October 10, 2011 - Crown Holdings, Inc. (CCK-NYSE) designs, manufactures, and sells packaging products for consumer goods. Products include beverage cans and ends, and other packaging goods for various beverage and beer companies; a range of food cans and ends, including two-and three-piece cans in various shapes and sizes for food marketers; and aerosol cans and ends for manufacturers of personal care, food, household, and industrial products.

It has operations in the Americas, Europe, Asia-Pacific, the Middle East, and Africa. Sales for 2010: Americas Beverages: 26%; European Food: 23%; European Beverage:19%; North America Food: 11%; European Specialty Packaging:5%; Other: 16%. Operates 135 plants in 14 countries. Crown Holdings was founded in 1927 and is headquartered in Philadelphia, Pennsylvania.

CCK did something most companies can't: it increased profits while revenues decreased. In 2008, sales were $8.305 billion and earnings per share were $1.71. In '09, revenues dropped to $7.938 billion, but earnings went up to $2.01. Last year, total sales finished at $7.941 billion and earnings were higher again, to $2.24. This year, 9 analysts have a consensus estimate of $2.84 for earnings and $8.69 billion (up 9.5%) for revenues. In 2011, they see earnings at $3.31 and sales at $9.18 billion.

Profits were better in the June quarter than analysts' guessed, coming in at 84 cents, a penny higher than expected. In the March quarter, they were 48 cents, 14.30% better than expectations of 42 cents. In the last quarter of 2010, the company beat estimates by 10.5%, delivering 42 cents. Management is getting more profits from operations than analysts expect.

But it's China that holds the highest hopes for future growth. The company is adding new plants in 2 regions there, each able to produce 720 million cans. Look for their openings in the first and third quarters of 2013. Orders are growing rapidly in China, and volume is increasing in the double digits. If this economy stays strong, look for the new plants to be significant drivers of better earnings.

One number investors have to get comfortable with is the amount of debt CCK carries. It's 93% of the balance sheet. That makes it vulnerable to higher interest rates when the cycle starts to move higher. It also makes the Return on equity very volatile. In good years, it can be extreme, as it has been over the last 12 months, showing an ROE of 117%. That's extraordinary. Part of the reason is the low interest rates the company currently pays. Keep that in mind as rates move up. It will definitely cut into earnings and the ROE.

Essential numbers:
- Market Cap: $4.62 billion
- Forward P/E: 9.23
- Price to book: 15
- Operating margin: 11.3%
- Profit margin: 3.8%
- Return on assets: 3.8%
- Return on equity: 117%
- Total cash: $421 million
- Cash per share: $2.79
- Total debt: $3.88 billion
- Current ratio: 1.33
- Book value per share: $2.00
- Beta: .6
- 52 wk. change: 4.17%
- Shares Outstanding: 151.14 million
- Float: 145.33 million
- Insiders own: 1.67%
- Institutions have: 87.1%
- There is no dividend

As with most stocks, there's good and bad with CCK. The good comes from solid growth in earnings, new markets opening, emerging economies increasing demand as older ones like Europe show weakness, and the potential growth China represents. The bad comes from high leverage and slowdowns in established markets. If investors are bullish on China and like solid, basic industries, then CCK is worth more of their time.

- Web site: www.crowncork.com

    Ted Allrich