Specialist
Former director at Berry Global Group
Agenda
- Secular trends across consumer packaging, noting headwinds, tailwinds and consolidation activity
- Pricing and demand environment for Berry Global (NYSE: BERY)
- Supply chain challenges and expectations for relief, highlighting CPG threat in sourcing resin
- Implications of sustainability pressures on plastic diversification efforts
- 2023 outlook and recessionary environment
Questions
1.
What is your overview of the current operating environment for Berry Global and its peers? What 2-3 trends, headwinds or tailwinds should investors monitor?
2.
Where might acquisition be likely? What logical pairings or capabilities might Berry or other peers look to acquire?
3.
We’ve seen about four divestitures from Berry over the past few years. Do you expect continued divestitures and if so, where?
4.
With paper packaging, we often hear cautions of e-commerce demand potentially being oversupplied, and you alluded to something similar within plastics and non-wovens. What was possibly overbuilt during the pandemic, whether over-pledged capacities or unsustainable inventories? What pandemic-induced trends might come back to trend over the next few years, in terms of overbuilding?
5.
How should we assess Europe’s challenges with energy and the potential impact on Berry? The company has significant European exposure of around 35% of its revenue. Aside from certain substrates being more meaningfully constrained like glass and metal, what’s the possible impact to Berry from these energy issues?
6.
If European glass and metal packaging players are particularly constrained by events in Europe, would you expect it to serve as a tailwind for Berry, particularly on the rigid side? Are customers likely to shift towards plastic while these players deal with challenges or likely not move so quickly? Where might we see stronger shifts?
7.
How is demand trending of late, wrapping up the last two years, across the board for Berry? The company noted some Q3 FY22 softness from industrial, consumer and healthcare. How would you describe today’s demand environment?
8.
What consumer packaging trends would you highlight today as we exit the pandemic? What trends have emerged and might be more permanent vs fade away?
9.
Wouldn’t Berry’s scale enable the company to buy cheaper recycled resin than CPGs? How is it that CPGs would then surpass Berry’s scale and existing relationships? If it were USD 0.95 for Berry, how could CPGs get to USD 0.93? How does that work?
10.
How would you describe the relationship between Berry and large CPG players more generally? How has this evolved over the past couple of years, given the pandemic, inflation and price pass-through that we’ve seen? Are there any pain points or opportunities to highlight?
11.
You mentioned the market is particularly tight right now, but why wouldn’t it eventually normalise? Why would today’s developments lead to CPGs getting their own resin and possibly surpassing Berry? Why wouldn’t it ultimately return us to the structure we’re at today, where Berry has the scale advantage and not CPGs?
12.
What are your thoughts on Berry’s further push into healthcare, personal care, hygiene and pharmaceutical markets? How much room is left for the company to grow in these markets? Are there still significant opportunities or any other adjacent market opportunities to highlight?
13.
Do you have any concerns about possible slowdown across the healthcare, personal care or hygiene markets? Was there a pull-forward in those markets? Or are there long-term, sustainable growth drivers for Berry across those segments?
14.
When it comes to inflation, Berry passes through much of the prices you mentioned. Do you believe the company has a continued ability to continue passing prices on without much friction or are there specific areas where it might be challenged? If the latter, where might we start to see volumes fall or customers leaving?
15.
Berry highlighted the typical inflation in its product at around 3% annually, but last year it was 16%. What are some of the lesser appreciated impacts of rapid price appreciation? The first thought would be reduced volumes, which you said probably isn’t the case here, but what might be underappreciated about the rate or size of the increases we’ve seen over the last couple of years?
16.
In terms of the contracts and what’s built in to pass through, what are the differences across materials, energy, labour or resin inflation? Where would cost pass-through be more difficult vs easier?
17.
In which aspect of Berry did you most often hear pushback from customers? Was it usually pricing, availability, the sustainability piece or something else?
18.
How often does pricing lead to customers leaving Berry, or do they often just reduce volumes first? When you had pushback, what was typically the follow-up?
19.
Is Berry well exposed to smaller private labels in the event of a recession? How can the company offset any of the potential lost CPG revenues?
20.
How can Berry better-position itself to win business with smaller private labels? What are competitors’ efforts in this area and where have they succeeded or failed?
21.
How often are customers asking about sustainability or taking action against Berry because of sustainability pressures? Is it truly top of mind and top of wallet for customers today?
22.
What do customers usually want on the sustainability side? Do they just want Berry to hit its stated goals? You said not so much the light-weighting, but do they want new resin sources or bio-resins?
23.
You’re not the first specialist to suggest that plastic players’ ESG or sustainability efforts aren’t where they should be and saying it’s more of a marketing story. How can investors assess a company’s performance in sustainability? What’s the best way to gauge and evaluate Berry’s sustainability and ESG?
24.
If you were in front of Berry’s management team today, what would you ask regarding its sustainability efforts? What pointed questions would you want answers to? What would you like to hear from the management team and what would set off alarm bells?
25.
How do Berry’s sustainability efforts compare to those of peers? Did you often hear of peers making a leap in sustainability and taking business?
26.
What does a shift into other substrates look like for packaging players overall? What are the associated pros and cons of doing so? If a plastic player added fibre, what would that look like? How easy is it to convert lines?
27.
There are a lot of pros there that could be easily thought through, but what about associated challenges? You mentioned a couple of market deals that you’ve seen illuminating this point, but what are the associated challenges and opportunities? Anything else that investors should think through as players pivot themselves, specific to sustainability or adding a fibre line?
28.
What are Berry’s competitive advantages? Are they within demand, the company’s supply or scale? What really separates it from peers?
29.
How significant is Berry’s supply advantage? What pricing cushion does the company have when it approaches customers? Is it typically 10% or 20% cheaper vs peers? Has its advantage been weathered down over time?
30.
How might Berry perform in the event of a recession? What would be your volume expectations and what different levers could the company pull on to control cost? It indicated being able to defer half of CAPEX and today it has a lot more consumer staples exposure.
31.
Do you have any other closing comments about Berry, the supply chain or your expectations for relief?
