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Why the Orora share price crashed 16% lower today

James Mickleboro
Stock market chart or graph in red falling downward bear market.

The worst performer on the S&P/ASX 200 index on Thursday ahead of Blackmores Limited (ASX: BKL) and Cleanaway Waste Management Ltd (ASX: CWY), was the Orora Ltd (ASX: ORA) share price.

The packaging company’s shares finished the day a disappointing 16% lower at $2.69.

Why did the Orora share price crash lower?

Investors headed to the exits in their droves on Thursday following the release of its full year results.

According to the release, in FY 2019 Orora delivered a 12.1% increase in sales revenue to $4,248 million, but only a 3.7% increase in earnings before interest and tax (EBIT) to $323.4 million. This was well short of the market’s expectation for EBIT of $348 million.

The main drag on the company’s performance was its North American segment. It posted a 3.6% decline in EBIT to $116.6 million or an 11.1% decline in local currency to US$83.4 million.

Management advised that this was due to tough market conditions, volume weakness, increased input costs, and a lower seasonal contribution from the Pollock Packaging business.

It has acted fast in an attempt to turn its performance around. An earnings improvement program commenced in February and has delivered some improvement, however further initiatives are underway to optimise the business.

According to the AFR, analysts have responded very negatively to the news. A Merrill Lynch analyst said: “Something fundamentally is going very badly wrong, in my view, in the US.”

As a result of this weakness, a number of analysts now expect profit growth to flatten over the next 12 months.

Should you buy the dip?

Whilst this could arguably be a buying opportunity for a long-term investment, I intend to stay clear of its shares for the time being and wait for signs that its performance has turned a corner.

Conditions certainly appear tough at the moment in the sector. Especially after Coca Cola and Pepsi announced plans to trial still water in aluminium cans in response to customer pushback against plastic waste.

This could put a big dent in the earnings of Amcor PLC (ASX: AMC) if the trial extends to all its bottled water.

And then there’s Pact Group Holdings Ltd (ASX: PGH). Its shares have fallen 21% over the last couple of days due to a very disappointing full year result and weak guidance for FY 2020.

Instead of those packaging shares, I would be buying one of these quality growth shares which have been tipped as market beaters.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Blackmores Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2019