Why the Pact Group (ASX:PGH) share price is sinking 15% today

What's going on with Pact Group shares?

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The Pact Group Holdings Ltd (ASX: PGH) share price is plummeting on Wednesday morning. This comes after the packaging company provided an update on the sale of its contract manufacturing businesses.

At the time of writing, Pact Group shares are down a sizeable 15.7% to $2.90.

What did Pact Group update the ASX with?

Investors are heading for the hills, sending the Pact Group share price to an 8-month low following the company's latest release.

In today's statement, Pact Group advised it has ceased the sale process of its contract manufacturing businesses. The terminated deal was perceived to be unfavourable on the company's terms.

Pact Group CEO and managing director Sanjay Dayal commented:

I have consistently advised shareholders we would sell the business if the sale process met our value hurdle. Continued market uncertainty and supply chain disruption arising from COVID-19 has created challenges in realising our expectation. At this time, we believe retaining the business delivers greatest value for our shareholders.

How has Pact Group performed in Q1 FY22?

While it has been a challenging year for the company, demand for most of its businesses has remained resilient. In particular, the Packaging & Sustainability and Materials Handling and Pooling segments have stayed afloat.

Pact Group noted that it has managed higher raw material and international freight costs.

However, the same cannot be said for its contract manufacturing segment, with demand weaker than expected. This is a result of continued COVID-19 lockdowns as well as lower margins due to rising input costs.

The company stated a further trading update will be delivered at its Annual General Meeting (AGM). The event has been rescheduled to take place between 17 November and 29 November 2021.

About the Pact Group share price

Over the past 12 months, Pact Group shares had accelerated almost 50% although today's plunge pulls that figure back to 26%. Year-to-date, performance is up around 11%.

Pact Group commands a market capitalisation of roughly $1.03 billion and has approximately 344 million shares outstanding.

Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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