Berry Global Group Inc. is considering divestitures as the company sees an opportunity to use the potential proceeds to help fund the growth of other parts of the business.
Berry CEO Tom Salmon on an Aug. 3 conference call to discuss fiscal third-quarter results explained how stock buybacks, organic growth and divestments are linked these days. for the Evansville, Indiana-based company.
“It’s really intentional, the focus on how we’re going to allocate our cash flow from operations is prioritized around, first and foremost, organic growth. And given the fact that we have unique opportunities that we executed quite aggressively against that [stock] repurchase authorization, we will continue to do so. Especially now [price] levels,” he said.
“The third element is clearly divestitures. We have a large and extensive portfolio. potential sales opportunities. “But it’s a specific intention for us to look at the portfolio, to look at opportunities to potentially reprioritize one part of the business in exchange for another.”
Berry sold its rotational molding business to a new company, Rotavia, in June.
Berry also sold Synergy Packaging Pty Ltd. to Pact Group Holdings Ltd. Synergy, based in Tullamarine, Australia, manufactures PET and recycled PET packaging for the beauty, cosmetics, nutraceutical and healthcare markets, Pact said in June.
Berry spent nearly $300 million to buy back 4% of the company’s stock in its most recent quarter, bringing the company’s total for the year to 8% so far.
Berry repurchased about 11 million shares for the company’s current fiscal year for a total cost of $637 million, according to July 2 figures, as of the end of the fiscal third quarter. This includes $286 million in the last quarter.
Berry has approximately $400 million remaining in the company’s current buyout program previously authorized by its board of directors.
The company plans to repurchase at least $700 million of stock by the end of the current fiscal year in a few months.
“From a shareholder value creation perspective, we believe the ability to buy back our own shares at this time is exceptional value. We believe investing in the organic growth of our business is also a huge priority. And if we can leverage divestitures to facilitate that, we will,” Salmon told stock analysts on the call.
Berry shares were trading at $54.82 at one point just as the market opened on Aug. 3. The stock has traded in a range of $50.10 to $74.73 for the past 52 weeks, according to Yahoo! Finance.
The company reported earnings of $207 million, or $1.58 per diluted share, on sales of $3.73 billion for the fiscal third quarter. That compares with earnings of $194 million, or $1.40 per diluted share, on sales of $3.68 billion in the prior fiscal third quarter.
Adjusted net earnings per diluted share were $2.03 for the last quarter, compared to $1.89 for the last third fiscal quarter.
Berry said the growth in net sales was primarily due to higher selling prices of $301 million due to inflation. Organic volume was down 2% in the last quarter, primarily due to “general weakness in industrial markets and moderation in advantaged products related to the easing of the COVID-10 pandemic,” the company said. . On a two-year basis, organic volumes were up 3% overall, Berry said.
Berry provided additional perspective on the divestments while releasing third quarter results ahead of Salmon’s comments on the conference call.
“Over the past few years, we have divested several smaller businesses. As we continue to focus on creating maximum shareholder value and alongside our commitment to generating sustainable organic growth, we will continue to optimize our portfolio and believe we have more opportunities, over the next few years, to further elevate and strengthen our portfolio,” the company said.
“Given our consistent and reliable free cash flow as well as strategic divestment opportunities, we expect to continue to provide capital to our shareholders while reducing our leverage,” Berry officials said. “So far this year, we have completed three divestments for proceeds of approximately $150 million.”