Market sentiment towards Amcor (ASX:AMC) over the last 12-18 months has been impacted by several factors. These include: i) Sustained volume weakness, ii) A reliance on cost savings to support earnings growth, iii) Elevated gearing levels and iv) The retention of underperforming assets.

We recently researched the Company in The Dynamic Investor after it reported results for the six months to 31 December 2025 (1H26). We assess whether the risk-reward become more favourable.

About Amcor

Amcor (AMC) is a global packaging manufacturer which has two operating divisions: Flexibles and Rigid Packaging (‘Rigids’). The Flexibles division has operations in North America and South America, Europe and the Asia Pacific region. The Flexibles division includes the Bemis business and accounts for >80% of group earnings. Key end market exposures are defensive sectors, namely food, healthcare, home & personal and tobacco. The Rigids division is mostly exposed to the beverage and personal care markets in North America and Latin America.

The revenue profile is highly skewed to defensive end markets, in particular the Food, Beverage and Healthcare categories.

Key Fundamental Drivers

Improvement in Volume Growth Remains Elusive

AMC continues to experience soft global demand with volumes in the core portfolio down ~1.5% in the 2nd quarter of financial year 2026 (2Q26). This was a marginal improvement on 1Q26 volumes, which fell ~2%. The non-core portfolio (including the North America beverage business), however, experienced a high-single digit decline in volumes. In terms of volume performance by segment:

• Flexibles – 2Q26 volumes were lower than the prior corresponding period (pcp). Growth in pet food and meat proteins offset by lower volumes in other nutrition, liquids and unconverted film & foil.
• Rigids – 2Q26 volumes were flat compared to the pcp and -1% lower than 1Q26. Volume growth in pet food, beauty & wellness, and specialty containers was more than offset by healthcare and foodservice.

A key factor supporting an expected improvement in volumes for the Rigids segment is that several FMCG customers are focused on stimulating volume via lower prices and greater promotional activity. Having said that, AMC not assuming meaningful improvement in the volume environment in 2H26. Nor is there an expectation of any further weakness.

AMC is mitigating volume weakness well via cost and productivity initiatives as well as synergies. In context, FY26 is the first of Amcor’s three-year Berry integration strategy, targeting US$650m in cost savings and sales uplift. The Company is confident on its ability to deliver FY26 synergies of “at least” $US260m and US$650m over three years. Growth synergies appear to be gaining momentum as well, with a $100m annualised sales run-rate secured so far.

Progress on Portfolio Optimisation Expected in FY26

AMC flagged a review of its portfolio following closure of the Berry acquisition on 30 April 2025. At the FY25 results release in August, the Company announced that it will pursue value-maximising opportunities for US$2.5b in non-core revenue (~11% of group sales). The restructure in the portfolio is designed to focus on higher-margin, core areas like nutrition and health/beauty.

The largest piece is the North American Beverages (NAB) business ($1.5b sales); following recent underperformance. The remaining $1b in sales is split across 10 separate businesses, from both legacy companies & multiple regions. These businesses have either less attractive growth prospects, more cyclicality in comparison to the consumer portfolio, lower margins or don’t possess dominant market positions. Options for non-core assets include divestiture, partnerships, or restructuring.

Regarding the NAB business, the Company has been aiming to improve profitability in the near-term before seeking a potential sale or joint venture. However, NAB continues to face headwinds due to weakening consumer demand and market share losses, reporting double-digit volume decline in 2Q26.

Based on past transactions, the NAB business could potential generate US$1.1-1.3b in sale proceeds based on past industry transactions, although the soft earnings performance of the business makes a deal at the lower end of the range more likely.

Gearing Level Remains Elevated but Expected to Decline

Gearing (on a net debt to EBITDA basis) remains relatively stretched, at 3.6x as at 31 December 2025, up from 3.5x as at 30 June 2025 and 3.3x as at 31 December 2024. AMC expects to double free cashflow in FY26, to US$1.8-1.9b, despite significant integration costs relating to the Berry acquisition (US$220m). Accordingly, the strong free cashflow supports a reduction in gearing to 3.1-3.2x in FY26, with an aim to reduce the gearing level to within the Company’s target gearing range of 2.5-3.0x.

Notwithstanding the expected decline in gearing for FY26, the still-elevated gearing level means that share buybacks are unlikely before FY28. This is when the gearing level is expected to fall within the target gearing range. Having said that, there is potential for the balance sheet to de-gear quicker as a result of asset sale proceeds from the portfolio optimisation process.

Fundamental View

AMC shares are currently trading on a 1-year forward P/E multiple of ~11x. This is towards the lower end of the trading range over the last two years and below the average multiple of ~12.5x over the same timeframe. The current multiple is undemanding in the context of an EPS growth profile of +10% over FY25-28 on a CAGR basis. However, it is worth noting that the realisation of synergies is the main driver of double-digit EPS growth over the medium term.

We contend that for the shares to re-rate: i) Volumes needs to show a sustainable recovery and ii) Further progress on portfolio optimisation is needed. This would reduce gearing and improve the growth profile for the core portfolio.

Charting View

When we last looked at the AMC chart in August for The Dynamic Investor, we noted that at best it needed to trade sideways to build a base. After doing that for a few months or so, the shares then started to rally out of this base a few weeks ago. This is a positive sign and it tells us that we may have seen the lows in AMC. However, the stock is now finding some resistance near the 18-month old downtrend line. In the short-term, we therefore expect some weakness back to the high $60’s before they are ready to head higher again.

 

Michael Gable is managing director of Fairmont Equities.

 

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