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Why Is Crown Holdings (CCK) Down 8.9% Since its Last Earnings Report?

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A month has gone by since the last earnings report for Crown Holdings, Inc.CCK . Shares have lost about 8.9% in that time frame.

Will the recent negative trend continue leading up to its next earnings release, or is CCK due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Crown Holdings Q4 Earnings Meet, Sales Top Estimates

Crown Holdings delivered fourth-quarter 2017 adjusted earnings per share of 79 cents, which came in line with the Zacks Consensus Estimate and recorded an improvement of 11.3% on a year-over-year basis. Earnings came close to the higher end of management's guidance range of 75-80 cents.

On a reported basis, the company recorded a loss of 67 cents per share, against earnings of 47 cents reported in the prior-year quarter.

Net sales in the quarter rose 12.7% year over year to $2,168 million. Revenues also beat the Zacks Consensus Estimate of $2,034 million. Year-over-year sales growth was driven by improved global beverage can volumes, food and aerosol can volumes, and the pass through of higher material costs to customers. It was also aided by favorable impact of currency translation. Beverage can volumes grew 4.5% year over year in the reported quarter.

Cost and Margins

Cost of products sold increased 14.7% year over year to $1,758 million. On a year-over-year basis, gross profit improved 5% to $410 million, while gross margin contracted 140 basis points (bps) to 18.9% in the quarter.

Selling and administrative expenses flared up 6.5% year over year to $99 million. Adjusted segment operating income increased 3.8% year over year to $247 million in the quarter. Operating margin declined 100 bps to 14.5% from 11.4% recorded in the year-ago quarter.

Segment Performance

Net sales from the Americas Beverage segment were $762 million, up 1.7% from $749 million in the year-ago quarter. Segment operating profit inched up 0.8% to $129 million from $128 million in the year-earlier quarter.

The North-America Food segment's sales increased 0.6% year over year to $165 million. Operating earnings remained flat year over year at $10 million.

The European Beverage segment's sales increased 5.5% year over year to $324 million. Operating income rose 8.6% year over year to $38 million.

Revenues in the European Food segment were up 9.8% year over year to $458 million. Segment operating profit went up 15.6% to $37 million from $32 million recorded in the year-ago quarter.

Revenues in the Asia-Pacific segment improved 2.3% year over year to $312 million. Operating profit went up to $44 million from $43 million reported in the prior-year quarter.

2017 Performance

Crown Holdings reported adjusted earnings per share of $4.03 in 2017, up 2.5% from $3.93 per share recorded in the prior year. Earnings came in line with the Zacks Consensus Estimate. Earnings touched the higher end of management's guidance range of $3.98-$4.03.

Revenues grew 5% year over year to $8,698 million from $8,284 million recorded in 2016. In addition, revenues beat the Zacks Consensus Estimate of $8,564 million.

Financial Update

Crown Holdings had cash and cash equivalents of $424 million at the end of the fourth quarter compared with $559 million at the end of the prior-year quarter. Cash flow from operations came in at $760 million in 2017 compared to $930 million recorded last year.

Adjusted free cash flow was $297 million in the reported quarter compared with $325 million in the prior-year quarter. As of the quarter end, Crown Holdings' total debt increased to $5,343 million compared with $4,911 million as of the year-ago quarter end.

During 2017, the company purchased 6.2 million shares of its common stock for $339 million.

On Jan 3, the company issued a Worker Adjustment and Retraining Notification (WARN) and announced its intention to close the beverage can-manufacturing facility in Lawrence, MA. With around 100 employees, the facility consists of two production lines with a capacity of 1.6 billion 12-ounce beverage cans per year.

Signode Acquisition

In December 2017, Crown Holdings entered into an agreement to acquire Signode Industrial Group, a leading global provider of transit packaging systems and solutions from The Carlyle Group, for $3.91 billion. This acquisition will add a portfolio of premier transit and protective packaging franchises to Crown Holdings' metal packaging business and significantly boost its free cash flow.

In January 2018, Crown Holdings issued unsecured notes through its subsidiaries to fund the Signode transaction. The notes include €335 million principal amount of 2.25% senior unsecured notes due 2023, and €500 million principal amount of 2.875% senior unsecured notes and $875 million principal amount of 4.75% senior unsecured notes due 2026. The company also entered into agreements with lenders for €750 million and $1.25 billion of Term Loan B borrowings to be drawn at the closing of the acquisition.

Impact of New Accounting Pronouncements

Crown Holdings stated that three recently-issued accounting standards are expected to have an impact on the company's reporting and disclosure in 2018. Under the new guidance, only service cost component of pension and postretirement benefit costs will be presented with other compensation costs. The remaining components will be reported outside income from operations. The expected impact of this guidance on the company's 2018 results will be a reduction in income from operations of around $67 million. However, it will not affect net income or earnings per share. Moreover, the prior-period results will be restated to reflect the new guidance.

The company also expects that the new guidance related to the classification of certain cash receipts and payments associated with its receivables securitization programs will result in a change to the classification of these payments on the statement of cash flows. However, it will not impact cash available for debt payment or other uses.

Further, the new revenue recognition rules will accelerate the timing of revenue recognized on its certain products. The new rules are not expected to materially impact the amount of revenues recognized over full-year 2018 compared to the previous accounting guidance, but could have an impact on the amounts recognized on a quarterly basis.

Outlook

Crown Holdings initiated adjusted diluted earnings per share guidance range of $4.30-$4.50 for full-year 2018. It also projects first-quarter 2018 earnings per share in the range of 75-85 cents.

How Have Estimates Been Moving Since Then?

In the past month , investors have witnessed a downward trend in fresh estimates. There has been one revision lower for the current quarter.

Crown Holdings, Inc. Price and Consensus

Crown Holdings, Inc. Price and Consensus | Crown Holdings, Inc. Quote

VGM Scores

At this time, CCK has an average Growth Score of C, a grade with the same score on the momentum front. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is more suitable for value investors than those looking for growth and momentum.

Outlook

Estimates have been broadly trending downward for the stock and the magnitude of this revision indicates a downward shift. Notably, CCK has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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