Amcor’s fiscal 2026 adjusted EPS of USD 4.02 was at the top end of recently lowered guidance. The period was marred by macroeconomic weakness, particularly in the US, and cost inflation since the beginning of the Iran war.

Why it matters: Excluding Berry, organic volumes fell 2% while price/mix was flat. We think this is a reasonable outcome given the backdrop.

  • The US Census reports grocery sales growth was about 1% in the same period, but Amcor also has sales in higher-end and discretionary categories, so we are not surprised by the slight volume pull-back. Organic price growth was flat.
  • The balance sheet is in better shape than we expected, following non-core asset sales. Net debt/adjusted EBITDA of 3.5 at June 30, 2026 is below our 3.8 estimate. We estimate it falling to 2.8, at the top end of the 2-3 target range, by the end of fiscal 2029.

The bottom line: We raise our fair value by 2% to AUD 85 for narrow-moat Amcor on modestly higher sales growth and the time value of money. Shares trade at a lofty discount. We think the market fails to appreciate its strategy to expand in high-growth categories, such as healthcare and nutrition, aiding above-market share growth.

Big picture: We expect flat sales and EBIT margins in fiscal 2027 as economic weakness persists while the Iran war persists. Beyond this, we slightly lift our revenue forecasts for rigid sales, growing off a higher-than-expected fiscal 2026 base with Berry’s expanded range now included in the category.

  • Generally, we expect sales to grow in line with population growth or consumption, inflationary pricing, and higher price and sales growth from niche packaging segments.

Between the lines: We previously cut expected fiscal 2027-29 dividends by 25% as the balance sheet seemed too stretched. But given our expectations for improved working capital and EBITDA, and a further noncore divestment, we think balance-sheet trembles have passed, providing scope for dividends to keep growing.

We raise our dividend forecasts as Amcor’s balance sheet regains strength

Amcor’s strategy revolves around strategic acquisitions and divestments, market share growth, and investment in capacity and capabilities. We see several merits to its strategy, which has led to organic and acquisitive growth and average annual returns on invested capital of 16% over the five years to fiscal 2025, comparing favorably against a weighted average cost of capital of 8%.

Amcor strategically acquires and divests assets to drive long-term growth and enhance returns. The most recent was the significant merger of global plastic packaging manufacturer Berry in 2025 for USD 8.4 billion. The merger considerably increased Amcor’s ability to cross-sell Berry’s range to Amcor customers and vice versa, with Berry maintaining a number one or two market share position in most of its markets.

Margin growth is mostly from a mix shift in products. Certain segments, such as animal protein and medical, have higher margins due to greater complexity, tangible benefits, or less competition. However, contracts in the flexibles segment are generally short, at about two to three years, and about 30% are less than one year. We expect incremental margin improvement from higher-value customers as lower-value customers turn over, freeing up manufacturing capacity for higher-value customers. In the five years to fiscal 2023, we estimate average revenue growth from price and mix shift was 4%, compared with 1% growth from volume. Around one fourth of revenue in fiscal 2023 came from the higher-margin segments of healthcare, protein, hot-fill beverages, premium coffee, and pet food from an estimated one fifth five years earlier.

Due to the low value/weight ratio of plastic packaging, it is imperative to reduce the transportation of finished products to control costs. Amcor’s plants are strategically located near customers, particularly in the bulky rigids business. Here, Amcor’s plants are often next door and virtually integrated with the customer’s plant to reduce transportation costs. This encourages stickiness, as these customers sign longer contracts with Amcor and are more likely to renew them on expiration due to the entrenched nature of the partnership.

Bulls say

  • Exposure to high-growth emerging markets balances low-volume growth in mature developed markets for products with similar or higher profit margins.
  • Amcor’s global production network enables improved scale-based cost efficiencies leading to improved margins and profitability and the ability to further consolidate fragmented or subscale markets.
  • A focus on product innovation and differentiation leads to increased market share of niche, high-value-added products, resulting in margin growth.

Bears say

  • Amcor’s aggressive acquisition strategy has the potential for overcapitalization, overcapacity, and lower-than-expected cost synergies.
  • Packaging innovation can be replicated by competitors, decreasing margins, and reducing returns from Amcor’s focus on innovation and product differentiation.
  • Environmental concerns and potential plastics legislation can reduce demand for plastic-based products and increase costs in manufacturing greener alternatives.

Subscribe to get Morningstar insights in your inbox