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Amcor (AMCR) Bets on Sustainability & Innovation Amid Cost Woes
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Amcor plc’s (AMCR - Free Report) segments, Flexibles and Rigid Packaging are well-poised to gain on strong demand across end markets. Synergies from the Bemis, focus on growing presence in high growth segments, emerging markets and innovation will also drive growth. Consumers’ growing awareness and consequent increase in demand for sustainable packaged products represents a major growth opportunity for the company. Solid Demand to Counter Cost Woes in Fiscal 2022
Amcor’s sales have benefited from the stay-at-home trend amid the pandemic. Through fiscal 2021, the Flexibles segment has consistently witnessed solid growth across a broad range of end markets, including higher-value end markets like protein, coffee, cheese and pet food. The Rigid packaging segment is also seeing strong consumer demand. In fiscal 2021, in North America, beverage volumes were up 8% year over year, while hot fill container volumes gained 13%. Strong consumer demand reflects higher-at-home consumption of packaged beverages courtesy of higher retail sales in multi-pack formats across a range of product categories. Brand extensions and the introduction of new health and wellness oriented products in PET containers are likely to have contributed to growth. Specialty container volumes were driven higher by growth in certain categories including spirits, personal care and home cleaning. This scenario is expected to continue in fiscal 2022 as well.
Meanwhile, the company is likely to face supply disruption and raw material price volatility, and higher labor and transportation costs. The Flexibles segment has been facing lower volumes in certain healthcare end markets due to fewer elective surgeries and lower prescription trends on account of the pandemic. Nevertheless, higher demand in other categories will help offset these headwinds. Amcor expects adjusted constant currency earnings per share growth of approximately 7-11% in fiscal 2021, which indicates earnings per share in the range of 80 cents to 83 cents.
Investment in High-Growth Segments, Innovation & Sustainability
Backed by its strong balance sheet and annual free cash flow in excess of $1 billion, Amcor continues to invest in growth, and expand capacity in higher-growth segments like healthcare, protein and premium coffee or hot fill beverage containers and barrier films. Emerging markets will continue to be a key driver of organic growth. The company has over $3 billion in annual sales from 27 profitable emerging market businesses. To meet ever-evolving consumer needs through innovation and stay ahead of the curve, the company invests around $100 million annually in R&D. It recently announced a strategic investment in ePac, a relatively new start-up in the flexible packaging space. It is building two new state-of-the-art innovation centers at Ghent, Belgium, and Jiangyin, China that will complement existing innovation centers in North America.
Driven by increasing e-commerce activities over the past few years, packaging has gained importance as it maintains the integrity and durability of a product during the complex delivery process. The pandemic has only reasserted the value of packaging in ensuring hygiene and sterilization, and extending shelf life. Consumers’ increasing demand for more sustainable packaged products represents a major growth opportunity. Amcor has doubled the use of post-consumer recycled resin in the last two years. Amcor is the first packaging company to have pledged to develop all its packaging to be recyclable or reusable by 2025.
Bemis Buyout to Generate Synergies
Amcor acquired Bemis Company Inc. through an all-stock transaction in June 2019, which expanded its global footprint and opened up new attractive end markets and customers. The company has continued to execute well against overhead, procurement and footprint initiatives and has realized cost synergies ahead of expectations. In fiscal 2021, the company delivered cost synergies of approximately $75 million. The integration is almost completed and Amcor expects total cost synergies in fiscal 2022 to be at least 10% higher than its original target of $180 million. The buyout is expected to lead to more than 200 basis point expansion in the Flexible segment’s margins in fiscal 2022 compared to fiscal 2019 levels.
Price Performance
Image Source: Zacks Investment Research
Amcor’s shares have gained 13.8% over the past year, compared with the industry's rally of 29.2%.
Kadant has an anticipated earnings growth rate of 48.2% for fiscal 2021. The company’s shares have gained 70%, in the past year.
Valmont Industries has an estimated earnings growth rate of 32.1% for the ongoing fiscal year. In a year's time, the company’s shares have rallied 92.3%.
Columbus McKinnon has a projected earnings growth rate of 155% for 2021. The stock has appreciated 24%, over the past year.
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Amcor (AMCR) Bets on Sustainability & Innovation Amid Cost Woes
Amcor plc’s (AMCR - Free Report) segments, Flexibles and Rigid Packaging are well-poised to gain on strong demand across end markets. Synergies from the Bemis, focus on growing presence in high growth segments, emerging markets and innovation will also drive growth. Consumers’ growing awareness and consequent increase in demand for sustainable packaged products represents a major growth opportunity for the company.
Solid Demand to Counter Cost Woes in Fiscal 2022
Amcor’s sales have benefited from the stay-at-home trend amid the pandemic. Through fiscal 2021, the Flexibles segment has consistently witnessed solid growth across a broad range of end markets, including higher-value end markets like protein, coffee, cheese and pet food. The Rigid packaging segment is also seeing strong consumer demand. In fiscal 2021, in North America, beverage volumes were up 8% year over year, while hot fill container volumes gained 13%. Strong consumer demand reflects higher-at-home consumption of packaged beverages courtesy of higher retail sales in multi-pack formats across a range of product categories. Brand extensions and the introduction of new health and wellness oriented products in PET containers are likely to have contributed to growth. Specialty container volumes were driven higher by growth in certain categories including spirits, personal care and home cleaning. This scenario is expected to continue in fiscal 2022 as well.
Meanwhile, the company is likely to face supply disruption and raw material price volatility, and higher labor and transportation costs. The Flexibles segment has been facing lower volumes in certain healthcare end markets due to fewer elective surgeries and lower prescription trends on account of the pandemic. Nevertheless, higher demand in other categories will help offset these headwinds. Amcor expects adjusted constant currency earnings per share growth of approximately 7-11% in fiscal 2021, which indicates earnings per share in the range of 80 cents to 83 cents.
Investment in High-Growth Segments, Innovation & Sustainability
Backed by its strong balance sheet and annual free cash flow in excess of $1 billion, Amcor continues to invest in growth, and expand capacity in higher-growth segments like healthcare, protein and premium coffee or hot fill beverage containers and barrier films. Emerging markets will continue to be a key driver of organic growth. The company has over $3 billion in annual sales from 27 profitable emerging market businesses. To meet ever-evolving consumer needs through innovation and stay ahead of the curve, the company invests around $100 million annually in R&D. It recently announced a strategic investment in ePac, a relatively new start-up in the flexible packaging space. It is building two new state-of-the-art innovation centers at Ghent, Belgium, and Jiangyin, China that will complement existing innovation centers in North America.
Driven by increasing e-commerce activities over the past few years, packaging has gained importance as it maintains the integrity and durability of a product during the complex delivery process. The pandemic has only reasserted the value of packaging in ensuring hygiene and sterilization, and extending shelf life. Consumers’ increasing demand for more sustainable packaged products represents a major growth opportunity. Amcor has doubled the use of post-consumer recycled resin in the last two years. Amcor is the first packaging company to have pledged to develop all its packaging to be recyclable or reusable by 2025.
Bemis Buyout to Generate Synergies
Amcor acquired Bemis Company Inc. through an all-stock transaction in June 2019, which expanded its global footprint and opened up new attractive end markets and customers. The company has continued to execute well against overhead, procurement and footprint initiatives and has realized cost synergies ahead of expectations. In fiscal 2021, the company delivered cost synergies of approximately $75 million. The integration is almost completed and Amcor expects total cost synergies in fiscal 2022 to be at least 10% higher than its original target of $180 million. The buyout is expected to lead to more than 200 basis point expansion in the Flexible segment’s margins in fiscal 2022 compared to fiscal 2019 levels.
Price Performance
Image Source: Zacks Investment Research
Amcor’s shares have gained 13.8% over the past year, compared with the industry's rally of 29.2%.
Zacks Rank & Stocks to Consider
Amcor currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the Industrial Products sector include Kadant Inc. (KAI - Free Report) , Valmont Industries, Inc. (VMI - Free Report) and Columbus McKinnon Corporation (CMCO - Free Report) . All of these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Kadant has an anticipated earnings growth rate of 48.2% for fiscal 2021. The company’s shares have gained 70%, in the past year.
Valmont Industries has an estimated earnings growth rate of 32.1% for the ongoing fiscal year. In a year's time, the company’s shares have rallied 92.3%.
Columbus McKinnon has a projected earnings growth rate of 155% for 2021. The stock has appreciated 24%, over the past year.