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Solid Demand & Innovation Aid Amcor (AMCR) Amid Cost Inflation

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Amcor plc (AMCR - Free Report) is benefiting from the ongoing strong demand witnessed by both of its segments. Its strategy of investing in expanding capacity in high-value segments like healthcare, protein, pet food, premium coffee and hot fill beverage containers, and focus on innovation and emerging markets are likely to drive growth. Growing consumer awareness and the consequent increase in demand for sustainably packaged products represent a major growth opportunity for the company.

Demand and Pricing to Offset High Costs in FY22

Amcor’s sales have been gaining from the stay-at-home trend amid the pandemic. Both the Rigid Packaging and Flexible Packaging segments have been performing well through a combination of organic growth and disciplined cost control. The Flexibles segment has witnessed HSD growth in healthcare and DD growth in pet food and coffee in the first half of fiscal 2022. The Rigid packaging segment has been witnessing strong consumer demand. In North America, beverage volumes were up 3% year over year in the first half of fiscal 2022, while hot-fill container volumes were in line with last year. The segment has been witnessing volume growth in isotonics, as well as iced tea categories, where customer demand for 100% recycled PET bottles has been strong. Growth was driven by brand extensions and the introduction of new health and wellness-oriented products in PET containers. This scenario is expected to continue in fiscal 2022 as well.

Amcor is likely to face supply disruption and raw material price volatility, and higher labor and transportation costs. However, higher demand and pricing actions will help offset these headwinds. The company anticipates adjusted constant currency earnings per share growth of approximately 7-11% in fiscal 2021, which indicates earnings per share in the range of 79 cents to 81 cents.

Solid Investment Strategy to Bear Fruit

Backed by its strong balance sheet and annual free cash flow in excess of $1 billion, Amcor continues to invest in expanding capacity in higher-growth segments like healthcare, protein and premium coffee or hot fill beverage containers and barrier films. Given the scope of growth in emerging markets, the company has over $3 billion in annual sales from 27 profitable emerging market businesses.

To meet ever-evolving consumer needs and stay ahead of the curve, the company continues to bring innovative products. 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’s acquisition of Bemis Company in 2019 expanded its global footprint and opened up new attractive end markets and customers. The company expects total cost synergies in fiscal 2022 to be at least 10% higher than its original target of $180 million. The buyout is anticipated to lead to more than 200 basis point expansion in the Flexible segment’s margins in fiscal 2022 compared to fiscal 2019 levels. Taking into account the gains from the buyout, earnings per share in fiscal 2022 is expected to be more than 35% of fiscal 2019 levels.

Price Performance

Zacks Investment Research
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Amcor’s shares have declined 2.3% in the past year, against the industry's growth of 4.1%.

Zacks Rank & Stocks to Consider

Amcor currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the Industrial Products sector include Applied Industrial Technologies, Inc. (AIT - Free Report) , Sonoco Products Company (SON) and Silgan Holdings Inc. (SLGN - Free Report) . While AIT sports a Zacks Rank #1 (Strong Buy), SON and SLGN carry a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Applied Industrial Technologies reported adjusted EPS of $1.46 in second-quarter fiscal 2022 (ended Dec 31, 2021), up 49% year on year and beating the Zacks Consensus Estimate of $1.09. AIT has a trailing four-quarter earnings surprise of 27.9%, on average.

Applied Industrial Technologies has an expected earnings growth rate of 24.8% for fiscal 2022. The Zacks Consensus Estimate for fiscal year earnings has moved up 9.4% in the past 60 days. AIT’s shares have appreciated 12% in a year.

Sonoco’s fourth-quarter 2021 adjusted EPS increased 9.8% year over year to 90 cents, surpassing the Zacks Consensus Estimate of 89 cents. SON has a trailing four-quarter earnings surprise of 1.74%, on average.

Sonoco has an estimated earnings growth rate of around 30.9% for 2022. In the past 60 days, the Zacks Consensus Estimate for current-year earnings has been revised upward by 18.3%.

Silgan Holdings’ fourth-quarter 2021 adjusted EPS increased 32% year over year to a record 79 cents, beating the Zacks Consensus Estimate of 73 cents. SLGN has a trailing four-quarter earnings surprise of 3.8%, on average.

Silgan has a projected earnings growth rate of 13.5% for the current year. The Zacks Consensus Estimate for 2022 earnings has moved north by 3% in the past 60 days. In a year, SLGN has moved up 1%.


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