Will Crown Holdings (NYSE:CCK) Continue to Be a Pandemic Winner

Crown Holdings NYSE: CCK is already a winner during the pandemic. CCK stock is up over 58% since the market selloff in March. The consensus view of analysts is that Crown stock could move as high as $80 per share, a gain of over 15% from the stock’s current level.

But with so much uncertainty and volatility affecting the broader market, investors will be watching closely to see what the company posts, and says, in its earnings report.

Crown will report second-quarter earnings after the market closes on July 20. In the first quarter, Crown comfortably beat analysts’ estimates on both the top and bottom lines. It appears this time around, analysts have raised their expectations for CCK stock.

The consensus estimate is for Crown to post earnings per share (EPS) of $1.31 on revenue of $2.78 billion. The whisper number hints that Crown may beat the number and post a $1.33 EPS on revenue of $2.8 billion.

Both of those numbers would be lower on a year-over-year basis (YoY). But analysts are overlooking those metrics at a time like this. Those numbers, particularly the revenue number, would suggest that the company is holding its own in terms of revenue. And although it wouldn’t be a huge gain, it would still be a gain from the prior quarter. That’s significant since the second and third quarters have tended to be the company’s strongest quarters in terms of revenue.

Guidance Will Be Critical

Many companies took the path of removing any forward guidance due to the unknowns of the Covid-19 pandemic. In the case of Crown, it was more than understandable. The company’s earnings report was in April when it was difficult to know what was still to come.

Crown Holdings, formerly known as the Crown, Cork & Seal Company manufacturers metal beverage and food cans, metal aerosol containers, metal closures and specialty packing. It’s not the most exciting business, but it’s an essential ingredient in the supply chains of many food and beverage companies.

However, as many investors know, demand for certain items dried up dramatically in the second quarter. And Crown noticed this as well in terms of their international operations.

At that time, the company was experiencing softening in key markets such as Brazil and Mexico. Europe was also showing softness. On the company’s earnings call, Tim Donahue, Crown’s president and chief executive officer (CEO) offered this assessment:

“Disposable income is much different in parts of Europe, and most of us from America we look at Europe and we think about Europe as London, Paris, Zurich, Madrid. You get outside the big cities in Europe, and into the rural areas of Europe, people are generally poor other than countries like Germany and the Netherlands. I mean it's not the same level of wealth that we are accustomed to in the United States. So, unemployment really hits consumption quite hard in those areas.”

The Company Looks to Have a Strong Balance Sheet

At the end of the first quarter, Crown had over $1.5 billion in liquidity between cash on hand and its borrowing capacity. The company was expecting to generate free cash flow (FCF) of $600 million, although the company allowed for the fact that any guidance on FCF was subject to change depending on the extent of the social distancing measures that were put into place.

Will Color Be a Catalyst for Crown?

As mentioned above, the industrial can and glass sector can be a fairly predictable supply and demand story. But Crown is on the vanguard of pushing the industry forward in the area of color. This is a particularly strong story in Europe and Mexico.

In a press release, the company announced that Crown Europe is working with color and material designer and trend forecaster Laura Perryman to learn how future trends can influence innovation in its portfolio.

And Crown Mexico recently won the inaugural Colored by INX Can Design Contest, which was hosted by INX International.  The can was produced for INDIO, which is owned by Heineken.

The Bottom Line on CCK Stock

Brazil has seen a rise in cases of the novel coronavirus. For that reason, I expect that the company will continue to have challenges in this important market. However, Europe looks to be opening with fewer issues than the Americas. And the company should continue to have strong results from the United States which remains their most important market.

CCK stock has climbed nearly all the way back from the losses it suffered in March. If it can make it to $80 per share it would once again be at its all-time high. With stocks going up for far less reason than solid revenue and earnings, I expect Crown Holdings to continue to be a winner in 2020.