Amcor Warns On Earnings Hit As Costs Bite

By Glenn Dyer | More Articles by Glenn Dyer

Amcor has kicked off what is known as the ‘Confession Season” – usually starting in May and running through to mid June or early July for June 30 balancing companies. It’s when companies own up to stumbles or bumbles that result in downgrades to earnings forecasts.

In fact it was a surprise to hear from packing giant, Amcor which told the market yesterday that it now expects to be hit with its biggest earnings impact in seven years, as rising raw material costs weigh on its Flexibles business.

The news saw the company’s shares as the company said it was looking at “a modestly lower FY outlook compared to February 2018’.

Investors took that to mean lowered guidance for the year to June 30. The shares fell 1.2% to $13.52.

Amcor warned at the interim results release in February that it was expecting a full-year hit of around $US25 million ($A33 million) to its Flexibles segment thanks to rising raw material costs.

The company said yesterday in a presentation to a Macquarie investor conference that that price pressure has not eased and have in fact continued to rise with the pace of inflation with signs of further increases ahead.

It forecast an impact of at least $US15 million to its Flexibles segment in the second half of the financial year.

"This year’s earnings impact from these raw material increases will be the most significant in any year since FY11 and so it is clearly an unusual period," Amcor said on Wednesday.

Amcor said the rising material costs also have a disproportionate impact on the 27 emerging markets which it operates in.

Chief executive Ron Delia said the company has reacted quickly to changing industry conditions, recovering higher input costs and slowing capital spending given the lower volumes.

He said while the Amcor has already bumped up prices across the business in response, the costs will take time to recover.

"Since December we have seen further increases in raw material costs in the high single digits," Mr Delia said.

"As is always the case, we will recover these cost increases over time but there is a time lag between the impact of raw material cost movements and the related pricing actions.

"Of course, we always push for more but we have to be pleased with the resilience of our teams around the world and the proactive way they get after opportunities to improve the business."

Amcor also said lower volumes from its Rigid Plastics segment will have a greater impact on earnings in the second half of the year, than it did in the first six months.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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