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Here's Why Hold Strategy is Apt for Crown Holdings (CCK) Stock

Crown Holdings, Inc. CCK is gaining from forecast-beating second-quarter 2022 results. Solid global beverage-can demand from consumers’ strong preference for cans over other packaging formats is driving growth. The company is focused on investments in the construction of new can plants and the addition of new production lines to existing facilities to capitalize on this demand trend.

Earnings & Sales Surpass Q2 Estimates: Crown Holdings’ second-quarter 2022 adjusted earnings per share (EPS) of $2.10 beat the Zacks Consensus Estimate of $2.03. Revenues of $3,510 million surpassed the Zacks Consensus Estimate of $3,314 million.

Positive Earnings Surprise History: Crown Holdings, a Zacks Rank #3 (Hold) company, has a trailing four-quarter earnings surprise of 5.92%, on average.

Return on Equity (ROE): Crown Holdings’ trailing 12-month ROE of 40.5% emphasizes its growth potential. The company’s ROE is higher than the industry’s ROE of 31.9%, highlighting its efficiency in utilizing shareholders’ funds.

Positive Growth Expectations: The company’s earnings estimate for the current year is pegged at $7.76, suggesting year-over-year growth of 1.31%.

2022 View: Crown Holdings projects third-quarter 2022 adjusted EPS between $1.75 and $1.85. For the current year, the company anticipates adjusted EPS in the range of $7.65-$7.85. In 2021, the company reported an adjusted EPS of $7.66. Higher food can volumes, improved equipment deliveries and the contractual pass-through of cost inflation will boost the company’s bottom line in the current year.

Price Performance: Crown Holdings’ shares have declined 16.4% in the past year compared with the industry’s fall of 29.8%.

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Other Growth Drivers

In the past few years, beverage cans demand has been growing as it is the world’s most sustainable and recycled beverage packaging. An estimated 75% of new beverage product launches are now in cans. Crown Holdings is focused on growing its global beverage can business on the back of this strong demand trend. Demand will continue to outstrip supply in most global markets for the foreseeable future. North America, Europe and Mexico are witnessing higher volumes and market expansion on increased beverage consumption. CCK continues to implement several expansion projects, including the construction of new plants and the addition of production lines to existing facilities to meet escalating can demand.

In North America, beverage can growth has been on the rise in recent years as new beverage products are being introduced in cans compared with other packaging. In the June-end quarter, the company continues to benefit from strong demand in the North American Tinplate, can-making equipment businesses and robust beverage can shipment volumes. This momentum will continue in the third quarter and throughout the year. Crown Holdings completed construction on four production lines across the Americas Beverage segment in 2021. The segment is set to commercialize an additional seven lines in 2022 and 2023.

Crown Holdings’ Transit Packaging segment is likely to benefit from continued volume growth, efficiency gains and cost improvements in 2022. The segment initiated an overhead cost-reduction program that will yield benefits during the second half of 2022 and throughout 2023. Increased food can volumes, higher beverage can equipment deliveries and contractual recovery of inflation will aid the segment income.

Crown Holdings is focused on disciplined pricing, cost control and capital allocation. The company has started to recoup many of the cost increases experienced over the past year through its inflation recovery mechanisms built into the North American beverage can contract on Apr 1, 2022. The company's primary capital-allocation focus will be to reduce leverage while still investing in its business. It continues to pursue growth opportunities through capacity additions to existing plants, new plants in existing markets, strategic acquisitions in geographic areas and product lines and making share repurchases.

Crown Holdings is bearing the brunt of the surge in European energy prices and currency translation headwinds. This is likely to persist in the remaining period of the current year. CCK’s equipment businesses continue to face supply chain delays and disruptions. These factors are likely to unfavorably impact its margins.

Stocks to Consider

Some better-ranked stocks from the Industrial Products sector are Applied Industrial Technologies, Inc. AIT, Greif Inc. GEF and Sonoco Products Company SON. While AIT sports a Zacks Rank #1 (Strong Buy), GEF and SON carry a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Applied Industrial has an estimated earnings growth rate of 10.9% for fiscal 2023. In the past 60 days, the Zacks Consensus Estimate for fiscal 2023 earnings has been revised upward by 6%.

Applied Industrial pulled off a trailing four-quarter earnings surprise of 22.8%, on average. AIT’s shares have soared 32.2% in a year.

Greif has an estimated earnings growth rate of 37% for the current year. In the past 60 days, the Zacks Consensus Estimate for current-year earnings has been revised upward by 17%.

Greif pulled off a trailing four-quarter earnings surprise of 22.9%, on average. GEF’s shares have risen 18.6% in the past year.

Sonoco has an expected earnings growth rate of 78.3% for 2022. The Zacks Consensus Estimate for the current year’s earnings moved up 18% in the past 60 days.

Sonoco has a trailing four-quarter earnings surprise of 4.06%, on average. SON’s shares have moved up 1.7% in the past year.

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