Orora shares surge on better than expected full-year earnings

Shares in bottle and can maker Orora have surged as it positions itself for a major shift in the way drinks companies market their products.

Orora chief executive Brian Lowe at the company's recycling facility near Gawler in Adelaide’s north. Picture: Andre Castellucci

Shares in bottle maker and packaging company Orora surged on Thursday on the back of a better than expected full-year result and a brighter outlook for the year ahead.

Strong earnings growth in the company’s North American visual display and cardboard box division helped the company to an 8.5 per cent increase in underlying profit after tax to $203m - 4 per cent ahead of consensus estimates.

Revenue was 4.9 per cent higher at $4.3bn, while statutory net profit came in at $184.8m, down 1.2 per cent from the previous year due in part to one-off costs associated with the decommissioning of the company’s former Petrie mill site.

Earnings within Orora’s Australasia beverages business was slightly higher than the previous year, with a near 10 per cent increase in can volumes offsetting a drop in glass bottle demand, which continues to be affected by the slowdown in global wine volumes.

Orora managing director Brian Lowe said the shift from glass bottles to cans was likely to continue as Australia caught up with a global trend in beverage packaging.

“If we look at the products that are sold in Australia, whether it be beer, carbonated soft drink or whatever, we would say that compared to other jurisdictions in the world we were probably underweight in cans in terms of the penetration,” he said.

“So there’s a little bit of that levelling up, particularly with things like beer ... where we’re seeing the real drive with craft beer over the last three or four years.

“And the other piece is that figures out of the US show five years ago only 50 per cent or less of all new beverage formats were launched in cans. In the last year it was over 70 per cent, and so that’s going to drive the growth.”

Orora is currently in the middle of a $195m investment in expanding its can production capacity, with upgrades to its Ballarat and Dandenong facilities recently completed and a second production line at its Revesby site due for commissioning in the second half of 2025.

The potential removal of Chinese tariffs on Australian wine could support increased demand in the glass segment, Mr Lowe said, but the company continued to target other glass products including for spirits and olive oil.

“We’re not sitting around waiting for that to happen, and as we have done over the last several years, we have been progressively moving ourselves into other markets whether it be spirit bottles, carbonated water bottles or olive oil bottles,” he said.

“We’re actively trying to pursue new formats for the product, whereas traditionally we’ve been wine and beer, and we’ll continue to do that. But should the Chinese market open up that’ll be a good thing for all of us.”

Orora expects earnings to be higher in 2023-24 on the back of continued strength in North America and growth in its cans business.

“In Australia cans are going to be up but we are expecting some continued softness in the glass business based on the demand decrease that we saw throughout FY23,” Mr Lowe said.

“We don’t know what’s going to happen for the full-year for wine and beer in glass, so that’ll be the swinger, and obviously the China piece is in there as well. We’re confident it’ll (China wine trade) come back - it’s really a matter of when and do we get an impact in FY24.”

In a note to clients Citi analyst Samuel Seow said the earnings lift predicted in 2023-24 was more positive than the flat outlook predicted by analysts.

“Looking forward Orora is expecting earnings growth despite the soft macro, which is better than the flat outcome consensus is pricing in,” he said.

“This appears relatively achievable given North America margins are exiting about 50 basis points higher than 1H23, while Australia should continue its return to growth.”

Orora will pay a final dividend of 9 cents, bringing its full-year payout to 17.5 cents, up 6.1 per cent from the previous year.

The company’s shares were trading 7 per cent higher on Thursday afternoon at $3.82.

Originally published as Orora shares surge on better than expected full-year earnings