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Strong Demand, Innovation Drive Amcor (AMCR) Amid High Costs

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Amcor plc AMCR is poised well to gain on strong demand in end markets and expected synergies from the Bemis acquisition. Focus on growing presence in high growth segments, emerging markets and innovation will also drive growth. Further, consumers’ increasing demand for more sustainable packaged products represents a major growth opportunity.

Solid Demand to Sustain in Fiscal 2021, Cost Woes Remain

Amcor’s sales have benefited from the stay-at-home trend amid the pandemic. Both the Rigid Packaging and Flexible Packaging segments are performing well through a combination of organic growth and disciplined cost control. In the first nine-month period of fiscal 2021, the Flexibles segment has consistently witnessed solid growth across a broad range of end markets, including higher-value end markets like protein, coffee, cheese and pet food. The Rigid packaging segment is also seeing strong consumer demand. So far in fiscal 2021, in North America, beverage volumes are 7% higher year on year and hot fill container volumes are up 13%. Strong consumer demand reflects higher-at-home consumption of packaged beverages courtesy of higher retail sales in multi-pack formats across a range of product categories. Brand extensions and the introduction of new health and wellness oriented products in PET containers are likely to have contributed to growth. Specialty container volumes were also driven higher by growth in certain categories including spirits, personal care and home cleaning.

Meanwhile, the company is facing higher raw material costs, and higher labor and transportation costs. Further, the Flexibles segment has been facing lower volumes in certain healthcare end markets due to fewer elective surgeries and lower prescription trends on account of the COVID-19 pandemic. Nevertheless, higher demand in other categories will help offset these headwinds. Amcor expects adjusted constant currency earnings per share growth of approximately 14-15% in fiscal 2021. The guidance translates to earnings per share in the range of 73 cents to 74 cents for fiscal 2021.

Investment in High-Growth Segments, Innovation & Sustainability

Backed by its strong balance sheet and annual free cash flow in excess of $1 billion, Amcor continues to invest in growth, expand capacity in higher value segments and higher-growth, more packaging-intensive segments like healthcare, protein and premium coffee or hot fill beverage containers and barrier films.

The company is investing in a major capacity expansion for one of its aluminum-based product segments at a Flexibles Packaging plant in Switzerland to support the continued high growth of the premium coffee segment. It has begun construction of a new greenfield plant in China to add capacity to its business in that high-growth market.

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. It recently announced a strategic investment in ePac, a relatively new start-up in the flexible packaging space. ePac has a fast-growing international footprint and is focused on addressing the needs of small and medium sized consumer goods customers through an unique, digitally enabled and scalable business model. This will complement Amcor’s innovation capabilities.

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 also increased the value of packaging by ensuring hygiene and sterilization, and extended shelf life. Consumers’ increasing demand for more sustainable packaged products represents a major growth opportunity. 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 acquired Bemis Company Inc. through an all-stock transaction in June 2019, which expanded its global footprint and opened up new attractive end markets and customers. The company expects cumulative cost synergies of approximately $150 million (pre-tax) by the end of fiscal 2021 and is well on track to deliver at least its original target of $180 million by the end of fiscal 2022.

Price Performance

Amcor’s shares have gained 11.7% over the past year, compared with the industry's rally of 35.1%.

Zacks Investment Research
Zacks Investment Research

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Zacks Rank & Stocks to Consider

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

Some better-ranked stocks in the industrial products sector are Tennant Company TNC, Encore Wire Corp. WIRE and Arconic Corp. ARNC. All of these stocks sport a Zacks Rank #1 (Strong Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Tennant has an anticipated earnings growth rate of 49.5% for 2021. The company’s shares have gained around 18% year to date.

Encore Wire has an estimated earnings growth rate of 49.5% for the ongoing year. Year to date, the company’s shares have rallied nearly 36%.

Arconic has a projected earnings growth rate of 447% for the current year. The stock has appreciated around 21%, so far this year.

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Amcor PLC (AMCR) : Free Stock Analysis Report

Encore Wire Corporation (WIRE) : Free Stock Analysis Report

Tennant Company (TNC) : Free Stock Analysis Report

Arconic Corporation (ARNC) : Free Stock Analysis Report

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