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Crown Holdings Trims Q3 Guidance - Analyst Blog
Crown Holdings, Inc. ( CCK ) reduced its third quarter earnings per share guidance to a range of $1.05 to $1.10 citing weaker-than-expected demand in European food cans and North American beverage can markets. Shares of the packaging company fell 4.5% to $41.50 in after-hours trading on Tuesday.
Crown Holdings is scheduled to release its third quarter earnings results after the closing bell on Oct 16, 2013. Crown Holdings had earlier guided earnings in the range of $1.15 to $1.25 a share. Compared to the prior-year quarter's earnings of $1.00, the updated guidance represents growth of 5% to 10%, but lower than the current Zacks Consensus Estimate of $1.21.
Crown Holdings updated its free cash flow projection for fiscal 2013 to approximately $500 million compared to its previous expectation of "at least $500 million". Crown Holdings also provided an update to its free cash flow usage in the year so far - it has purchased more than 6.9 million shares for $300 million.
Crown Holdings has decided to cut around 300 jobs or approximately 3% of its workforce in its European operations. The headcount reduction will be mainly in the food, aerosol and specialty packaging businesses and is expected to generate annual cost savings of approximately $25 million. In this connection, Crown Holdings will record a pre-tax restructuring charge of approximately $32 million or $29 million after tax with a per share effect of 21 cents in the third quarter.
The lowered guidance does not come as a surprise. Both the North American beverage can and the European food markets have been witnessing declining volumes in recent years due to lower consumer spending. Lower sales unit volumes in North America dragged down results in Crown Holdings' Americas Beverage segment in the first half of fiscal 2013. The segment, which manufactures aluminium beverage cans and ends, and steel crowns (bottle caps), reported revenues of $1.1 billion during the period, up a paltry 1% year over year. Higher sales unit volumes in Brazil was the only saving grace.
The European Food segment manufactures steel and aluminium food cans and ends, and metal vacuum closures. The segment's sales dipped 4% to $806 million in the first half of fiscal 2013 due to lower selling prices, reflecting the pass-through of lower material costs and the impact of pricing pressure.
Crown Holdings continues to grow its businesses in targeted international growth markets. In recent years, the company has expanded its beverage can businesses in Asia, Brazil and Eastern Europe to capitalize on the increased demand driven by increased per capita incomes and consumption, as well as shift in packaging to two-piece aluminium beverage cans from other packages.
In the first half of fiscal 2013, Crown Holdings commercialized second beverage can lines in Putian, China and Bangi, Malaysia and new beverage can plants in Danang, Vietnam and Bangkok, Thailand. In July, the company began production at its new plant in Sihanoukville, Cambodia. Crown Holdings opened a new facility in northern Brazil in the city of Teresina, which is expected to begin commercial shipments in early 2014.
In mature markets, the company need to continuously strive to improve its operations through disciplined pricing, cost control and careful capital allocation. The company needs to monitor capacity, and wherever necessary, shut down plant or reduce headcount to cut down costs to remain profitable.
Philadelphia, Pa.-based, Crown is a leading supplier of packaging products to consumer marketing companies. The company manufactures aluminium beverage cans, food cans, aerosol cans and other packaging products. It competes with the likes of Ball Corporation ( BLL ), Rexam plc ( REXMY ) and Silgan Holdings Inc. ( SLGN ). Crown currently retains a Zacks Rank #3 (Hold).
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