Packaging giant Amcor has lowered its full-year earnings forecast on soft demand, particularly in North America

The packaging giant has cut its annual earnings guidance as it faces weaker demand, particularly in North America and Europe, for consumer goods.

Shares in Amcor tumbled more than 9 per cent on Wednesday to wipe almost $2bn from the value of the packaging giant after it warned of a deteriorating earnings outlook triggered by consumers pulling back on their spending in the face of pinched household budgets.

Representing a possible early warning on the weakening spending habits of shoppers, Amcor revealed that since the start of the year packaging volumes for consumer staples such as condiments, coffee, dairy meat, ready meals and some beverages had dropped off considerably.

Amcor chief executive Ron Delia said even though some of these products are considered staples for many households, the cumulative impact of soaring inflation and higher prices at the checkout was starting to wear on consumer budgets and spending intentions.

The ripple effect of this was now being felt across the supply chain and back up to Amcor, which operates 220 packaging manufacturing factories spread across 43 countries, with it forced to lower its earnings guidance for the full year.

Inflationary pressures and the higher cost of living were being blamed for the consumer pull back, with Amcor conceding it expected these weakened and softer conditions to persist for the near term.

However, Mr Delia told The Australian he expected Amcor to return to earnings growth in 2024 as there were improvements in the economic settings. Amcor is also benefiting from operational improvements like passing on $1bn in inflationary costs to its customers, forward cost savings of $US50m and product innovation.

Mr Delia said current widespread de-stocking by its customers – where they use currently held packaging inventories rather than order more from Amcor – should be behind the company by the first half of 2024.

Amcor said in a third quarter trading update on Wednesday that it expected adjusted full year earnings per share on a reported basis of US72c to US74c a share, against a previously forecast range of the lower end of US77c to US81c a share.

Amcor has cut its annual earnings guidance. Picture: William West/AFP

The market reacted badly to the poorer earnings outlook, sending Amcor shares plummeting 9.5 per cent, to $14.91.

“I think that the consumer is starting to react to inflation around the world,” Mr Delia said.

“Most of the (consumer) brands have said there is less price elasticity … or less of a reaction to price increases than they might have expected, but it still does exist. The cumulative impact of inflation over time will start to wear on consumers, even in items that are considered staples. I think that what is going on.

“The retail scan data (in North America and Europe) would suggest there is softening demand, you are seeing mid-single digit declines across food and home and personal care in both geographies.”

The profit warning and commentary around significant weakening of consumer demand in the US, as well as other geographies it operates in, could also be seen as a credible litmus test for the fragility of the global economy and the consumer as Amcor’s range of packaging is used in most consumer goods found in supermarkets, merchandise stores, convenience stores and other retailers.

Mr Delia said through the first nine months of fiscal 2023, Amcor had delivered 4 per cent higher adjusted earnings and returned approximately $US750m of cash to shareholders.

Net sales were stronger too for the nine months to March, up 4 per cent to $US11.021bn, while adjusted earnings were also up 4 per cent to $US1.173bn. Amcor was also able to declare a higher dividend, announcing a quarterly cash dividend of US12.25c per share, compared with US12c per share in the same quarter last year, and payable on June 20.

Mr Delia said despite the softer outlook and weaker earnings in the near term, a high dividend was an important part of Amcor’s “value proposition”.

Amcor had lifted prices to pass on higher inflation across its business and cut costs in the face of the weaker outlook, but this wouldn’t be enough to counter the impact of poorer trading conditions

“We were cautious on market dynamics entering the third quarter and continued to take decisive price and cost actions. Our expectation that current market conditions will persist in the near-term means we are also laser focused on continued initiatives to recover inflation, drive cost productivity and advance previously announced structural cost reductions.”

Amcor said at its flexibles segment volumes were down in the mid-single digit range and in North America volumes were down in the low single digit range. In both businesses, this reflected sequentially softer consumer demand along with customer destocking. Adjusted EBIT of $US337m was 1 per cent lower than the same quarter last year, reflecting lower volumes and increased volatility, unfavourable mix trends and ongoing cost inflation.

At its rigid packaging arm in the March quarter, net sales rose 1 per cent to $US800m. In North America, overall beverage volumes in the March quarter were 6 per cent lower than the same quarter last year as a result of lower consumer demand and customer destocking more than offsetting new business wins.

Quarterly hot fill beverage container volumes – used for products such as energy drinks and iced teas – were 1 per cent higher than last year and outperformed the market. Packaging for healthcare, medical equipment and pet food also performed strongly.

“Our sales in certain geographies have grown really well also, India is growing strongly and even in Australia and New Zealand we have had good growth,” Mr Delia said.