Amcor’s ‘Rigids’ a possible victim of selldown plans

Plastic bottles, jars, tubes boxes and cardboard underperform Amcor’s flexible packaging operations in North America.

Further attention is turning to Amcor’s highly anticipated global asset sale program following its $13bn acquisition last year of rival Berry Global Group – and the point of focus continues to be its US-based non-flexible packaging assets.

The so-called “Rigids” business, a category which incorporates packaging like plastic bottles, jars, tubes boxes and cardboard, has underperformed Amcor’s flexible packaging operations in North America for years, say analysts in a Macquarie research note.

Macquarie says this part of the business has had lower margins and a more concentrated customer base.

Beverages demand was also more discretionary than food.

The analysts are assuming a divestment of between 5 per cent and 10 per cent of Amcor’s overall group sales at a price at between six and eight times earnings before interest, tax, depreciation and amortisation.

This would reduce earnings per share by 2 to 4 per cent and lower debt.

The analysts estimate the value of the Rigids business at between about $US2.3bn and $US2.5bn.

Amcor has signalled a stronger focus on organic growth and margin quality, and it could narrow its business focus and improve margins and growth prospects as well as lower leverage through asset sales.

Earnings before interest and tax has been 30 per cent lower over the past decade for Rigids – from $US321m in 2015 to about $US220m expected this financial year.

Margins are 7.7 per cent compared with 13.6 per cent for flexible packaging.

The weakness has been most pronounced in the North American beverages segment, accounting for about $US1.5bn of sales, or 50 per cent of Rigids revenue.

This is a reflection of market share losses of key customer PepsiCo and, more recently, weak beverages demand since the pandemic.

A shift to more value orientated multi-pack formats has favoured cans.

The remaining 50 per cent of the Rigids business is evenly split across speciality containers and its Latin American Polyethylene Terephthalate (PET) packaging unit.

These have been relatively better performers – particularly Latin America – with higher revenue growth rates, margins and greater customer and geographic diversification.