Orora and Amcor rally like growth stocks as customers absorb higher prices

Thu 28 Apr 22, 2:59pm (AEDT)
industrial packaging

Key Points

  • Orora expects FY22 earnings to be higher than FY21
  • The typically slow moving Orora and Amcor are both up at least 4% on Thursday
  • Perhaps investors are chasing defensive plays amid an increasingly fragile market

Bottles, cans and box maker Orora (ASX: ORA) has rallied to 2-year highs amid a positive earnings outlook for FY22.

On Wednesday, Orora said it expects FY22 earnings to be higher than FY21. Key points include: 

  • Australasia earnings growth is expected for the beverage business in the second-half of FY22. Though, full-year earnings to be broadly in-line with FY21

  • North America to deliver “continued strong earnings growth for the full year”

  • Group cash conversion of >70% (FY21: 72.9%)

  • FY22 total dividend to be towards the top end of target 60-80% payout range

  • Buyback is 63% complete as at 15 April

    • 26.7m shares have been purchased at an average price of $3.53

The encouraging outlook is likely the catalyst behind an uncharacteristic 4.9% gap up for the world's largest consumer packaging company, Amcor (ASX: AMC).

Charging customers more?

Orora did not shed light as to the source of its earnings resilience, which is likely stemming from price hikes as opposed to organic growth.

According to the Australian Financial Review, Orora previously put up its prices 13 times in 18 months in North America in an attempt to offset a sharp rise in commodity prices like paper, lumber and aluminium.

The narrative is very much the same for Amcor, which managed to grow sales by 12% in the first-half of FY22, most of which came from price increases totalling $650m.

Food for thought

Orora and Amcor are typically slow and sideways moving stocks that rarely have any exciting moments. So its quite unusual to see Orora breaking out to 2-year highs and Amcor up 4% as the market opens.

The upward move speaks volumes about the company's resilient earnings and ability to pass on cost inflation without experiencing any demand destruction - and that, is perhaps a characteristic investors are looking for amid an increasingly fragile market and bumpy US corporate earnings season.

Written By

Kerry Sun

Content Strategist

Kerry holds a Bachelor of Commerce from Monash University. He is an avid swing trader, focused on technical set ups and breakouts. Outside of writing and trading, Kerry is a big UFC fan, loves poker and training Muay Thai. Connect via LinkedIn or email.

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