Amcor’s AMC fiscal 2025 third-quarter net sales were flat on the previous corresponding period on a constant-currency basis. Flexibles volumes improved by 1% year on year as healthcare gained traction, but the smaller rigids segment dragged due to softness in the North America beverages business.

Why it matters: The result is slightly below our expectations. The soft US market is dragging volumes, but healthcare packaging is also recovering slower than we thought. We cut our fiscal 2025 earnings per share to the low end of management’s narrowed guidance of AUD 0.72 to AUD 0.74, from AUD 0.72 to AUD 0.76.

  • We also slightly lower our fiscal 2026 and fiscal 2027 sales volumes given weak consumer demand in North America. We downgrade our fiscal 2026 and fiscal 2027 EPS by around 5% to AUD 0.82 and AUD 0.84, respectively. Our midcycle EPS of AUD 1.15 is little changed.
  • The merger with Berry closed in the quarter, with two months of earnings expected for fiscal 2025, largely immaterial. We expect the company to ramp up USD 650 million in annual cost savings and additional revenue by the end of fiscal 2028.

The bottom line: We maintain our AUD 17.80 fair value estimate for narrow-moat Amcor, with lower near-term earnings immaterial to our valuation. Shares screen as significantly undervalued, trading 20% below our fair value estimate. We think the market is pessimistic about volume recovery.

  • Our long-term view is unchanged. While current volumes are soft, we don’t expect this to persist. Amcor’s cost advantages, along with a strengthened customer base and additional strategic locations following the Berry merger, support our unchanged 1% volume growth forecast to midcycle.
  • The mix shift to higher-value products, including healthcare, is a key growth driver. We expect operating margin growth to average 20 basis points a year through our forecast period through synergies from the Berry merger and a favorable mix shift.

Near-term outlook for Amcor softens amid lower North American volumes

Amcor’s strategy revolves around strategic acquisitions and divestments, market share growth, and investment in capacity and capabilities. We see several merits to its strategy, which has led to organic and acquisitive growth and average annual returns on invested capital of 17% over the five years to fiscal 2024, comparing favorably against a weighted average cost of capital of 8%.

Amcor strategically acquires and divests assets to drive long-term growth and enhance returns. The most recent was the significant merger of global plastic packaging manufacturer Berry in 2025 for USD 8.4 billion. The merger considerably increased Amcor’s ability to cross-sell Berry’s range to Amcor customers and vice versa, with Berry maintaining a number one or two market share position in most of its markets.

Margin growth is mostly from a mix shift in products. Certain segments, such as animal protein and medical, have higher margins due to greater complexity, tangible benefits, or less competition. However, contracts in the flexibles segment are generally short, at about two to three years, and about 30% are less than one year. We expect incremental margin improvement from higher-value customers as lower-value customers turn over, freeing up manufacturing capacity for higher-value customers. In the five years to fiscal 2023, we estimate average revenue growth from price and mix shift was 4%, compared with 1% growth from volume. Around one fourth of revenue in fiscal 2023 came from the higher-margin segments of healthcare, protein, hot-fill beverages, premium coffee, and pet food from an estimated one fifth five years earlier.

Due to the low value/weight ratio of plastic packaging, it is imperative to reduce the transportation of finished products to control costs. Amcor’s plants are strategically located near customers, particularly in the bulky rigids business. Here, Amcor’s plants are often next door and virtually integrated with the customer’s plant to reduce transportation costs. This encourages stickiness, as these customers sign longer contracts with Amcor and are more likely to renew them on expiration due to the entrenched nature of the partnership.

Amcor bulls say

  • Exposure to high-growth emerging markets balances low-volume growth in mature developed markets for products with similar or higher profit margins.
  • Amcor’s global production network enables improved scale-based cost efficiencies leading to improved margins and profitability and the ability to further consolidate fragmented or subscale markets.
  • A focus on product innovation and differentiation leads to increased market share of niche, high-value-added products, resulting in margin growth.

Amcor bears say

  • Amcor’s aggressive acquisition strategy has the potential for overcapitalization, overcapacity, and lower-than-expected cost synergies.
  • Packaging innovation can be replicated by competitors, decreasing margins, and reducing returns from Amcor’s focus on innovation and product differentiation.
  • Environmental concerns and potential plastics legislation can reduce demand for plastic-based products and increase costs in manufacturing greener alternatives.

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