Crown Holdings Is A Jewel For Your Portfolio

Crown Holdings Rocks Higher On Strong Guidance

Crown Holdings NYSE: CCK is a fundamental play on the beverage industry. It doesn't matter if we're talking about sodas, sports drinks, coffee drinks, tea drinks, beer, or the burgeoning Seltzer industry. They all require aluminum cans and Crown Holdings is working hard to make the cans they need. Based on the company's outlook, the business should be robust for the next several years at least because the capacity for production is running below demand. If there are any doubts that this forecast all you need to do is look at the results from the major soda canners, and all of the food makers to know aluminum cans are in high demand.

"To meet accelerating demand for beverage cans, the world's most recycled and sustainable beverage packaging, the Company is implementing several capacity expansion projects globally, which include both the construction of new plants and the addition of production lines to existing facilities. By the end of 2022, we expect to have 97 billion units of annualized global beverage can capacity, an increase of 28%, or 21 billion units, from the 2019 base,” Said CEO Timothy J Donahue. 

Crown Holdings Moves Up On Mixed Results

Crown Holdings delivered a mixed second quarter in that it missed the consensus estimate by 270 basis points but there are some mitigating factors that are driving the stock higher. The first is that the $2.86 in net consolidated revenue is up 33.6% from last year and fast approaching the pre-COVID level. Revenue strength was driven by solid demand for food cans and a 20% increase in demand for beverage cans. Beverage cans now makeup 75% of income from operations and are expected to continue over-taking food cans in the coming quarter. The second mitigating factor is guidance but we'll get to that in a  bit.

Moving down the report, the results are even better because the company has been able to successfully pass on price increases for its raw material. The company's GAAP EPS of $0.95 missed by $0.58 but largely due to reinvestment in future growth. The company is investing to increase its capacity and that takes capital. The adjusted earnings of $2.14 beat the consensus by $0.36 and are up 61% from last year.

The company's guidance is what really got the market juiced this morning. The company is guiding third-quarter adjusted earnings in a range of $1.90 to $2.00 and for full-year 2021 earnings in the range of $7.30 to $7.40. This assumes that business will remain flat relative to the first half which is well above the consensus for both revenues and earnings. The consensus estimate is for $1.88 in the third quarter and $6.80 for the year so we do expect to see some analyst upgrades come out very soon.

Crown Holdings Is Increasing Its Share Buy Backs

Crown Holdings is a cash-generating machine and is putting that money to good use. Not only is it working to improve the balance sheet by paying down debt it is also buying back shares. The company has bought back $379 million in shares since the beginning of the year and, based on CFO comments during the conference call, they're going to be buying back a lot more shares. The company also pays a dividend if a small one. The company initiated a dividend two quarters ago that's worth about half a percent in yield but the payout ratio is very safe so future increases are certainly a possibility. The company is still carrying a fair amount of debt and focuses on buy backs so we don't really expect to see much movement on the dividend.

The Technical Outlook: Crown Holdings Confirms Support

Price action in Crown Holdings moved sharply higher in the wake of the second-quarter earnings report and reversed losses posted in the previous session. With price action back above the short-term moving average, we see the stock moving higher in the near term and possibly higher in the medium-to-long term. The risks are resistance at the $108 and $112 levels but, if those can be surpassed, the stock should be setting new all-time highs by the end of the year.