The Multi-Faceted Challenges Facing the Packaging Industry: 3 Stocks Navigating the Storm

The paper and plastic packaging sector is currently wrestling with formidable challenges that are reshaping investment landscapes and market dynamics. As the Zacks Containers - Paper and Packaging industry grapples with weak consumer demand, elevated input costs, and tariff pressures, investors are seeking opportunities within companies demonstrating resilience and strategic adaptation. The convergence of these challenges has created both headwinds and openings, with three standout companies—Amcor plc (AMCR), Karat Packaging (KRT), and Sonoco Products Company (SON)—emerging as potential beneficiaries of market consolidation and innovation.

The Triple Threat: Understanding Today’s Core Challenges

The packaging industry faces an unprecedented confluence of pressures that are fundamentally altering competitive dynamics. Inflationary pressures on raw materials, labor, and transportation have squeezed margins across the sector, while elevated interest rates have dampened consumer spending on discretionary goods. Simultaneously, tariff implementations have added another layer of cost complexity that companies must navigate. Volume declines have been particularly acute, as customers have drawn down inventory accumulated during pandemic-era supply-chain disruptions, while slowdowns in housing and industrial sectors have reduced demand for packaging materials used in appliances, furniture, and construction products.

These challenges have forced industry leaders to make tough decisions. Major players have announced temporary production downtime, capacity curtailments, and selective mill closures to align output with softer demand. However, what distinguishes leading companies from the rest is their proactive response: implementing strategic pricing actions, executing aggressive cost-reduction initiatives, and realigning operations toward high-growth segments. The Zacks Containers - Paper and Packaging industry currently carries a Zacks Industry Rank of #198 (bottom 19% of 244 industries), reflecting the severity of these near-term challenges. Yet this grim ranking masks an important reality—beneath the surface, transformative trends are creating asymmetric opportunities for well-positioned players.

Turning Challenges into Catalysts: Growth Drivers Reshaping the Sector

Despite the current headwinds, several powerful trends are offsetting the challenges and creating new growth avenues. The explosion of e-commerce continues to fundamentally reshape packaging demand patterns. As online shopping penetration deepens—driven by rising internet access, smartphone ubiquity, and advanced digital payment systems—the importance of packaging as a protective and presentational medium has become mission-critical. E-commerce packages must withstand complex logistics networks, maintain product integrity, and enhance customer experience. Industry exposure to consumer-centric end markets (food and beverages, healthcare) exceeding 60% provides structural stability, as demand for these packaging applications remains relatively resilient across economic cycles.

Equally significant is the accelerating shift toward sustainable, eco-friendly packaging solutions. Environmental awareness among consumers and regulatory pressures have created powerful incentives for companies to develop biodegradable and recycled-content packaging materials. Industry players are racing to adopt advanced technologies and bring innovative sustainable products to market. Maximizing recycling and incorporating post-consumer recycled content into manufacturing processes enables both environmental responsibility and economic efficiency. This sustainability movement, far from being a niche trend, has become a mainstream demand driver—one that industry participants are increasingly viewing as essential to competitive positioning rather than optional.

Valuation and Performance Context

The industry’s underperformance relative to broader markets underscores the magnitude of current challenges while potentially creating valuation opportunities. Over the past year, the Containers - Paper and Packaging industry declined 7.8%, substantially lagging both the Industrial Products sector’s 16.7% gain and the S&P 500’s 18% appreciation. On a valuation basis, the industry trades at a 12.92X trailing 12-month EV/EBITDA multiple, a significant discount to the S&P 500’s 19.00X and the Industrial Products sector’s 20.04X. This valuation gap reflects market skepticism about near-term prospects but provides optionality for investors with conviction in industry recovery. Over a five-year period, the industry’s EV/EBITDA multiple has ranged from a low of 9.78X to a high of 15.06X, with a median of 11.57X, suggesting the current 12.92X valuation sits near historical midpoints.

Three Packaging Stocks Meeting the Moment: AMCR, KRT, and SON

Amcor plc (AMCR): Scale and Synergy

Amcor has fundamentally reshaped its competitive position through the recently completed merger with Berry Global Group. This combination creates a global packaging powerhouse with enhanced scale and diversification. The company projects $260 million in pre-tax synergies during fiscal 2026 alone, driving approximately 12% adjusted earnings-per-share accretion. Looking ahead to fiscal 2026-2028, Amcor anticipates realizing $650 million in total benefits through cost savings, organic growth opportunities, and financial synergies, with cumulative earnings accretion exceeding 30% by fiscal year-end 2028. With projected annual free cash flow surpassing $3 billion by FY28, the company will possess substantial financial flexibility to drive organic investment, pursue strategic acquisitions, and return capital through dividends and share buybacks. Recent share price performance has reflected this optimism, with AMCR gaining 12.6% over a recent three-month period. The Zacks Consensus Estimate for fiscal 2026 earnings growth remains stable at approximately 13% year-over-year. AMCR carries a long-term earnings growth estimate of 10.7% and a Zacks Rank of 3 (Hold).

Karat Packaging (KRT): Riding the Sustainable Packaging Wave

Karat Packaging has strategically positioned itself at the intersection of two powerful trends: e-commerce growth and sustainability demand. Last year, the company expanded its operations into paper bag supply, launching a new product category with a major national chain customer. This business segment is expected to generate approximately $20 million in annual revenues, with additional market share gains anticipated over coming years, reinforcing KRT’s market leadership in sustainable foodservice products. The company is implementing a multi-pronged growth strategy: expanding its manufacturing footprint to meet surging demand, ramping up online sales capabilities, and diversifying its sourcing geography to reduce China exposure. The acceleration of food delivery, take-out, and at-home dining consumption patterns have emerged as structural demand tailwinds. KRT shares gained 2.2% over a recent three-month window. Earnings growth expectations for 2026 stand at 5.6% year-over-year according to Zacks Consensus Estimates. The company maintains a Zacks Rank of 3 and a long-term earnings growth projection of 11.2%, suggesting market expectations for accelerating growth beyond the near-term period.

Sonoco Products Company (SON): Portfolio Transformation and Market Consolidation

Sonoco has undergone a significant portfolio restructuring designed to sharpen competitive focus and unlock value. The company completed the divestiture of its ThermoSafe business unit in November 2025, marking the culmination of its portfolio optimization strategy. This transformation has streamlined operations into two core global business segments: metal packaging and paper consumer/industrial packaging. Divestiture proceeds were strategically deployed to reduce debt obligations. The December 2024 acquisition of Eviosys (establishing Sonoco Metal Packaging EMEA) has proven particularly accretive, with the company targeting $100 million in run-rate synergies by end-of-2026. Beyond financial engineering, Sonoco is driving organic growth through market share expansion in metal packaging across the United States, penetration into pet food and seafood packaging in Eastern Europe, and an active pipeline of strategic growth projects demonstrating high conversion rates. SON shares appreciated 20.3% during a recent three-month span, the strongest performance among the three stocks highlighted. Fiscal 2026 earnings growth is projected at 5.77% year-over-year per Zacks Consensus, while the company carries a long-term earnings growth estimate of 10.7% and maintains a Zacks Rank of 3.

Navigating Forward: Challenges as Competitive Filters

The packaging industry’s current challenges are effectively functioning as a competitive filter, separating well-capitalized, strategically-positioned companies from weaker competitors. While the Zacks Industry Rank reflects justified skepticism about near-term sector dynamics, the trajectory for leading players like Amcor, Karat Packaging, and Sonoco appears constructive. These companies are not passively awaiting market improvement; instead, they are aggressively deploying capital toward high-return opportunities in e-commerce logistics, sustainable materials innovation, and emerging market expansion. The combination of challenging near-term fundamentals alongside meaningful long-term growth drivers creates a compelling risk-reward proposition for investors with a multi-year investment horizon and conviction in industry consolidation dynamics.