The Pact Group Holdings Ltd (ASX: PGH) share price took yet another beating this morning, this time on the back of an announcement to the ASX this morning. Pact has reported that the embattled company expects EBITDA for the 2019 financial year to come in at the "low end" of the $230 million to $245 million range. Pact shares dipped down to $2.22 this morning, but have now bounced back are trading 4.17% higher at $2.38 at the time of writing.
Pact also reported that "significant items after tax for the year are expected to be a loss of $370 million", but Pact has also successfully obtained approval to extend debts of over $380 million until 2022, instead of July next year. As well as this, Pact has entered into a new $50 million unsecured term loan over six years, which management is apparently "very pleased" with.
Why can't Pact catch a break?
The Pact share price has had a horror start to 2019 so far, on top of a horrible 12 months. This time last year, Pact shares were trading for around $5.20, but a series of write-downs, profit downgrades and bad news has beaten the share price down relentlessly over the past 12 months by nearly 60%.
Pact's woes have mostly come from sharp increases in manufacturing costs for the company, including from the cost of the raw resin that Pact uses to manufacture its rigid plastics. This ASX update confirms that Pact is still struggling with this issue. However, Pact is a company without a lot of competition and with products that have very inelastic demand – the rigid plastics that Pact manufacture are used in everything from milk crates to laundry detergent bottles. I expect that Pact will be able to pass on its increased costs to its customers over time and this will restore underlying earnings.
Foolish takeaway
In my personal view, Pact's earnings problems are temporary, and the company will be able to slowly recover from these low earnings. Pact's management seems to agree with me, as many have been buying shares heavily over 2019 so far.
