The shares of packaging giant Amcor Limited (ASX: AMC) will be ones to watch this morning following the release of a mixed half-year result.
Here are the key takeaways from the release:
- Revenues from ordinary activities were down 1.8% on the prior corresponding period to US$4,467.3 million.
- First-half statutory net profit after tax was down 6.2% to US$286.6 million.
- First-half profit after tax but before significant items increased 1% to US$308.6 million.
- Diluted earnings per share of 24.5 U.S. cents, down 5% on the prior corresponding period.
- Interim dividend of 19.5 U.S. cents per share, payable 24 March 2017.
- Guidance unchanged for moderate full-year profit before interest and tax growth.
What happened?
Whilst Amcor's Rigid Plastics business disappointingly saw profit before interest and tax drop by 6.5% to US$143.5 million, pleasingly the strong performance of its Flexibles segment saved the day.
Profit before interest and tax in that segment rose 5.3% to US$373 million thanks to a combination of growth from organic sources and recently acquired businesses.
Playing a key role in the drop in overall profits was the strong U.S. dollar. It had a negative impact on Amcor's profit after tax after translating non-U.S. dollar earnings into U.S. dollars for reporting purposes.
So although the company posted a reasonably sharp decline in first-half statutory net profit after tax, on a constant currency basis profit after tax was up 3.8% and earnings per share increased 4.6% over the prior corresponding period.
Further, after adjusting for its Venezuelan write-downs, earnings per share growth is even higher at 12% year-on-year.
Is it a buy?
Although I expect the market will focus on its constant currency result rather than the statutory figure, I prefer to look at the latter of the two.
Based on that particular result I wouldn't class Amcor as a buy today, especially when its similarly valued spin-off Orora Ltd (ASX: ORA) has been producing double-digit earnings growth.
At 19x trailing earnings Amcor looks a little on the expensive side after today's result, even with its defensive qualities.
So right now I would avoid Amcor and consider an investment in Orora instead. I believe it has far greater growth prospects and that its shares come at a much fairer price.
