Berry Plastics Group Inc., with the company's largest acquisition ever now complete, is putting a focus on working down debt during this year.
The $2.45 billion purchase of Avintiv Inc. last year expanded Berry Plastics deeply into the flexible nonwoven products market. But it also pushed the company's debt higher.
When the deal was struck, Berry Plastics had a net debt to adjusted earnings before interest, taxes, depreciation and amortization ratio of 5.2 times on a pro forma basis.
But the company likes that number to be in the 3- to 4-times range, typically.
“Our top priority is debt reduction and the deleveraging of our balance sheet,” CEO Jon Rich said on a recent earnings conference call.
Since the company acquired announced the acquisition, Berry Plastics has reduced its debt ratio down to 4.9 times, the CEO said.
Berry Plastics already has pushed $150 million in free cash flow to early debt retirement since the beginning of the current fiscal year in October.
“Our plan for fiscal 2016 is to achieve a half turn or more reduction in leverage through free cash flow and earnings growth. We have a track record of generating substantial free cash flow and expect to do so again this year,” Rich said.
Berry Plastics debt stood at $5.87 billion as of Jan. 2, the company said.
The Avintiv deal, the CEO said, was a “transformational acquisition,” and the company subsequently reorganized its operating structure into three units – health, hygiene and specialties; consumer packaging; and engineered materials.
The Avintiv business is in the HH&S division, which represents 35 percent of company sales. Product applications include diapers, wipes, wraps and agricultural products.
Consumer packaging, including containers, cups, bottles and closures, represents 45 percent of sales. And engineered materials – think tapes, bags, trash can liners and films, account for the other 30 percent of the company's business.
Berry Plastics earned $4 million, or 3 cents per diluted share, on sales of $1.61 billion for the fiscal year first quarter ended Jan. 2. That compares with earnings of $13 million, or 11 cents per diluted share, on sales of $1.22 billion for the previous fiscal first quarter. Sales were much higher thanks to the Avintiv acquisition.