Amcor's European packaging operations have come under the microscope following a rash of profit warnings from global companies with European operations. But analysts believe that the company's strong presence in the food and beverage sector will provide insulation.
According to a report in the Australian Financial Review, one senior trader blamed the recent volatility of Amcor's share price on concerns about the company's exposure to the European flexible and PET packaging markets.
Industry experts have said that Amcor will be exposed to any further deterioration in that marketplace. However, most said the packaging group's exposure will be limited by the fact that it supplies less-discretionary markets.
Amcor continues to stress that its core activities in the food and beverage industries are less susceptible to market volatility. However, analysts suggested its European problems have been driven in part by the economy, influences that Amcor is not immune to.
In recent months, Amcor's position in Europe has been further strengthened by recent consolidation moves such as Alcan's decision to buy VAW flexible packaging from Norsk Hydro as well as its own move to buy up the PET packaging interests of Schmalbach-Lubeca. This move is expected to trigger even more consolidation in what is still considered to be a fragmented industry. Such a move will give the fewer remaining players more buying power and the potential for greater profitability.
Despite the positive aspects of Amcor's European activities, an increasing amount of negative news is starting to come out of Europe, with markets becoming increasingly stagnant and business confidence falling.
Portfolio Partners analyst Chris Williams told the Australian Financial Review that Amcor's European businesses appear to be doing well at the moment.
"There are risks but they have been able to mitigate them," he said.
Williams added that if the European economies were to fall over, there would likely be a fall in volumes, a factor that would undoubtedly have repercussions for even the safest sectors within the packaging market.
However, Amcor remains upbeat, despite the predictions. A company spokesman said that it was impossible to know if there will be any impact. However, "the businesses we have got in Europe have more than 90 per cent of sales into the food, beverage and tobacco industries, which typically hold up very well in difficult economic conditions".
"As reported in the first-quarter result, volumes remain solid, with most plants fully loaded."
The opinion was shared by another industry analyst who told the Australian Financial Review: "Amcor would be exposed to a slowdown in Europe, there's no doubt about that. But the food and beverage industries are less likely to be affected by the slowdown; discretionary spending would be impacted first."
Only time will tell if the European economy will deteriorate further. However, if it does happen, it seems that packaging companies such as Amcor, which specialise in the food and beverage sectors, will have some kind of protection.