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E-Commerce Boom to Aid Packaging Industry Amid Coronavirus Crisis

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The coronavirus pandemic has adversely impacted the Zacks Containers – Paper and Packaging industry by disrupting the global packaging-supply chain and causing shortage of materials. Nevertheless, industry participants continue to operate, as packaging is an essential element for the distribution of food, beverage and pharmaceutical products. Further, the industry is poised to grow on the flourishing e-commerce activities as well as the rising demand for eco-friendly packaging options.

Demand for Critical Products & E-Commerce to Aid Growth

The industry’s considerable exposure (more than 60%) to consumer-oriented end-markets, such as food and beverages, and healthcare, keeps demand fairly stable across economic cycles. The coronavirus outbreak has led to a surge in demand for food, medicine, medical equipment and other critical products. This, in turn, is aiding the packaging market.

The pandemic has further fueled e-commerce growth as consumers’ demands for online grocery, beverage and pharmaceuticals delivery services have increased following the stay-at-home orders imposed all over. Packaging plays a vital role in the e-commerce market as it has to maintain the integrity and durability of a product, such that it can withstand the complex product-delivery process. According to Statista, global retail e-commerce sales are anticipated to reach $6.54 trillion in 2022 from $3.53 trillion in 2019.

Weakness in Few Markets Prevails

Although the food and beverages market are rapidly growing across the globe, parts of these markets, including food services and restaurants, have been affected significantly by the pandemic. Closures of food outlets have thwarted demand for food-grade paper packaging products. The industry’s few end-markets, including general manufacturing, transportation, are facing slowdown following government restrictions and a significant reduction in discretionary spending. A decelerating global industrial market is also a concern.

Furthermore, the coronavirus crisis has hurt paper consumption in schools, offices and businesses, straining paper demand. Consequently, the packaging companies had to idle their paper-mill operations to reduce paper production in order to balance the supply with demand. The demand-supply imbalance for paper products is a concern for the industry currently, which has already been reeling under the unfavorable impact of increased digitization.

Apart from high raw-material costs, the industry has been facing rising transportation and chemical costs. Consequently, the companies have to pass on higher costs to customers, but it might not be always feasible, given the heightening competition. Therefore, these companies are now focusing on reducing costs and improving productivity to boost margins.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates gloomy prospects in the near term. The Containers - Paper and Packaging industry, which is a 14-stock group within the broader Zacks Industrial Products sector, currently carries a Zacks Industry Rank #150, which places it at the bottom 37% of more than 250 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

The stocks in the Containers – Paper and Packaging industry have collectively plunged 35.1% in the past year, as against the S&P 500’s growth of 8.2%, while the Industrial Products sector has lost 3.4%.



 

Sophisticated Packaging to Buoy the Industry

Rising demand for sustainable packaging options and eco-friendly packaging solutions will support the packaging market in the days to come. Demand for sophisticated packaging has been shooting up and the industry is constantly striving to meet the same by adopting new technology and innovative products. It is also likely to gain from the growing global demand for environment-friendly biodegradable packaging materials, backed by the increasing consumer awareness on environmental issues. Moreover, rapid urbanization and the rising purchasing power in Asia, particularly China, India, and Southeast Asia, will spur demand for packaging in the upcoming period.

Investors keen on the Containers – Paper and Packaging industry may keep an eye on Graphic Packaging Holding Company (GPK - Free Report) , Amcor plc (AMCR - Free Report) , Berry Global Group, Inc. (BERY - Free Report) and Brambles Limited (BXBLY - Free Report) . All these stocks currently carry a Zacks Rank of 3 (Hold) and have positive earnings growth estimates for the current year. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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