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Berry Global's (BERY) Unit Issues Senior Notes Worth $3B

Zacks Equity Research

Berry Global Group, Inc. BERY yesterday announced about an offering of $2 billion worth of first-priority senior secured notes and $1 billion worth of second-priority senior secured notes. It is worth noting here that these offerings will be carried out by Berry Global Escrow Corporation — an indirect, wholly-owned subsidiary of Berry Global.

Per the company, the first-priority senior secured notes are due to mature in 2026 while the second-priority notes will mature in 2027. The proceeds of these offerings will likely be used by the company to fund the acquisition of RPC Group Plc as well as to refinance debts. Also, Berry Global might use the proceeds for repaying its debts and fund certain miscellaneous expenses.

Notably, in March 2019, the company expressed the desire to acquire all shares of RPC Group Plc for approximately $6.5 billion (the cash consideration includes the refinancing of net debts of RPC). The acquisition, likely to be completed in the third quarter of 2019, will help in creating a global giant in plastic packaging and recycled solutions. The buyout is anticipated to create annual cost synergies of $150 million for Berry Global.

Berry Global’s High Debt Profile

The company has a highly leveraged balance sheet. Its long-term debt increased roughly 0.5% (CAGR) in the last three fiscal years (2016-2018). At the end of second-quarter fiscal 2019 (ended Mar 30, 2019), its current and long-term debts were at $5,727 million. Net interest expenses were $66 million.

Although the current notes offering will help in repaying debts, we believe that it will also add to the company’s existing debt balance. Unwarranted rise in debt levels, in turn, can inflate its financial obligations and hurt profitability. Notably, the company continues to predict interest expenses of approximately $270 million for fiscal 2019 (ending September 2019), higher than $259 million recorded in fiscal 2018 (ended September 2018).

Zacks Rank & Stocks to Consider

With a market capitalization of $6.5 billion, Berry Global presently carries a Zacks Rank #5 (Strong Sell). The company currently suffers from high costs and expenses, rising debt levels, and headwinds arising from geopolitical issues and unfavorable movements in foreign currencies.

Over the past month, Berry Global’s shares have moved down 15.2% compared with 1.2% decline recorded by the industry.

Furthermore, three downward revisions in earnings estimates have been recorded for Berry Global in the past 30 days. Currently, the company’s earnings estimates are pegged at $3.64 for fiscal 2019 and $3.81 for fiscal 2020 (ending September 2020), reflecting declines of 5.5% and 5.5% from respective 30-day-ago numbers.

Berry Global Group, Inc. Price and Consensus

Berry Global Group, Inc. Price and Consensus

Berry Global Group, Inc. price-consensus-chart | Berry Global Group, Inc. Quote

Some better-ranked stocks in the Zacks Industrial Products sector are Roper Technologies, Inc. ROP, AptarGroup, Inc. ATR and Sonoco Products Company SON. While Roper currently sports a Zacks Rank #1 (Strong Buy), AptarGroup and Sonoco Products carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here .

In the past 60 days, earnings estimates for these three companies improved for the current year. Further, earnings surprise for the last quarter was a positive 8.43% for Roper, 8.27% for AptarGroup and 5.74% for Sonoco Products.

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