Global packaging manufacturer Orora [ASX:ORA] has seen its share price jump by 7.28% to $3.83 per share in this afternoon’s trading. This comes after another strong showing in its financial results this year despite some slowdowns seen in the broader manufacturing industry, particularly in the US.
It’s been a steady year for the sustainable packaging company, the most significant changes for the company have been the costs and demand for aluminium cans.
The company has invested heavily in plant expansions to manage the growing demand for ‘slim and seek’ cans as Millennials and Generation Z consumer habits shift. However, it also faced an 11% increase in the cost of cans in December as demand crunched against the energy-intensive costs.
Shares of the company were down until early February but rose by 32.5% in 2023 as fears of a hard US recession waned.
Source: TradingView
Orora earnings report
Orora, a can and bottle maker, captured much of the evolving packaging market despite a 1% drop in revenue in the 12 months leading up to June 2023 due to lower sales in its US division.
Its Australasian segment saw a 14.1% increase in sales revenue driven by higher cost passthrough from inflation, which affected aluminium can costs.
The company’s total underlying net profit after tax (NPAT) was up by 8.5% to $203 million, with strong signals from both segments encouraging investors today.
The US division saw double-digit earnings growth through FY23, while Australasia saw continued strength in consumer demand for cans.
Thanks to their ease of recyclability and substantial prevalence of craft beer consumption, demand for cans has steadily grown.
Costs have risen for packers like Orora, who transferred that directly onto consumers.
The company has flagged a surge of capital expenditures to revamp growth, including announcing ‘Helio’, a new high-speed digital printing service that will join the new $80 million canning line installed in Dandenong at the end of June.
General manager of Orora Beverage, Chris Smith, said:
‘We are seeing the demand for aluminium cans continue to grow with particularly exciting developments across a number of categories, including craft beer, soft drinks, RTDs and seltzers.
‘Once commissioned, what this means for our customers is that wait time will be significantly reduced in delivering a specific can size or label design for activities such as promotions, new products and limited-edition retail events. With no label set-up required and near-immediate supply, shorter, faster minimum runs can be accommodated, providing greater flexibility in product and campaign planning.’
Helio is expected to be deployed by the third quarter of 2024.
Meanwhile, the company’s commercial wine and bottle sales were down as cash-strapped consumers moved away from budget wine and beer bottle consumption shifted.
Orora said its cost management would offset any future softness in demand in this sector, while also hinting that the next quarter’s performance ‘remains subject to global and domestic conditions’.
Outlook for Orora
Orora had a strong year despite some challenges in the broader manufacturing industry. With a background of higher input costs and uncertainty within all its markets throughout the year, the company’s results were solid.
So far, the company’s strategies have aligned well with changing consumer behaviour and demand.
With an additional investment of $145 million towards improving its beverage can line’s capacity and printing, the company is poised to capture a greater share of the craft and brewery cans market.
It’s also done an impressive job at maintaining strong underlying EPS growth, with a CAGR of 22.2%.
Source: Orora
But with high energy prices being seen, especially earlier in the year, some risks remain as aluminium smelters could struggle to transition their power sources and send up prices again.
Around 10% of Australia’s total energy output is used for smelting aluminium.
This is further compounded by the growing demand for cans, which Orora is keenly aware of.
Orora had previously established a 100% pass-through agreement with its can customers to pass on rising aluminium prices directly, but there remains a risk if costs become unpalatable.
As those prices now ease, the company’s focus on sustainable packaging is a key competitive advantage. As consumers become more environmentally conscious, demand for sustainable packaging is expected to grow.
Orora is well-positioned to meet this demand with its range of sustainable packaging solutions and new fast-to-market printing services, making it an attractive buy for many investors.
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