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Shares of Crown Holdings Inc. CCK have lost 26.9% so far this year owing to several headwinds. In fact, the company has fared worse than its industry’s decline of 3%.
Let’s delve deeper and analyze what is dragging the shares of this leading global manufacturer of packaging products for consumer goods down.
Lower Guidance on Higher Freight Costs
Crown Holdings trimmed adjusted earnings per share guidance of $5.15-$5.30 from $5.35-$5.55, for full-year 2018 due to persistent elevated freight costs in North America and foreign currency-translation impact. This can primarily be attributed to the weakness in the Brazilian reais against the U.S. dollar.
It also projects third-quarter 2018 earnings per share of $1.60-$1.70. A mix of political developments including upcoming election and lackluster economic data are the major headwinds for the company.
Elevated Interest Expenses
In the second quarter, Crown Holdings incurred interest expense of $103 million compared with $61 million witnessed in second-quarter 2017 primarily due to higher outstanding debt from borrowings incurred to finance the Signode acquisition. Higher interest expenses will continue to affect margins.
Raw Material Inflation to Dent Margins
Crown Holdings uses various raw materials, such as steel, aluminum, tin, water, natural gas, electricity and other processed energy, in its manufacturing operations. The company is subject to fluctuations in the cost of these raw materials due to tariffs imposed in the United States recently, which is likely to escalate costs. The company may not be able to pass on the rise in raw materials costs to its customers, without suffering loss in unit volume, revenues and operating income.
Stiff Competition
Crown Holdings faces substantial competition from producers of alternative packaging made from glass, paper, flexible materials and plastic. Changes in preferences for products, and packaging by consumers of pre-packaged food and beverage cans significantly influence its sales. Moreover, Crown Holdings’ business is seasonal and weather conditions could depress sales.
The bleak scenario is also evident from the company’s Zacks Rank #5 (Strong Sell). The negative sentiment surrounding the stock is further highlighted by the Zacks Consensus Estimate for current-quarter earnings being revised 7% downward over the past 60 days. Moreover, the same for both full-year 2018 and 2019 earnings has been moved 4% south in the last 60 days.