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Orora share price on watch as COVID-19 takes toll on results

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The Orora Ltd (ASX: ORA) share price is on watch this morning after the packaging provider delivered increased revenue but decreased profits. Tough trading conditions in North America were exacerbated by COVID-19 which adversely impacted results. 

What does Orora do? 

Orora is a packaging provider supplying customers with glass bottles, aluminium cans, caps and closures, boxes, cartons, and more. Packaging is a modern day necessity, demand for which has not been dented by COVID-19. Orora had previously estimated any negative financial impact from the pandemic would be limited to $25 million. Orora sold its Australiasian Fibre business in April netting some $1,550 million. The company then returned $600 million to shareholders via a special dividend of $450 million and a capital return of $150 million. 

How did Orora perform in FY20? 

Orora reported a 5.2% increase in sales revenue from continuing operations which reached $3,566.2 million. The Australasia sector delivered sales of $785.9 million, in line with the prior corresponding period. North American sales revenue was also steady at US$1,86.4 million, but EBIT declined 29.6% to US$51.8 million due to market weakness and margin pressure. The estimated net impact of COVID-19 on North American EBIT was ~US$15 million. 

Group underlying EBIT fell 14.3% to $224.3 million. This gave underlying NPAT from continuing operations of $127.7 million, a decrease of 22.8% on the prior corresponding period. Earnings per share were 13.2 cents. A final ordinary dividend of 5.5 cents per share (unfranked) was declared. Orora also announced an on-market buyback of up to 10% of issued share capital commencing in September. This is expected to cost ~$230 million. 

Managing Director, Brian Lowe, said, “Despite the near-term impact of COVID-19, the overall Orora business retains its strong balance sheet, which combined with the strong cash generation capability of its business, provides capacity and flexibility to return value to shareholders…and to preserve optionality for future growth opportunities.”

What’s next for the Orora share price? 

Orora expects challenging and uncertain market conditions to persist for the foreseeable future. A review of strategy was completed during the second half which identified actions to address challenges in the existing portfolio and opportunities to improve productivity. This refined strategy is expected to continue to generate strong cash flows from core business operations. Cash flow will be deployed into investments in the core business, distributions to shareholders, and strategic acquisitions that enhance the company’s product and service offerings. 

The Orora share price has fallen 39.5% lower in year-to-date trading.

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Motley Fool contributor Kate O'Brien 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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