The Orora Ltd (ASX: ORA) share price is sinking lower this morning following the release of the packaging company's FY20 first-half results. At the time of writing, Orora shares are down 4.62%.
What did Orora announce?
Orora recorded statutory net profit after tax (NPAT) of $76.6 million, down 13.3% on the prior corresponding period (pcp), while statutory earnings per share (EPS) was 6.4 cents, down 11.1%.
Sales revenue came in 13.3% higher to $1,835.2 million, while earnings before interest and tax (EBIT) was $133.1 million, down 4.1% on the pcp.
Orora recorded operating cash flow of $127.2 million for the period which was $12.5 million below the pcp, while return on average funds employed was 19.2%, down from 21.9%.
Net debt at 31 December was $996 million, up from $872 million at the end of the prior period. Meanwhile, leverage was 2.3 times, up from 1.9 times at June 2019.
The packaging company declared an interim ordinary dividend of 6.5 cents per share, 30% franked and 70% sourced from the conduit foreign income account, in line with the pcp.
Australasia performs strongly
Orora Australasia (comprising the Beverage business group with contributions from the Glass, Cans and Closures divisions) delivered EBIT of $82.6 million for the period, a 1.8% increase on the pcp. Sales revenue was 2.4% higher to reach $412.2 million.
In Australasia, earnings improvement was driven by a solid performance in Cans with volume growth in craft beer and a continuing switch by consumers toward can formats. However, this was largely offset by higher input costs and adverse mix in the Glass business. Volumes in Glass were in line with the prior period.
Orora commented that good progress is being made to complete the sale of the Australasian Fibre Business and to address the ongoing challenges faced by the North American businesses.
North America conditions remain challenging
Orora North America (comprising the Orora Packaging Solutions (OPS) and Orora Visual (OV) business groups) delivered EBIT of $50.5 million, down 12.5% compared to the prior period. Sales revenue was 16.9% higher to $1,423 million, primarily driven by contributions from the Pollock acquisition and the effects of a weaker Australian dollar. In local currency terms, EBIT declined 17.2% to US$34.6 million, while sales revenue grew 10.5% to US$974.1 million.
Constant currency earnings in North America were lower, with the subdued trading conditions experienced in FY19 continuing into FY20. In response, a comprehensive improvement program has been implemented in OPS.
Commenting on his first results, Orora Managing Director and CEO, Brian Lowe, said: "A challenging first half for the Group, with subdued economic conditions across Orora's geographies impacting earnings. While we were pleased to deliver a positive first half in Australasia, North America earnings were lower compared to the prior corresponding period, reflecting continued tough trading conditions in that region."
Challenging outlook
Consistent with the outlook previously provided at the AGM in October 2019, Orora expects challenging market conditions to persist for the remainder of FY20. Operating EBIT for the continuing operations is anticipated to be lower in FY20.
