Orora Ltd (ASX: ORA) shares are on the slide on Thursday morning.
At the time of writing, the ASX 200 share is down 16% to $1.63.
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Why is this ASX 200 share sinking today?
Investors have been selling the packaging company's shares following the release of a trading update, which included a downgrade to earnings expectations for its Saverglass business.
According to the release, Orora now expects FY 2026 underlying EBIT for Saverglass to be in the range of 63 million euros to 68 million euros. This is down from previous guidance of broadly in line with FY 2025 EBIT of 79.2 million euros.
On a reported basis, EBIT is expected to fall further to between 52 million euros and 59 million euros.
Middle East conflict weighing on earnings
Management highlighted that the downgrade reflects both direct and indirect impacts from the ongoing Middle East conflict.
Directly, the company expects a 9 million euro to 11 million euro hit to second half earnings due to disruptions at its Ras al Khaimah (RAK) facility in the United Arab Emirates.
Shipping routes and overland access have been disrupted, forcing Orora to transition the facility into a closed-loop hot operation. This means the furnace is kept running, but no bottles are produced.
The RAK facility accounts for approximately 15% of Saverglass production capacity, with output now expected to shift to Mexico over time.
Softer demand and mix shift
In addition to the direct impact, Orora flagged weaker-than-expected trading conditions.
The company said volumes are now expected to be lower than previously forecast, with a shift in product mix also weighing on margins.
Specifically, there has been a greater-than-anticipated shift toward wine and champagne relative to premium spirits, alongside softer customer demand following the onset of the conflict.
This combination is expected to reduce earnings by a further 11 million euros to 16 million euros in the second half.
Other impacts
The ASX 200 share also noted that inventory levels have increased due to slower customer offtake and rising competitive pressures.
In response to the uncertainty, the company has decided to pause its on-market share buyback program while it monitors the situation.
Nevertheless, despite these challenges, management emphasised that the company's balance sheet remains strong, with leverage expected to stay below 1.5 times by June 2026.
