Orora Forecasts Earnings Dip Amid Challenging Market Conditions

Highlights:

• Earnings Forecast Adjusted: Orora revises FY24 EBIT to range between AU$307 million and AU$317 million, signaling a slight decline from FY23's AU$320.5 million, not accounting for earnings from the recent Saverglass acquisition.
• Challenges in North America: The company's North American operations witness demand softness and price deflation impacts, with an expected revenue dip in 2H24 and ongoing strategic investments to counter economic volatility.
• Saverglass and Australasia Update: While Australasia sees balanced performance, Saverglass confronts destocking challenges, leading to a forecasted sales tonnage drop. Tariff removals on Australian wine to China hint at potential growth from FY25.

Updated FY24 Earnings Outlook

Orora Limited (ASX: ORA) has revised its earnings forecast for the fiscal year 2024, anticipating a slight decline compared to the previous year. The Group now expects earnings before interest and taxes (EBIT) to fall between AU$307 million and AU$317 million, down from AU$320.5 million in FY23. This adjustment excludes earnings from Saverglass, acquired in December 2023, for its first seven months under Orora.

North American Operations Face Headwinds

Orora's North American operations (OPS) have encountered challenges, including softer demand in the Distribution sector and the impacts of price deflation. Despite a decrease in average daily sales and an anticipated 3% revenue drop in the second half of FY24, Orora remains optimistic about a recovery, backed by its diverse product range and market exposure.

Australasia and Saverglass Update

In Australasia, strong performance in the Cans sector is expected to balance out weaker demand for Glass, with no immediate gains from the lifting of tariffs on Australian wine exports to China. Growth from this market is anticipated starting FY25. However, Saverglass faces reduced sales forecasts due to ongoing destocking, leading to an 11% decrease in expected sales tonnage for the second half of the year compared to the same period in 2023.

Financial Health and Outlook

Despite these challenges, Orora maintains a robust balance sheet, with leverage expected to slightly increase to about 2.8x by June 2024. The company assures strong liquidity, with over AU$600 million in undrawn funds and an average debt maturity of approximately four years. The future, however, hinges on global economic conditions and currency fluctuations, underscoring a period of uncertainty and cautious optimism for Orora.

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