They say that timing is everything in life. If that is the case, then packaging designer and manufacturer, Orora Ltd [ASX:ORA], could not have been more unlucky with the timing of its latest profit result.
With US markets getting crunched overnight — and the ASX following suit with a 170-point drop — Orora’s shares got hammered as the market digested its full year results. At one point, shares were down almost 20%.
Why did Orora shares fall?
While its Australasian operations increased earnings for the year, it was another story for Orora’s North American operations.
While sales revenue was up — in part helped by Orora’s acquisition of two local businesses — earnings before interest and tax (EBIT) was down 3.6% in Australian dollar terms.
However, what spooked the market was Orora’s result in US dollar terms. All up, Orora’s North American EBIT in US dollars dropped 11.1% for the period…a big disappointment to the market.
Particularly so, when you consider they spent more than $300 million on acquisitions and internal investments for the year, in what might now seem (with the wisdom of hindsight) to be the peak of the market.
What now for Orora?
Packaging is traditionally a high turnover, low margin business. And given its pivotal role in the manufacturing process, it is not easy for a manufacturer to simply (and quickly) swap over to a new supplier.
That means that it is not easy for Orora to immediately turn its fortunes around. Like any business, it can seek new clients. But it might need to further reduce margins to get that business.
That means to regain the market’s trust, Orora can’t simply announce additional client accounts. Instead, it will need to prove — under a new CEO due to commence in September — that it is determined to rip even more costs out of its business.
For Money Morning
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