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Amcor (AMCR) Rides on Solid Demand Amid Cost Inflation

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

Demand, Pricing Actions to Offset High Costs in FY22

Amcor’s Rigid Packaging and Flexible Packaging segments are performing well through a combination of organic growth and disciplined cost control. So far in the first nine months of fiscal 2022, the Flexibles segment has witnessed growth in volumes in medical, condiments, liquid beverage and confectionary end markets in North America. In Europe, higher volumes were reported in pet food, healthcare, premium coffee, meat and confectionary end markets.

The Rigid packaging segment is seeing strong consumer demand. In North America, beverage volumes were up 2% year over year in the first nine-month period of fiscal 2022, and hot fill container volumes were up 2%. The segment is witnessing volume growth in isotonics, as well as iced tea categories, where customer demand for 100% recycled PET bottles has been strong. Strong consumer demand reflects higher-at-home consumption of packaged beverages supported by higher retail sales in multi-pack formats across a range of product categories. Growth is being driven by brand extensions and the introduction of new health and wellness-oriented products in PET containers. These factors are expected to support the company’s top-line performance in fiscal 2022.

Backed by these trends, Amcor expects adjusted constant currency earnings per share growth of approximately 9.5-11% in fiscal 2022. The guidance anticipates earnings per share in the range of 79.5 cents to 81 cents for fiscal 2022.

So far in fiscal 2022, Amcor faced supply shortages and price volatility of certain resins and raw materials in both of its segments. The increased supply chain disruptions impacted the company’s ability to fulfill order bookings. This can be attributed to a variety of factors, including the ongoing impacts of the COVID-19 pandemic resulting in labor shortages and transportation constraints, and energy shortages and weather disruptions affecting raw material supply in certain regions. These headwinds are expected to persist. However, higher demand and pricing actions will help offset these headwinds.

Solid Investment Strategy

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.

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

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Amcor’s shares have gained 9.2% in the past year, against the industry's decline of 1.8%.

Zacks Rank & Stocks to Consider

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

Some better-ranked stocks worth considering in the Industrial Products sector are Graphic Packaging Holding Company GPK, Myers Industries MYE and Packaging Corporation PKG.  While GPK and MYE flaunt a Zacks Rank #1 (Strong Buy), PKG carries a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

Graphic Packaging has an estimated earnings growth rate of 86.8% for the current year. In the past 60 days, the Zacks Consensus Estimate for current-year earnings has been revised upward by 7.6%.

Graphic Packaging pulled off a trailing four-quarter earnings surprise of 7.2%, on average. The company’s shares have appreciated 18% in the past year.

Myers Industries has an expected earnings growth rate of 67% for 2022. The Zacks Consensus Estimate for the current year’s earnings has moved up 27% in the past 60 days.

MYE has a trailing four-quarter earnings surprise of 20.1%, on average. Myers Industries’ shares have gained 7% in a year’s time.

Packaging Corporation has an expected earnings growth rate of 16.2% for 2022. The Zacks Consensus Estimate for the current year’s earnings has moved up 4.2% in the past 60 days.

PKG has a trailing four-quarter earnings surprise of 19.6%, on average. Packaging Corporation’s shares have gained 3% in the past year.

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Amcor PLC (AMCR) : Free Stock Analysis Report
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