Materials
Reports across-the-board misses and guides for lower-than-expected 2023 earnings - inventory growth continued unabated and Gradient remains concerned that management’s attempts to curtail production to right-size supply and demand may be too late to alleviate near-term gross margin pressure. Receivables continued to increase on an absolute and relative basis, suggesting the company faces an elevated risk of revenue shortfalls. A material relative decline in accrued employee costs, along with lower depreciation expense stemming from a recent accounting exchange, may have temporarily prevented a more material operating margin contraction.
Edition: 155
- 03 March, 2023
Materials
The can-maker’s equity is expected to come under further pressure - the main concerns cited in Gradient’s 13-page report include: 1) Volume and profitability headwinds. 2) Inventory growth higher than targeted and has outpaced forward sales estimates. 3) Growth in receivables suggests a pull-forward of revenue. 4) Accrued compensation fell to a five-year low relative to adjusted operating expenses. 5) Despite the recent share-price correction, BALL still appears expensive. Other active shorts Gradient have initiated coverage on this year include ADT, Cerence, Lamb Weston, Owen’s & Minor and RingCentral.
Edition: 140
- 22 July, 2022
Six companies at risk of inventory-related 1Q'22 misses
The current macro environment is bringing to the forefront the importance of the different impacts that the various inventory accounting methods have on company results during times of inflation. BTN have noticed several companies whose inventory levels have declined which may have shielded them from the full impact of rising costs. Meanwhile, their revenues have benefitted from aggressive price hikes. They believe this may be setting the stage for earnings disappointments in 1Q and 2Q 2022. Companies highlighted General Mills, The Coca-Cola Co, The Hershey Co, Post Holdings, Ball Corp, and Mondelez International.
Edition: 131
- 18 March, 2022
Blue states’ growing crackdown on plastic
Democratic-controlled states have rapidly expanded laws taking aim at reducing consumer dependence on plastic. The surge in recycling laws, particularly extended producer responsibility (EPR) will raise costs for packaging producers, but manufacturers of more easily recyclable materials will benefit relatively. Aluminium is particularly well-positioned due to its properties, and manufacturers such as Crown Holdings, Ball Corp and Ardagh Metal Packaging will benefit from the Dem’s crackdown. Expect other companies leading the change from plastic to paper to also benefit, such as Graphic Packaging.
Edition: 127
- 21 January, 2022