Amcor (AMCR) Aided by Sustainable Packaging Demand, Costs Ail
Amcor Plc AMCR is well-poised for growth, backed by its focus on growing its share in high-growth segments and emerging markets, and launching innovative products. Its segments, Flexibles and Rigid Packaging, are performing well through a combination of organic growth and disciplined cost control. Consumers’ growing awareness and consequent increase in demand for sustainably packaged products are acting as key catalysts. However, high input costs and supply-chain challenges continue to be headwinds.
Q2 Earnings Beat Estimates
Amcor reported second-quarter fiscal 2023 adjusted earnings per share of 19 cents, which beat the Zacks Consensus Estimate of 18 cents. The bottom line improved 6% from the prior-year quarter. The company has a trailing four-quarter earnings surprise of 1.3%, on average.
Demand in Few Key Markets Support 2023 View
Both Rigid Packaging and Flexible Packaging segments are performing well through a combination of organic growth and disciplined cost control. The Flexibles segment has witnessed growth in volumes in healthcare, cheese, pet care, and home and personal care categories, in North America in the first half of 2023. In Europe, higher volumes were reported in pharmaceuticals, capsules and pet care in the first half. In the Rigid packaging segment, hot fill beverage volumes were up 2% as a result of continued growth in key categories. Specialty container volumes were higher than in the same period last year, driven by growth in the healthcare, dairy and nutrition end markets.
Growth is also being driven by the introduction of health and wellness-oriented products in PET containers. These factors are expected to support the company’s top-line performance in fiscal 2023. Backed by the momentum in the end markets, Amcor expects adjusted constant-currency EPS growth of 3-8% for fiscal 2023.
Few Headwinds to Counter
Amcor’s major raw materials include polymer resins and films, paper, inks, adhesives, aluminum, and chemicals. The company has been witnessing raw material price volatility due to supply shortages of certain resins and raw materials. This is anticipated to continue in fiscal 2023. On top of this, the company is facing higher labor and transportation costs. Amcor expects its price increases to help counter the impacts of inflated raw material costs and will drive margins.
In the Rigid Packaging segment, overall beverage volumes were 7% lower year over year in the second quarter of fiscal 2023. This was mainly due to lower consumer demand amid the inflationary environment and customer destocking. This may impact the segment’s performance in the near term.
Strategies to Grow Business in Place
Backed by its strong balance sheet and annual free cash flow in excess of $1 billion, the company continues to invest in higher-growth, higher value-added, more packaging-intensive segments like healthcare, protein, pet food, premium coffee and hot fill beverage containers. Amcor has a leading position in each of these categories. Together these generate more than $4 billion in annual sales. The growth rates in all these segments are higher than the average across broader consumer markets, indicating significant growth potential.
Emerging markets will continue to be a key driver of organic growth. Amcor is constantly striving to meet ever-evolving consumer needs through innovation. To this end, the company invests around $100 million annually in R&D.
Owing to the surge in e-commerce activities, packaging has gained importance as it maintains the integrity and durability of a product during the complex delivery process. Consumers’ increasing demand for more sustainable packaged products represents a major growth opportunity. Amcor has committed to all of its packaging be recyclable or reusable by 2025. The company has doubled the use of post-consumer recycled resin in the last two years.
Price Performance
Shares of the company have fallen 4.6% in the past year compared with the industry’s 7.5% decline.
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Zacks Rank & Stocks to Consider
Amcor currently has a Zacks Rank #3 (Hold)
Some better-ranked stocks from the Industrial Products sector are OI Glass OI, Tenaris TS and Illinois Tool Works ITW. OI and TS sport a Zacks Rank #1 (Strong Buy) at present, and ITW has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
OI Glass has an average trailing four-quarter earnings surprise of 16.4%. The Zacks Consensus Estimate for OI’s 2023 earnings is pegged at $2.57 per share. This indicates an 11.7% increase from the prior-year reported figure. The consensus estimate for 2023 earnings has moved 16% north in the past 60 days. OI’s shares gained 70.2% in the last year.
Tenaris has an average trailing four-quarter earnings surprise of 11.5%. The Zacks Consensus Estimate for TS’ 2023 earnings is pegged at $6.04 per share. This indicates a 39.5% increase from the prior-year reported figure. The consensus estimate for 2023 earnings has moved north by 17% in the past 60 days. Its shares gained 3.8% in the last year.
The Zacks Consensus Estimate for Illinois Tool Works’ fiscal 2023 earnings per share is pegged at $9.61, suggesting an increase of 4.8% from that reported in the last year. The consensus estimate for fiscal 2023 earnings moved 4% upward in the last 60 days. ITW has a trailing four-quarter average earnings surprise of 0.9%. Its shares gained 9% in the last year.
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