Orora Group reports an 11 per cent rise in underlying earnings and forecasts better H24

Global packaging manufacturer and distributor Orora Group shares tumbled as it admitted it was facing uncertain consumer demand and was focusing on cost management.

Global packaging manufacturer and distributor Orora Group shares have tumbled 6.5 per cent as it admitted it was facing a period of uncertain consumer demand and was focusing on cost management.

Melbourne-based Orora, which paid €1.3bn ($2.16bn) for global premium glass business Saverglass in December, said on Monday in the last six months of the 2023 calendar year it booked a statutory net profit after tax of $68.2m, down $39.9m because of significant item expense after tax of $40.4m, relating to the acquisition’s transaction costs.

It had underlying earnings before interest and tax of $184.1m, up 11 per cent. Its sales revenue for the six months was $2.14bn, down 5.5 per cent, and excluding Saverglass revenue was down 10.6 per cent.

Managing director and chief executive Brian Lowe said against a backdrop of challenging economic conditions, Orora – which has an almost 9000-strong global workforce – delivered a “solid earnings performance” for the first half as it continued its cost management strategy.

“Orora retains a strong balance sheet, and with robust cash generation the company remains well positioned for ongoing organic investment,” he said.

“Sustained business optimisation gains with strong embedded pricing discipline delivered an increase in EBIT of 0.9 per cent from North America operations, despite being impacted by ongoing softness in the broader North American manufacturing industry.

“Our earnings growth for the period is vastly different from our peer group, which has had revenue declines and earnings decline. That’s why we’re quite bullish about the performance of that part of the business.”

Mr Lowe said underlying EBIT increased by 2.2 per cent in Beverage Australasia, reflecting another robust performance from the team, with continued volume growth and improved product mix in Cans volumes partially offset by lower glass volumes.

Orora Group chief executive Brian Lowe.

Looking at the second half of the 2024 financial year, despite uncertain global consumer demand Orora expects its EBIT to be higher, excluding the contribution from Saverglass.

In Australasia, continued strength in its Cans business in 2023-24 is expected to offset the ongoing softness in Glass from lower commercial wine volumes.

In North America, in line with 1H24, ongoing margin accretion through account profitability programs and a continued focus on cost management is expected to be largely offset by ongoing volume softness.

“Although we’re seeing softer revenue, cost reductions are under way,” Mr Lowe said.

He said Europe-based Saverglass, which has a 33 per cent market share in the high-end spirits bottles market, performed in line with expectations during December, contributing revenue of €69.5m, EBITDA of €15.1m and EBIT of €8.1m.

“We’ve had one month of earnings which is pretty much exactly in line of where we expected to be in December and to be honest January has thrown up no surprises either,” Mr Lowe said.

He said Saverglass was intended to be run as a division of Orora. Orora has started combining its glass manufacturing plant in Gawler, South Australia with the Saverglass portfolio to form a global network of high-performance production facilities. Near-term synergies of about $15m are expected to be progressively realised from the 2025 financial year from network optimisation, cost rationalisation and operational efficiencies across the combined Glass business.

“We expect earnings growth with or without Saverglass and we expect to see the Saverglass part of the business to grow in North America,” Mr Lowe said.

“Saverglass is a relatively new entrant in North America and the market share is half of what its global market share is. We’re actively working now to see who we can use our resources in North America to accelerate growth and we see it as a great opportunity.”

Orora closed 6.55 per cent lower at $2.71 as analysts were mixed in their appraisals of the company. The company announced a dividend of 5c that will be paid on April 11.

Citi said it was a “resilient result” and called Orora’s result in North America a “modest miss”.

However, Jarden said given the well-documented challenges in the sector it was a “messy” disclosure and it expressed concern over pressure on Orora’s balance sheet and free cash flow from a worse-than-forecast earnings outlook for Saverglass.

UBS said Orora’s EBIT result with a better than expected performance from Saverglass during first month of ownership offset minor misses in the base business

“Orora is effectively managing its operating costs and churning low margin customers to

support earnings,” it said.

“In FY24 Saverglass outlook remains uncertain, with earnings growth dependant on reduced customer destocking and a recovery in consumer demand.”