Berry Global Group, Inc. recently reported its second quarter 2020 results, including overall net sales of almost $3 billion. The 53% increase in net sales compared to the prior year quarter is primarily attributed to acquisition net sales of over $1 billion and a base volume increase of 2%. These increases were partially offset by lower selling prices of $148 million (due to the pass through of lower resin costs) and prior quarter divestiture sales of $24 million.
“While there are unprecedented uncertainties impacting the global economy right now, we are fortunate to have an extremely diverse portfolio of products, both geographically and by end market, which will further demonstrate our proven track record of stability as we progress through the back half of fiscal 2020,” said Tom Salmon, chairman and CEO. “The long-term fundamentals of the business have strengthened and we remain focused on our top three financial objectives of improving our strong balance sheet, organically growing our businesses, and integrating the RPC acquisition as demonstrated in this recently completed quarter.
“I am happy to report we generated March quarterly records for net sales and operating EBITDA, both increasing over 50 percent to $3 billion and $539 million, respectively. Our adjusted earnings per share increased 42 percent to $1.19, and we reported a significant improvement in quarterly free cash flow, bringing our four quarters ended free cash flow to $886 million.
“For the March 2020 quarter, overall volumes were up 2 percent in the aggregate. We estimate the net volume benefit from corona-driven activity in the quarter was 1 percent. Specific detail by segment includes our Health, Hygiene & Specialties segment, which recorded stronger than expected volume growth of 3 percent. We anticipated volume growth inflection within this business in the June quarter and we are very proud of accomplishing this goal a quarter ahead of plan. Our Engineered Materials team delivered volume growth in the quarter of 2 percent, which was in line with our commitment. Our Consumer Packaging North American business had flat volume for the quarter with strength in healthcare, household cleaning and grocery offset by softness in food service and industrial markets. We remain encouraged by the momentum of the division with a continued growing revenue pipeline. And lastly, our Consumer Packaging International business reported improved volumes sequentially, and we continue to efficiently integrate the business with an intense focus on developing our growth pipeline and realizing the cost synergies in our initial forecast of $150 million.
“Our financial profile remains solid as we have a strong liquidity position with over $950 million of cash at the end of the quarter as well as an undrawn $850 million asset-based line of credit representing $1.8 billion of liquidity. Also, we have no financial maintenance covenants or near-term debt maturities.”
The Consumer Packaging-International segment delivered net sales of nearly $1.1 billion in the 2020 second fiscal quarter, compared to $50 million in the prior year quarter, primarily due to the RPC acquisition. Consumer Packaging-North America achieved net sales of $706 million, a 10% percent increase over the 2019 fiscal second quarter’s $639 million. The net sales growth in the Consumer Packaging-North America segment is primarily attributed to acquisition net sales of $123 million related to the U.S. portion of the acquired RPC business, partially offset by lower selling prices of $56 million due to the pass through of lower resin costs.
In the Engineered Materials segment, net sales were $598 million in the 2020 second fiscal quarter, down from $619 million in the 2019 quarter. The net sales decrease in the Engineered Materials segment is primarily attributed to lower selling prices of $39 million due to the pass through on lower resin costs, partially offset by a 2% base volume increase.
Health, Hygiene & Specialties delivered net sales of $576 million in the 2020 quarter, compared to $642 million in the prior year quarter. The net sales decrease in the Health, Hygiene & Specialties segment is primarily attributed to lower selling prices of $52 million due to the pass through of lower resin costs and prior quarter sales of $24 million related to the divested Seal for Life (SFL) business. These decreases are partially offset by a 3% base volume increase.
While certain markets have been impacted by COVID-19 and related restrictions, Berry reports that it is fortunate to have a diversified portfolio with strong, stable end markets. The company’s guidance has assumed COVID-19 related restrictions, such as shelter-in-place orders, continue for the remainder of its fiscal year. Berry believes that approximately 65% of its portfolio is advantaged to neutral, with about 35% disadvantaged related to COVID-19.
The company expects the coronavirus to negatively impact its volumes with a low-single-digit decline, but believes that it will still generate growth in EBITDA for the back half of its fiscal year through cost synergies and improved cost productivity. Berry reports that the net negative impact it is anticipating related to COVID-19 on volumes and earnings are transitory. As the restrictions are lifted, the company anticipates all its segments will return to positive organic growth.
Additional details are available at www.berryglobal.com.