Business Context and Reporting Period
Amcor plc is a global packaging manufacturer serving food, beverage, pharmaceutical, medical, home and personal-care, and other consumer markets through its Flexibles and Rigid Packaging segments. This unaudited Form 10-Q covers the three and six months ended December 31, 2023, representing fiscal second quarter and first-half fiscal 2024 results. Comparisons are with the corresponding periods ended December 31, 2022.
Key Financial Metrics
| ($ millions, except per-share data) | Q2 FY2024 | Q2 FY2023 | Six months FY2024 | Six months FY2023 |
|---|---|---|---|---|
| Net sales | $3,251 | $3,642 | $6,694 | $7,354 |
| Gross profit | $621 | $662 | $1,266 | $1,330 |
| Gross margin | 19.1% | 18.2% | 18.9% | 18.1% |
| Operating income | $242 | $559 | $512 | $901 |
| Operating margin | 7.4% | 15.3% | 7.6% | 12.3% |
| Net income attributable to Amcor | $134 | $459 | $286 | $691 |
| Diluted EPS | $0.092 | $0.307 | $0.198 | $0.461 |
| Adjusted EBIT | $352 | $399 | $709 | $791 |
| Adjusted net income | $227 | $277 | $453 | $548 |
Q2 sales declined 11% year over year and first-half sales declined 9%. Management attributed the underlying decline primarily to lower volumes, softer customer demand, and accelerated destocking. Flexibles Q2 sales fell 12% to $2,481 million, while Rigid Packaging sales fell 7% to $770 million. Q2 Adjusted EBIT margins were 12.6% for Flexibles and 6.6% for Rigid Packaging.
Six-month operating cash flow was $228 million versus $145 million in the prior-year period. Investing cash flow was a use of $256 million, including $245 million of capital expenditures and intangible-asset purchases. Financing cash flow was a use of $191 million, including $361 million of dividends, $30 million of share buybacks and cancellations, and debt repayments, partly offset by $322 million of net commercial-paper borrowings. Cash declined to $430 million from $689 million at June 30, 2023.
Total debt was $7.069 billion and net debt was $6.639 billion at December 31, 2023, compared with $6.746 billion and $6.057 billion, respectively, at June 30, 2023. The company reported $1.0 billion of undrawn credit facilities and was in compliance with applicable debt covenants, including a maximum leverage ratio of 3.9 times. Trade payables included approximately $1.0 billion owed under supplier-finance programs.
Material Changes Versus the Prior Comparable Period
- Net income attributable to Amcor fell 71% in Q2 and 59% for the first six months, principally because the prior-year period included a $215 million pretax gain on the sale of the Russian business.
- Operating income decreased by $317 million in Q2 and $389 million for the first six months. The decline included higher restructuring costs, unfavorable Argentine peso devaluation effects, higher interest expense, lower gross profit, and the absence of the Russian disposal gain.
- Gross margin improved despite lower sales, reflecting favorable operating-cost performance, pricing and mix, and lower input costs. Adjusted EBIT declined 12% in Q2 and 10% for the first six months.
- Interest expense rose 13% in Q2 and 26% for the first six months, primarily because of higher variable interest rates.
- The effective tax rate increased to 17.0% in Q2 and 18.7% for the first six months, compared with 6.7% and 11.6%, respectively, largely because prior-year tax benefits related to the Russian disposal did not recur.
Guidance, Outlook, Risks and Unusual Items
Management expects improved earnings in the second half of fiscal 2024, supported by the lapping of the Russian business disposal, lower interest-cost headwinds, structural cost reductions, productivity initiatives, and improved operating leverage. The filing does not provide a specific quantitative earnings or sales guidance range.
The 2023 Restructuring Plan is expected to have approximately $230 million of total cash and non-cash net expenses. Projects initiated through December 31, 2023 had expected net costs of approximately $210 million, including approximately $110 million of net cash expenditures. The plan is expected to be largely completed by the end of calendar 2024; cumulative cash outflows were $49 million, with approximately $40 million to $45 million of additional net cash payments expected during the remainder of fiscal 2024. Management expects approximately $50 million of annualized pretax savings from Russia-related restructuring actions by the end of fiscal 2025.
Argentina's approximately 55% currency devaluation during the quarter produced a $34 million Q2 and $51 million first-half adverse impact from highly inflationary accounting. Other significant risks include continued destocking and weak demand, inflation and input-cost volatility, geopolitical conflicts, foreign-exchange movements, higher interest rates, leverage and refinancing risk, cybersecurity and information-technology disruptions, environmental and climate obligations, litigation, labor matters, and potential goodwill or intangible-asset impairment.
Brazilian tax litigation had recorded accruals of $14 million and reasonably possible loss exposure of $27 million beyond the accrual. Environmental remediation accruals totaled $61 million worldwide. Management stated that these matters are not expected to have a material adverse effect, although ultimate outcomes may differ from estimates.
The board declared a quarterly dividend of $0.1250 per share payable March 19, 2024, and extended authorization for the remaining $39 million of a $100 million buyback through June 30, 2024. Disclosure controls were assessed as effective, and no material changes to internal control over financial reporting were reported.
Important Facts for Investors to Verify
- Whether volume trends and customer destocking improve as projected in the second half of fiscal 2024.
- Progress, cash costs, completion timing, and realized savings from the 2023 Restructuring Plan.
- Net debt growth, variable-rate exposure, refinancing needs, covenant headroom, and availability under credit facilities.
- Whether the expected earnings benefits from cost reductions and lower interest headwinds offset ongoing demand, currency, inflation, and geopolitical pressures.
- The impact of the Argentine devaluation and any further changes in highly inflationary accounting.
- Potential cash requirements from Brazil tax matters, environmental remediation, contingent acquisition consideration, dividends, and share repurchases.
- The distinction between reported GAAP results and non-GAAP Adjusted EBIT and adjusted net income, which exclude specified restructuring, amortization, hyperinflation, hedging, and other items.