, 2018, by calling (855) 859-2056 (domestic), or (404) 537-3406 (international), access code 2388109.

About Berry

Berry Global Group, Inc. (NYSE:BERY), headquartered in Evansville, Indiana, is committed to its mission of ˜Always Advancing to Protect Whats Important, and proudly partners with its customers to provide them with value-added protective solutions. The Company is a leading global supplier of a broad range of innovative non-woven, flexible, and rigid products used every day within consumer and industrial end markets. Berry, a Fortune 500 company, generated $7.9 billion of sales in fiscal 2018. For additional information, visit Berrys website at www.berryglobal.com.

Non-GAAP Financial Measures

This press release includes non-GAAP financial measures such as operating EBITDA, adjusted EBITDA, adjusted net income, adjusted free cash flow, and organic sales growth. A reconciliation of these non-GAAP financial measures to comparable measures determined in accordance with accounting principles generally accepted in the United States of America (GAAP) is set forth at the end of this press release.

Forward Looking Statements

Statements in this release that are not historical, including statements relating to the expected future performance of the Company, are considered forward looking and are presented pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. You can identify forward-looking statements because they contain words such as believes, expects, may, will, should, would, could, seeks, approximately, intends, plans, estimates, anticipates, outlook, or looking forward, or similar expressions that relate to our strategy, plans, or intentions. All statements we make relating to our estimated and projected earnings, margins, costs, expenditures, cash flows, growth rates, and financial results or to our expectations regarding future industry trends are forward-looking statements. In addition, we, through our senior management team, from time to time make forward-looking public statements concerning our expected future operations and performance and other developments. These forward-looking statements are subject to risks and uncertainties that may change at any time, and, therefore, our actual results may differ materially from those that we expected.

Important factors that could cause actual results to differ materially from our expectations, which we refer to as cautionary statements, are disclosed under Risk Factors and elsewhere in our Annual Report on Form 10-K and subsequent filings with the Securities and Exchange Commission, including, without limitation, in conjunction with the forward-looking statements included in this release. All forward-looking information and subsequent written and oral forward-looking statements attributable to us, or to persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements. Some of the factors that we believe could affect our results include: (1) risks associated with our substantial indebtedness and debt service; (2) changes in prices and availability of resin and other raw materials and our ability to pass on changes in raw material prices on a timely basis; (3) the impact of potential changes in interest rates: (4) performance of our business and future operating results; (5) risks related to our acquisition strategy and integration of acquired businesses; (6) reliance on unpatented know-how and trade secrets; (7) increases in the cost of compliance with laws and regulations, including environmental, safety, and production and product laws and regulations; (8) risks related to disruptions in the overall economy and the financial markets may adversely impact our business; (9) catastrophic loss of one of our key manufacturing facilities, natural disasters, and other unplanned business interruptions; (10) risks of competition, including foreign competition, in our existing and future markets;(11) general business and economic conditions, particularly an economic downturn; (12) potential failure to realize the intended benefits from recent acquisitions including, without limitation, the inability to realize the anticipated cost synergies in the anticipated amounts or within the contemplated timeframes or cost expectations, the inability to realize the anticipated revenues, expenses, earnings and other financial results, and growth and expansion of the companys operations, and the anticipated tax treatment; (13) risks related to international business, including foreign currency exchange rate risk and the risks of compliance with applicable export controls, sanctions, anti-corruption laws and regulations, (14) the ability of our insurance to fully cover potential exposures and (15) the other factors discussed under the heading Risk Factors in our Annual Report on Form 10-K and subsequent filings with the Securities and Exchange Commission. We caution you that the foregoing list of important factors may not contain all of the material factors that are important to you. Accordingly, readers should not place undue reliance on those statements. All forward-looking statements are based upon information available to us on the date of this release. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

Berry Global Group, Inc. Consolidated Statements of Income (Unaudited) (in millions of dollars, except per share data amounts)

Quarterly Period EndedFiscal Year Ended

September 29, 2018

September 30, 2017

September 29, 2018

September 30, 2017

Net sales$2,054$1,881$7,869$7,095
Costs and expenses:
Cost of goods sold1,7051,5146,4385,691
Selling, general and administrative114121480494
Amortization of intangibles3841154154
Restructuring and impairment charges363624
Operating income194199761732
Other expense (income), net8(4)2514
Interest expense, net6466259269
Income before income taxes122137477449
Income tax expense (benefit)(11)27(19)109
Net income$133$110$496$340
Net income per share:
Basic$1.01$0.84$3.77$2.66
Diluted0.990.813.672.56
Outstanding weighted-average shares: (in millions)
Basic131.7130.6131.4127.6
Diluted134.9135.7135.2132.6

Consolidated Statements of Comprehensive Income (Unaudited) (in millions of dollars)

Quarterly Period EndedFiscal Year Ended

September 29, 2018

September 30, 2017

September 29, 2018

September 30, 2017

Net income$133$110$496$340
Currency translation(18)30(127)34
Pension and other postretirement benefits425338
Interest rate hedges254928
Provision for income taxes(12)(13)(20)
Other comprehensive income, net of tax(12)48(88)80
Comprehensive income$121$158$408$420

Berry Global Group, Inc. Condensed Consolidated Balance Sheets (Unaudited) (in millions of dollars)

September 29, 2018

September 30, 2017

Assets:
Cash and cash equivalents$381$306
Accounts receivable, net941847
Inventories887762
Other current assets7689
Property, plant, and equipment, net2,4882,366
Goodwill, intangible assets, and other long-term assets4,3584,106
Total assets$9,131$8,476
Liabilities and stockholders’ equity:
Current liabilities, excluding debt$1,199$1,101
Current and long-term debt5,8445,641
Other long-term liabilities654719
Stockholders equity1,4341,015
Total liabilities and stockholders’ equity$9,131$8,476

Current and Long-Term Debt

September 29, 2018

September 30, 2017

(in millions of dollars)
Revolving line of credit$$
Term loans3,6523,957
5½% Second priority notes500500
6 % Second priority notes400400
5…› % Second priority notes700700
4½ % Second priority notes500
Debt discounts and deferred fees(43)(48)
Capital leases and other135132
Total debt$5,844$5,641

Berry Global Group, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited) (in millions of dollars)

Fiscal Year Ended

September 29, 2018

September 30, 2017

Cash flows from operating activities:
Net income$496$340
Depreciation384367
Amortization of intangibles154154
Other, net(13)59
Working capital(17)55
Net cash from operating activities1,004975
Cash flows from investing activities:
Additions to property, plant, and equipment(336)(269)
Proceeds from sale of assets36
Other investing activities, net4
Acquisitions of businesses, net of cash acquired(702)(515)
Net cash from investing activities(1,035)(774)
Cash flows from financing activities:
Proceeds from long-term borrowings498495
Repayments on long-term borrowings(335)(636)
Proceeds from issuance of common stock2331
Repurchase of common stock(33)
Debt financing costs(3)(5)
Payment of tax receivable agreement(37)(111)
Net cash from financing activities113(226)
Effect of exchange rate changes on cash(7)8
Net change in cash75(17)
Cash and cash equivalents at beginning of period306323
Cash and cash equivalents at end of period$381$306

Berry Global Group, Inc. Condensed Consolidated Financial Statements Segment Information (Unaudited) (in millions of dollars)

Quarterly Period Ended September 29, 2018

Consumer Packaging

Health, Hygiene & Specialties

Engineered Materials

Total
Net sales$648$724$682$2,054
Operating income$40$62$92$194
Depreciation and amortization605427141
Restructuring and impairment charges213
Other non-cash charges (1)11
Business optimization costs (2)1517
Operating EBITDA$101$123$122$346
Quarterly Period Ended September 30, 2017

Consumer Packaging

Health, Hygiene & Specialties

Engineered Materials

Total
Net sales$599$596$686$1,881
Operating income$50$52$97$199
Depreciation and amortization574833138
Restructuring and impairment charges2316
Other non-cash charges (1)2226
Business optimization costs (2)11
Operating EBITDA$111$106$133$350
(1)Other non-cash charges primarily includes $4 million of stock compensation expense and other non-cash charges for both the September 2018 and 2017 quarters, respectively.
(2)Includes integration expenses and other business optimization costs.

Berry Global Group, Inc. Condensed Consolidated Financial Statements Segment Information (Unaudited) (in millions of dollars)

Fiscal Year Ended September 29, 2018

Consumer Packaging

Health, Hygiene & Specialties

Engineered Materials

Total
Net sales$2,463$2,734$2,672$7,869
Operating income$191$202$368$761
Depreciation and amortization229200109538
Restructuring and impairment charges328536
Other non-cash charges (1)7111028
Business optimization costs (2)111517
Operating EBITDA$431$452$497$1,380
Fiscal Year Ended September 30, 2017

Consumer Packaging

Health, Hygiene & Specialties

Engineered Materials

Total
Net sales$2,351$2,369$2,375$7,095
Operating income$200$216$316$732
Depreciation and amortization231184106521
Restructuring and impairment charges811524
Other non-cash charges (1)10121234
Business optimization costs (2)11516
Operating EBITDA$449$434$444$1,327
(1)Other non-cash charges for the fiscal year ended September 29, 2018 includes $23 million of stock compensation expense, a $5 million inventory step up charge related to acquisitions and other non-cash charges. Other non-cash charges for the fiscal year ended September 30, 2017 primarily includes $20 million of stock compensation expense, a $5 million inventory step-up charge related to acquisitions along with other non-cash charges.
(2)Includes integration expenses and other business optimization costs.

Berry Global Group, Inc. Reconciliation Schedules (Unaudited) (in millions of dollars, except per share data)

Quarterly Period Ended

Fiscal Year Ended

September 29, 2018

September 30, 2017

September 29, 2018

September 30, 2017

Net income$133$110$496$340
Add: other expense (income), net8(4)2514
Add: interest expense, net6466259269
Add: income tax (benefit) expense(11)27(19)109
Operating income$194$199$761$732
Add: non-cash amortization from 2006 private sale782832
Add: restructuring and impairment363624
Add: other non-cash charges (1)162834
Add: business optimization and other expenses (2)711716
Adjusted operating income (10)$212$220$870$838
Add: depreciation10397384367
Add: amortization of intangibles (3)3133126122
Operating EBITDA (10)$346$350$1,380$1,327
Cash flow from operating activities$448$395$1,004$975
Net additions to property, plant, and equipment(66)(66)(333)(263)
Payment of tax receivable agreement(51)(37)(111)
Adjusted free cash flow (10)$382$278$634$601
Net income per diluted share$0.99$0.81$3.67$2.56
Other expense (income), net0.06(0.03)0.180.11
Non-cash amortization from 2006 private sale0.050.060.210.24
Restructuring and impairment0.020.040.270.18
Other non-cash charges (4)(0.02)0.010.040.10
Business optimization costs (2)0.050.010.130.12
Tax reform adjustments, net (5)(0.21)(0.92)
Income tax impact on items above (6)(0.04)(0.03)(0.21)(0.24)
Adjusted net income per diluted share (10)$0.90$0.87$3.37$3.07

Fiscal Year Ended 2018

Operating EBITDA (10)$1,380
Add: acquisitions (7)41
Add: unrealized cost savings (8)28
Adjusted EBITDA (10)$1,449

Estimated Fiscal 2019

Cash flow from operating activities$1,036
Additions to property, plant, and equipment(350)
Tax receivable agreement payment (9)(16)
Adjusted free cash flow (10)$670
(1)Other non-cash charges primarily includes $4 million of stock compensation expense and other non-cash charges for both the September 2018 and 2017 quarters, respectively. For the fiscal year ended September 29, 2018 other non-cash charges primarily includes $23 million of stock compensation expense, a $5 million inventory step up charge related to acquisitions and other non-cash charges. For the fiscal year ended September 30, 2017 other non-cash charges primarily includes $20 million of stock compensation expense, a $5 million inventory step up charge related to acquisitions and other non-cash charges.
(2)Includes integration expenses and other business optimization costs.
(3)Amortization excludes non-cash amortization from the 2006 private sale of $7 million and $8 million for the September 2018 and September 2017 quarters, respectively; along with $28 million and $32 million for the fiscal years ended 2018 and 2017, respectively.
(4)Other non-cash charges excludes $4 million of stock compensation expense for the quarters ended September 29, 2018 and September 30, 2017, respectively. Additionally, other non-cash charges excludes $23 million and $20 million of stock compensation expense for the four quarters ended September 29, 2018 and September 30, 2017, respectively.
(5)Includes $124 million of net adjustments for valuing and transition tax related to the passed tax reform legislation.
(6)Income tax effects on adjusted net income is calculated using 25 percent for the September 2018 quarter and fiscal year and 32 percent for the September 2017 quarter and fiscal year. The rates used represents the Companys expected effective tax rate for each respective period.
(7)Represents Operating EBITDA for the Clopay acquisition for the period of September 30, 2017 – February 6, 2018 and the Laddawn, Inc. acquisition for the period of September 30, 2017 “ August 24, 2018.
(8)Primarily represents unrealized cost savings related to acquisitions.
(9)Includes $16 million tax receivable agreement paid in our December 2018 quarter.
(10)

Supplemental financial measures that are not required by, or presented in accordance with, accounting principles generally accepted in the United States (GAAP). These non-GAAP financial measures should not be considered as alternatives to operating or net income or cash flows from operating activities, in each case determined in accordance with GAAP. Organic sales growth excludes the impact of currency translation effects and acquisitions. These non-GAAP financial measures may be calculated differently by other companies, including other companies in our industry, limiting their usefulness as comparative measures. Berrys management believes these non-GAAP financial measures are useful to our investors because they allow for a better period-over-period comparison of operating results by removing the impact of items that, in management’s view, do not reflect our core operating performance.

We define adjusted free cash flow as cash flow from operating activities less additions to property, plant, and equipment and payments under the tax receivable agreement. We believe adjusted free cash flow is useful to an investor in evaluating our liquidity because adjusted free cash flow and similar measures are widely used by investors, securities analysts, and other interested parties in our industry to measure a companys liquidity. We also believe adjusted cash flow is useful to an investor in evaluating our liquidity as it can assist in assessing a companys ability to fund its growth through its generation of cash.

Adjusted EBITDA is used by our lenders for debt covenant compliance purposes. We also use Adjusted EBITDA and Operating EBITDA among other measures to evaluate management performance and in determining performance-based compensation. Adjusted EBITDA and Operating EBITDA and similar measures are widely used by investors, securities analysts, and other interested parties in our industry to measure a companys performance. We also believe EBITDA and adjusted net income are useful to an investor in evaluating our performance without regard to revenue and expense recognition, which can vary depending upon accounting methods.

Berry Global Group, Inc. Reconciliation Schedules (Unaudited)

Quarterly Period Ended September 29, 2018

Consumer Packaging

Health, Hygiene & Specialties

Engineered Materials

Total
Organic sales growth8%3%(2%)3%
Acquisition19%2%7%
Currency effects(1%)(1%)
Total Reported Net Sales8%21%%9%
Fiscal Year 2018

Consumer Packaging

Health, Hygiene & Specialties

Engineered Materials

Total
Organic sales growth5%%(1%)1%
Acquisition13%14%9%
Currency effects2%%1%
Total Reported Net Sales5%15%13%11%

Organic sales growth = volume + price/mix

Berry Global Group, Inc.
Dustin Stilwell, 1+812-306-2964
[email protected]