Amcor (AMCR) Stock Dips 16% in a Year: Will It Bounce Back?
Amcor Plc. AMCR shares have lost 16.1% in a year against the industry’s growth of 2.2%. This mainly reflects lower volumes due to weak consumer demand. Higher input costs and supply-chain headwinds added to the company’s woes.
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Low Volume, High Costs Ail
Amcor’s volumes have been bearing the brunt of weak consumer demand due to the current inflationary environment. Customers have also been lowering their inventory, which further impacted demand. In fiscal 2023, Amcor witnessed a decline in volumes in the Flexible and Rigid Packaging segments. Amcor expects this weakness in volumes to persist in fiscal 2024, particularly in the first half.
Moreover, the company’s major raw materials include polymer resins and films, paper, inks, adhesives, aluminum, and chemicals. It has been witnessing raw material price volatility due to supply shortages of certain resins and raw materials.
This is anticipated to continue in fiscal 2024. On top of this, the company is facing higher labor and transportation costs. All of these factors will weigh on its margins in the near term.
The company has a market capitalization of around $5 billion. AMCR currently carries a Zacks Rank #2 (Buy). Let us discuss the factors that indicate that the stock might stage a comeback.
Focus on Growth to Aid Results
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. AMCR has a leading position in each of these categories, which together generate more than $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.
Also, there are several opportunities to differentiate across these categories, given the need for higher performance features, such as barrier, heat resistance and resealability, which, in turn, drive higher margins. Thus, the company is investing more in these segments to capitalize on the growth prospects.
Investment in Innovation to Drive Growth
Amcor is constantly striving to get an edge over competition and to meet ever-evolving consumer needs through innovation. The company invests around $100 million annually in R&D.
AMCR also teams up with high-growth, visionary companies that provide opportunities for innovations and explore options to make packaging more sustainable. The company opened and innovation center in Jiangyin, China, in December 2022.
With an investment of almost $100 million, the 590,000-square-foot plant is the largest flexible packaging plant by production capacity in China. It further strengthens Amcor’s ability to meet the growing customer demand throughout the Asia Pacific. The company is also building a state-of-the-art innovation center in Ghent, Belgium. These centers will complement Amcor’s existing innovation centers in North America.
Solid & Flexible Balance Sheet Bodes Well
Backed by its strong balance sheet and an annual free cash flow in excess of $1 billion, Amcor continues to invest in growth, and expand capacity in higher value segments and higher growth markets. The company's total debt to total capital ratio was at 0.64 as of Sep 30, 2023, in line with the industry.
Amcor repurchased around 3 million of its outstanding shares in the first quarter of fiscal 2024 and paid out dividends of $181 million. AMCR allocated $70 million toward share repurchases as part of its previously announced program. The company projects an adjusted free cash flow of $850-$950 million for fiscal 2024, higher than $848 million in fiscal 2023.
The company earlier hiked its quarterly dividend to 12.25 cents per share from 12.00 cents per share. Amcor has a dividend yield of 5.36%, higher than the industry’s 3.09% and the S&P 500’s 1.44%.
AMCR has been undertaking pricing actions and structural cost-saving initiatives. These actions are expected to offset the impacts of low volumes on its results.
Other Key Picks
Some other top-ranked stocks from the Industrial Products sector are Alamo Group Inc. ALG, Applied Industrial Technologies AIT and A. O. Smith Corporation AOS. ALG currently sports a Zacks Rank #1 (Strong Buy), and AIT and AOS carry a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Alamo Group’s 2023 earnings per share is pegged at $11.59. The consensus estimate for 2023 earnings has moved north by 5% in the past 60 days. The company has a trailing four-quarter average earnings surprise of 19.8%. ALG shares have rallied 37.1% in a year.
Applied Industrial has an average trailing four-quarter earnings surprise of 13.9%. The Zacks Consensus Estimate for AIT’s 2023 earnings is pinned at $9.43 per share, which indicates year-over-year growth of 7.8%. Estimates have moved up 2% in the past 60 days. The company’s shares have gained 36.6% in a year.
The Zacks Consensus Estimate for A. O. Smith’s 2023 earnings is pegged at $3.77 per share. The consensus estimate for 2023 earnings has moved 1% north in the past 60 days and suggests year-over-year growth of 20.4%. The company has a trailing four-quarter average earnings surprise of 14%. AOS shares have gained 30.9% in a year.
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