Berry seeks growth from within

Berry Global Group Inc., known as a company that has expanded through acquisitions since its very beginning, is now turning more inward with plans to emphasis organic growth.

The Evansville, Ind.-based plastics packaging and product maker has grown to a $14.5 billion company, and much of that growth has been in recent years thanks to a handful of major transactions.

While money was once spent on a series of megadeals for companies like RPC Group plc, AEP Industries Inc. and Avintiv Inc., the company is now emphasizing a desire to return cash to shareholders and fund opportunities for existing operations to grow on their own.

Berry has made about four dozen acquisitions since its 1967 founding, and the company still will consider so-called bolt-on acquisitions that would strengthen segments of existing operations.

"Berry is in a unique spot right now. There's no large-scale acquisitions that we have to do to create scale. The real focus is on how we ultimately utilize bolt-on acquisitions as a means to accentuate organic growth," CEO Tom Salmon said in a recent conference call to discuss first-quarter fiscal year 2023 earnings.

Salmon, who announced plans to retire at the end of 2023, has continually said he believes shares of Berry are trading lower than their true value. So the company is funneling boatloads of cash to repurchase shares at a perceived discounted price.

While dividends directly pay cash to shareholders — Berry's quarterly dividend right now is 25 cents per share — stock repurchase programs are designed to boost stock value by lowering the total number of outstanding shares in the market. Fewer shares to represent the total value of the firm theoretically increases the value of each share.

The practice, which is extremely popular right now, is not without controversy. Critics of stock repurchases claim the practice concentrates wealth with shareholders at the expense of other company constituents such as customers and employees.

Berry spent $178 million during the fiscal first quarter to repurchase nearly 3 million shares representing 2.4 percent of the total shares outstanding. The company also revealed expectations to spend at least $600 million during the current fiscal year on stock buybacks.

Berry also is telling the stock market that the company wants to limit the amount of debt being carried to a range of between 2.5 and 3.5 times adjusted earnings before interest, taxes, depreciation and amortization (EBITDA). That's a debt ratio lower than the company has carried in recent years, especially after making deals that, at times, temporarily pushed debt levels higher.

"It's a balanced approach. We really believe we can operate the company at a lower leverage range. We can continue our balanced capital allocation between buybacks and dividends. And we continue to invest in organic growth to reaffirm our commitment as growth as a priority for us," Salmon said.

The CEO told stock analysts that despite the focus on using cash to pay down debt, buy back shares and pay dividends, the acquisition market "still presents an opportunity."

"Given the number of acquisitions we've done, we understand where we have scale and it's significant in certain pockets. As such, we feel very comfortable that the right approach for us is targeted bolt-on acquisitions that support our organic growth investments," he said.

Berry, thanks to its sheer size, makes a wide range of products — more than 100,000 different items, according to a November 2022 investor presentation. The company continues to see an opportunity to cull some of those through divestiture.

Salmon said potential sales will provide proceeds to support "our various capital allocation needs that maximize shareholder return."

Berry's decision in 2022 to institute a dividend came as activist investors took a run at the company and, at one point, even called for the potential sale of the firm. Investors Ancora Holdings Group LLC and Eminence Capital LP ultimately signed what was called a "mutual agreement" with the company. Berry's board added three independent members and created a capital allocation committee.

Berry is the largest injection molder in North America, according to Plastics News data, with more than $1.8 billion in sales in the region. It is No. 4 among film and sheet makers with nearly $2.6 billion in sales, No. 11 among blow molders in North America with $634 million in sales and No. 6 in thermoforming with $582 million in sales.

Operating profit for the Berry's fiscal first quarter were $106 million, or 85 cents per diluted sale, on sales of $3.06 billion. That compares with operating profit of $121 million, or 87 cents per diluted share, on sales of $3.57 billion for the first quarter last year.

The sales decline was due to a 6 percent volume decline, lower selling prices of 4 percent, and a 3 percent unfavorable impact due to foreign currency changes, Berry said.

Berry had 125.2 million shares outstanding at the end of the first quarter, down from 138.9 million at the end of the previous first quarter.