Why is the ASX All Ordinaries share surging 20% despite just declaring a loss?

How does a 160% fall in profit lead to a 20% share price surge?

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ASX All Ordinaries packaging company Pact Group Holdings Ltd (ASX: PGH) is on a green streak today despite announcing a loss in FY23 and no final dividend for shareholders.

The Pact Group share price is currently 84 cents, up 10.5%.

In earlier trading, the ASX All Ordinaries share reached an intraday peak of 91 cents, up 19.7%.

The company reported a $7 million loss in FY23 compared to a profit of $12 million in FY22.

Sounds bad, so why is the Pact Group share price rising?

Let's investigate.

ASX All Ordinaries share shoots skyward on poor results

Pact Group is the largest rigid packaging plastics manufacturer in Australia and New Zealand.

The company released its full-year FY23 results this morning.

Here are the key numbers:

  • Revenue of $1.949 billion, up 6% on the prior corresponding period (pcp)
  • Underlying EBIT of $145 million, down 7% pcp
  • Reported net profit after tax (NPAT) of a loss of $7 million vs. a $12 million profit pcp
  • Net debt of $586 million, $25 million higher than pcp
  • Operating cash flow of $291 million
  • No final dividend compared to a 5 cents final dividend in FY22

What else happened in FY23?

The company said its FY23 loss was the result of a non-cash impairment of $37 million (after tax) for property, plant and equipment across multiple platforms that it intends to replace.

Pact Group CEO Sanjay Dayal said it was pleasing to report revenue growth despite tightening economic conditions, softer demand from Asia, and weather events.

The recovery of costs, increasing demand for sustainable packaging, and contract wins contributed to the revenue bump.

Underlying EBIT fell within the revised guidance range issued in May, brought about partly by increased labour and domestic supply chain costs.

Investors were upset by the revision, with the ASX All Ordinaries share falling 13.5% on the day.

Why is this ASX All Ordinaries share rising today?

So, the question remains, why is this ASX All Ordinaries share price rising today?

Well, a revenue boost is always good, and it was a non-cash impairment that took the bottom line into the red.

It also must be said that many companies are reporting adverse impacts due to the inflationary economy this earnings season.

Often, we see a share price surge when the results — while still poor in comparison to FY22 — are not as bad as expected. So that may be happening for this ASX All Ordinaries share today.

What did Pact Group management say?

Pact Managing Director and CEO Sanjay Dayal said:

The impact of increasing inflation is reflected in softening demand for consumer products which has impacted particularly on volumes in our Packaging & Sustainability segment where we produce high-quality packaging containing recycled content.

We have experienced a change in customer buying patterns with a move towards bulk and private label buying which has had a positive impact on our Contract Manufacturing segment.

Our operating cash flow of $291 million was a highlight and reflects our disciplined approach to
reducing working capital.

What's next for this ASX All Ordinaries share?

Pact Group says it has made progress in all four key areas of its strategy to 'Lead the Circular Economy'.

This included investing in upgrades to Pact's packaging platforms to allow the production of high-quality recycled packaging for key customers like Woolworths Group Ltd (ASX: WOW) and Aldi.

This is primarily why the company's gearing was 3 times in FY23.

Pact will provide an update on FY24 trading conditions at its annual general meeting.

Pact Group share price snapshot

This ASX All Ordinaries share has fallen 17.5% in the year to date.

In comparison, the S&P/ASX All Ordinaries Index (ASX: XAO) has risen 4.1%.

Motley Fool contributor Bronwyn Allen 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 Scott Phillips.

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