Investing in packaging and container companies might not sound exciting, but the three companies mentioned in this article are seeing volume growth, which indicates increased demand. This, in turn, can drive the top line and lead to stock appreciation.
Crown Holdings (NYSE:CCK), a designer, manufacturer, and seller of packaging products for consumer goods worldwide, saw net sales jump to $2.39 billion from $2.30 billion in the year-ago quarter, primarily thanks to a 6% increase in global can-beverage volume. This volume growth also led to gross profit climbing to $394 million versus $369 million. Crown attributes its strong can-beverage volume to its international exposure, which now includes beverage can plants in Turkey, Brazil, China, and Southeast Asia.
Looking ahead, Crown Holdings points to its product diversification in high-quality metal packaging as a potential growth catalyst for volume, profit, and free cash flow. Crown Holdings offers packaging for drinks, food, health and beauty products, and household and industrial items.
The bad news is that food-can demand in Europe has been weak. While Crown expects a turnaround next year, that will be dependent on Europe's ability to climb out of recession.
It should also be noted that Crown is highly leveraged, with $4.25 billion in long-term debt versus cash and short-term equivalents of $236 million. Crown doesn't offer any dividend yield.
Is it possible that Silgan Holdings (NASDAQ:SLGN) offers a safer investment opportunity?
Silgan manufactures and sells rigid packaging for shelf-stable food and other consumer goods products worldwide. Third-quarter sales improved 2.5% year over year to $1.17 billion. Metal container volume increased 2%. These would seem to be positives, but these numbers missed expectations. Silgan blamed cooler weather, which apparently led to lower demand for single-serve beverages. It also cited inflationary resin costs as the reason for weakness in its plastic container business. Additionally, Silgan lowered its full-year earnings-per-share expectations to $2.75-$2.85 from $3.00-$3.15, and its full-year free cash flow expectation to $225 million from $250 million.
On the other hand, Silgan sees current weakness as temporary. Wells Fargo seems to agree, stating that shares are now attractive after a recent pullback based on temporary weakness in the industry. Wells Fargo stated that this is a low-risk/high-reward situation and rated Silgan an "outperform."
Silgan recently acquired Portola Packaging, a leading manufacturer of plastic closures, for $266 million. Portola had $200 million in sales in 2012, and it gives Silgan eight manufacturing facilities throughout the United States and Europe. However, this isn't going to help Silgan on the bottom line.
Silgan yields 1.20%, but it's highly leveraged, with long-term debt of $1.80 billion and cash and short-term equivalents of $134.50 million.
So far, it looks like a mixed bag for both Crown and Silgan. Perhaps another player in the industry will offer more potential.
Ball Corp.'s (NYSE:BLL) third-quarter sales came in at $2.3 billion, matching the year-ago quarter. Diluted earnings per share were $1.00 versus $0.90. As at Crown Holdings, global beverage-can volumes were better than expected. While the top line isn't going to drive much excitement, Ball has a backlog of orders totaling $942 million in its aerospace segment. Free cash flow for the fiscal year is expected to be $450 million, $400 million of which will be used toward stock buybacks.
Just like its peers, Ball is highly leveraged, with long-term debt at $3.52 billion versus cash and short-term equivalents of $158.20 million. Ball yields 1.10%.
Top-line performance comparisons
Ball and Silgan have outperformed Crown on the top line over the past five years:
Ball is trading at 22 times earnings while sporting a net margin of 3.99%. Crown is trading at 19 times earnings with a net margin of 3.07%. Silgan is the most appealing fundamentally, trading at 16 times earnings with a net margin of 5.17%. This is in addition to Silgan offering the highest yield at 1.20%.
The bottom line
All three companies are seeing top-line growth. Therefore, they all offer potential. It's like splitting hairs, but if one company must be chosen over the other two, it would be Silgan, thanks to its somewhat stronger fundamentals and yield. However, these stocks tend to trade together, making it more of an industry investment than a company-specific investment. The industry looks to be performing well at this time. The one negative is that all three companies are highly leveraged, which could limit growth potential if interest rates increase.
Fool contributor Dan Moskowitz has no position in any stocks mentioned. The Motley Fool recommends Wells Fargo. The Motley Fool owns shares of Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.