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Amcor (AMCR) Down 16% in Six Months: Is a Revival Likely?
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The performance of packaging stocks has lately been impacted by weak demand. The current inflationary pressures have been impacting consumers, leading to lower demand for goods which in turn has affected packaging demand. One of the major players in the Containers - Paper and Packaging industry, Amcor plc (AMCR - Free Report) has not been immune to this trend, having declined 16.2% over the past six months. The industry meanwhile has fallen 5.6% while the S&P500 has gained 3.9%.
Image Source: Zacks Investment Research
Weak Volumes Hurt Amcor’s Results
The volume decline was more pronounced in AMCR’s recently reported third-quarter fiscal 2023 results. Overall volumes were down 3% in the third quarter, compared with the 1% decline in the first quarter and 2% in the second quarter, reflecting weak consumer demand. The company's customers have been trying to lower their elevated inventories, which has also weighed on volumes.
The decline in volumes in the third quarter of fiscal 2023 offset the price/mix benefits, leading to a 1% year-over-year drop in total revenues to $3,667 million. Earnings also declined 14% from the prior-year quarter to 18 cents per share.
Anticipating this scenario to persist, AMCR projects a mid-single-digit decline in overall volumes in the fourth quarter of 2023. Adjusted earnings per share is expected to be in the band of 72-74 cents. Compared to the earnings per share of 81 cents in fiscal 2022, the guidance indicates a year-over-year decline of 9%. AMCR also anticipates a negative impact of 3% associated with the sale of its three plants in Russia as an aftermath of the Russia-Ukraine war.
Costs & Supply-Chain Issues Ail
So far in fiscal year 2023, Amcor has been facing intermittent supply shortages and price volatility of certain resins and raw materials as a result of market dynamics and higher rates of inflation impacting energy, fuel, and labor costs. Reflecting these headwinds, Amcor currently carries a Zacks Rank #4 (Sell).
Let’s discuss the factors that indicate that the stock might stage a comeback.
Pickup in Volume Imminent
As the impact of supply-chain issues and cost headwinds abate, Amcor will likely see a pickup in its margin performance. Volumes are also expected to pick up eventually, as the situation normalizes and customers lower their inventory. Packaging has gained importance over the past few years with the increase in e-commerce activities.
Consumers’ increasing demand for more sustainable packaged products represents a major opportunity for Amcor as it has been a forerunner in providing recyclable and reusable packaging solutions. It is constantly striving to get an edge over the competition and to meet ever-evolving consumer needs through innovation. The company invests around $100 million annually in research and development.
Focus on High-Growth Segments
Amcor has been focusing on higher-growth, higher value-added, more packaging-intensive segments like healthcare, protein, pet food, premium coffee and hot fill beverage containers. The company has a leading position in each of these categories, which together generate over $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.
Restructuring Actions to Lead to Savings
In the third quarter of fiscal year 2023, Amcor initiated restructuring and related projects. It continues to evaluate different options to offset the loss of earnings from the Russian business. Management expects to realize an annualized pre-tax benefit of approximately 30% per year on net cash employed in the plan from structural cost reductions by the end of fiscal 2025.
Worthington Industries has an average trailing four-quarter earnings surprise of 27.5%. The Zacks Consensus Estimate for WOR’s fiscal 2023 earnings is pegged at $4.93 per share. The consensus estimate for 2023 earnings has moved north by 17.7% in the past 60 days. Shares of WOR have gained 1.8% in the last six months.
Manitowoc has an average trailing four-quarter earnings surprise of 38.8%. The Zacks Consensus Estimate for MTW’s 2023 earnings is pegged at 85 cents per share. The consensus estimate for 2023 earnings has moved 63.5% north in the past 60 days. Shares of MTW have rallied 54% in the last six months.
The Zacks Consensus Estimate for AptarGroup’s 2023 earnings per share is pegged at $4.15. The consensus estimate for 2023 earnings rose 8% in the last 60 days. ATR has a trailing four-quarter average earnings surprise of 6.4%. Shares of ATR have gained 9% in the last six months.
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Amcor (AMCR) Down 16% in Six Months: Is a Revival Likely?
The performance of packaging stocks has lately been impacted by weak demand. The current inflationary pressures have been impacting consumers, leading to lower demand for goods which in turn has affected packaging demand. One of the major players in the Containers - Paper and Packaging industry, Amcor plc (AMCR - Free Report) has not been immune to this trend, having declined 16.2% over the past six months. The industry meanwhile has fallen 5.6% while the S&P500 has gained 3.9%.
Image Source: Zacks Investment Research
Weak Volumes Hurt Amcor’s Results
The volume decline was more pronounced in AMCR’s recently reported third-quarter fiscal 2023 results. Overall volumes were down 3% in the third quarter, compared with the 1% decline in the first quarter and 2% in the second quarter, reflecting weak consumer demand. The company's customers have been trying to lower their elevated inventories, which has also weighed on volumes.
The decline in volumes in the third quarter of fiscal 2023 offset the price/mix benefits, leading to a 1% year-over-year drop in total revenues to $3,667 million. Earnings also declined 14% from the prior-year quarter to 18 cents per share.
Anticipating this scenario to persist, AMCR projects a mid-single-digit decline in overall volumes in the fourth quarter of 2023. Adjusted earnings per share is expected to be in the band of 72-74 cents. Compared to the earnings per share of 81 cents in fiscal 2022, the guidance indicates a year-over-year decline of 9%. AMCR also anticipates a negative impact of 3% associated with the sale of its three plants in Russia as an aftermath of the Russia-Ukraine war.
Costs & Supply-Chain Issues Ail
So far in fiscal year 2023, Amcor has been facing intermittent supply shortages and price volatility of certain resins and raw materials as a result of market dynamics and higher rates of inflation impacting energy, fuel, and labor costs.
Reflecting these headwinds, Amcor currently carries a Zacks Rank #4 (Sell).
Let’s discuss the factors that indicate that the stock might stage a comeback.
Pickup in Volume Imminent
As the impact of supply-chain issues and cost headwinds abate, Amcor will likely see a pickup in its margin performance. Volumes are also expected to pick up eventually, as the situation normalizes and customers lower their inventory. Packaging has gained importance over the past few years with the increase in e-commerce activities.
Consumers’ increasing demand for more sustainable packaged products represents a major opportunity for Amcor as it has been a forerunner in providing recyclable and reusable packaging solutions. It is constantly striving to get an edge over the competition and to meet ever-evolving consumer needs through innovation. The company invests around $100 million annually in research and development.
Focus on High-Growth Segments
Amcor has been focusing on higher-growth, higher value-added, more packaging-intensive segments like healthcare, protein, pet food, premium coffee and hot fill beverage containers. The company has a leading position in each of these categories, which together generate over $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.
Restructuring Actions to Lead to Savings
In the third quarter of fiscal year 2023, Amcor initiated restructuring and related projects. It continues to evaluate different options to offset the loss of earnings from the Russian business. Management expects to realize an annualized pre-tax benefit of approximately 30% per year on net cash employed in the plan from structural cost reductions by the end of fiscal 2025.
Key Picks
Some better-ranked stocks in the Industrial Products sector are Worthington Industries, Inc. (WOR - Free Report) , The Manitowoc Company, Inc. (MTW - Free Report) and AptarGroup, Inc. (ATR - Free Report) . WOR and MTW currently sport a Zacks Rank #1 (Strong Buy), while ATR carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Worthington Industries has an average trailing four-quarter earnings surprise of 27.5%. The Zacks Consensus Estimate for WOR’s fiscal 2023 earnings is pegged at $4.93 per share. The consensus estimate for 2023 earnings has moved north by 17.7% in the past 60 days. Shares of WOR have gained 1.8% in the last six months.
Manitowoc has an average trailing four-quarter earnings surprise of 38.8%. The Zacks Consensus Estimate for MTW’s 2023 earnings is pegged at 85 cents per share. The consensus estimate for 2023 earnings has moved 63.5% north in the past 60 days. Shares of MTW have rallied 54% in the last six months.
The Zacks Consensus Estimate for AptarGroup’s 2023 earnings per share is pegged at $4.15. The consensus estimate for 2023 earnings rose 8% in the last 60 days. ATR has a trailing four-quarter average earnings surprise of 6.4%. Shares of ATR have gained 9% in the last six months.