Plastic packaging and engineered materials manufacturer Berry Global Group (NYSE:BERY) reported revenue ahead of Wall Street’s expectations in Q3 CY2024, with sales up 2.6% year on year to $3.17 billion. Its non-GAAP profit of $2.27 per share was 1% above analysts’ consensus estimates.
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Berry Global Group (BERY) Q3 CY2024 Highlights:
- Revenue: $3.17 billion vs analyst estimates of $3.13 billion (2.6% year-on-year growth, 1.1% beat)
- Adjusted EPS: $2.27 vs analyst estimates of $2.25 (1% beat)
- Adjusted EBITDA: $546 million vs analyst estimates of $560.2 million (2.5% miss)
- Adjusted EPS guidance for the upcoming financial year 2025 is $6.35 at the midpoint, missing analyst estimates by 22.6%
- Gross Margin (GAAP): 19.3%, in line with the same quarter last year
- Operating Margin: 8.5%, down from 9.8% in the same quarter last year
- Adjusted EBITDA Margin: 17.2%, in line with the same quarter last year
- Free Cash Flow Margin: 32.5%, similar to the same quarter last year
- Market Capitalization: $7.68 billion
Company Overview
Founded as Imperial Plastics, Berry Global (NYSE: BERY) is a manufacturer and marketer of plastic packaging products, including containers, bottles, and prescription packaging.
Industrial Packaging
Industrial packaging companies have built competitive advantages from economies of scale that lead to advantaged purchasing and capital investments that are difficult and expensive to replicate. Recently, eco-friendly packaging and conservation are driving customers preferences and innovation. For example, plastic is not as desirable a material as it once was. Despite being integral to consumer goods ranging from beer to toothpaste to laundry detergent, these companies are still at the whim of the macro, especially consumer health and consumer willingness to spend.
Sales Growth
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one sustains growth for years. Over the last five years, Berry Global Group grew its sales at a mediocre 6.7% compounded annual growth rate. This fell short of our benchmark for the industrials sector and is a rough starting point for our analysis.
Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Berry Global Group’s history shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 8% annually. Berry Global Group isn’t alone in its struggles as the Industrial Packaging industry experienced a cyclical downturn, with many similar businesses seeing lower sales at this time. 
This quarter, Berry Global Group reported modest year-on-year revenue growth of 2.6% but beat Wall Street’s estimates by 1.1%.
Looking ahead, sell-side analysts expect revenue to grow 2.1% over the next 12 months, an improvement versus the last two years. While this projection indicates its newer products and services will catalyze better performance, it is still below the sector average.
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Operating Margin
Berry Global Group has done a decent job managing its cost base over the last five years. The company has produced an average operating margin of 8.8%, higher than the broader industrials sector.
Looking at the trend in its profitability, Berry Global Group’s annual operating margin decreased by 2.4 percentage points over the last five years. Even though its historical margin is high, shareholders will want to see Berry Global Group become more profitable in the future.
This quarter, Berry Global Group generated an operating profit margin of 8.5%, down 1.3 percentage points year on year. Since Berry Global Group’s operating margin decreased more than its gross margin, we can assume it was recently less efficient because expenses such as marketing, R&D, and administrative overhead increased.
Earnings Per Share
Analyzing revenue trends tells us about a company’s historical growth, but the long-term change in its earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.
Berry Global Group’s EPS grew at a spectacular 17.4% compounded annual growth rate over the last five years, higher than its 6.7% annualized revenue growth. However, this alone doesn’t tell us much about its business quality because its operating margin didn’t expand.
We can take a deeper look into Berry Global Group’s earnings to better understand the drivers of its performance. A five-year view shows that Berry Global Group has repurchased its stock, shrinking its share count by 12.6%. This tells us its EPS outperformed its revenue not because of increased operational efficiency but financial engineering, as buybacks boost per share earnings. 
Like with revenue, we analyze EPS over a more recent period because it can give insight into an emerging theme or development for the business.
For Berry Global Group, its two-year annual EPS growth of 1.5% was lower than its five-year trend. We hope its growth can accelerate in the future.In Q3, Berry Global Group reported EPS at $2.27, down from $2.28 in the same quarter last year. Despite falling year on year, this print beat analysts’ estimates by 1%. Over the next 12 months, Wall Street expects Berry Global Group’s full-year EPS of $7.62 to grow by 7.6%.
Key Takeaways from Berry Global Group’s Q3 Results
It was good to see Berry Global Group narrowly top analysts’ revenue expectations this quarter. On the other hand, its full-year EPS guidance missed significantly and its adjusted operating income fell meaningfully short of Wall Street’s estimates. Overall, this was a softer quarter. The stock was down 1% after reporting.
Is Berry Global Group an attractive investment opportunity right now? What happened in the latest quarter matters, but not as much as longer-term business quality and valuation, when deciding whether to invest in this stock. We cover that in our actionable full research report which you can read here, it’s free.
