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Results: Pact Group share price plummets 12% after posting $290 million loss

The Pact Group Holdings Ltd (ASX: PGH) share price has fallen 12.23% in early trade after the company reported a net loss after tax of $290 million in its full-year results.

What were the highlights from Pact Group’s release?

The Aussie packaging group reported a 10% year-on-year (YoY) increase in revenue to $1.83 billion, largely thanks to two major acquisitions throughout the year.

However, company profitability slumped throughout the year, with the company booking a $290 million net loss after tax, compared to a statutory profit of $74 million in FY18.

On a segmental basis, Pact Group’s Packing and Sustainability business contributed $155 million, its Materials Handling and Pooling climbed 15%, while Contract Manufacturing services slumped 37% for the year.

However, Pact Group did report significant items after tax of $367 million in expenses, compared to $20 million in the prior corresponding period (pcp), which saw the company report that NPAT before significant items was down 18% to $77 million.

On the earnings front, the company reported earnings before interest, tax, depreciation and amortisation (EBITDA) of $231 million, down 3% on pcp, with earnings impacted by recovering higher raw material and energy costs in the first half, and lower volumes in some sectors.

However, while earnings were soft for the company, it continues to focus on efficiency and overhead cost reduction in attempt to boost overall profitability.

Operationally, Pact Group reported two long-term contracts – one for fresh produce with ALDI in August 2019 and another with a “major retailer” in the United States to expand reuse services in FY20.

While earnings took a downwards turn, Pact’s operating cash flow remains strong at $203 million, albeit down 9% on pcp, while the company’s gearing increased from 2.5x to 3.0x in FY18 under the guidance of new CEO Sanjay Dayal.

Foolish takeaway

Investors are unlikely to be impressed by the company booking a $290 statutory net loss after tax, particularly given the higher revenue numbers are largely down to inorganic growth.

The Aussie packaging industry has been under pressure in 2019, with the Pact Group share price down more than 23% since the start of the year including this morning’s early plunge, having also reported a weak half-year result in February.

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Motley Fool contributor Kenneth Hall has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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