Solid quarter for Crown, but investors overestimate

Despite a solid result and increase to full-year 2017 EPS guidance, shares of Crown have underperformed the broader packaging sector (CCK -127bps vs. SP500 -2bps).

Share performance is unlikely to be a reflection of concern over the quarter or operational execution, but rather the result of a strong expectation that guidance would be raised given recent FX moves. 2017 EPS guidance was raised, but FCF guidance was maintained at $425m.

FCF was hit by an unexpected $15m after-tax litigation fee in Q2. Management also called out weakness in Saudi Arabia that impacted the European beverage segment. Overall earnings were in-line to ahead of targets with a modest beat from “front loaded” share repurchases. Running the numbers, FCF is raising its EPS slightly as it expects Crown to continue to execute well, in addition to the impact of the share repurchases.

Three key points: operating performance solid, share repurchases helped drive the 1cent EPS beat vs DBe; underlying FCF generation remains strong, but higher capex levels are likely to stay; and EPS estimates increase modestly due to FX and share repurchases.